In one of the most comprehensive studies of discrimination in the American mortgage market, FairPlay has released the State of Mortgage Fairness Report. Research identifies trends in publicly-available data to determine if mortgage fairness in the U.S. has changed over time.
FairPlay's findings reveal that mortgage fairness for Black Americans is essentially no better today than it was thirty years ago, and for Native Americans, mortgage fairness has declined by more than 10%. These discouraging results are tempered by positive news for female and Hispanic mortgage applicants, who experienced a steady increase in mortgage fairness.
FairPlay, the world's first Fairness-as-a-Service solution, conducted a comprehensive study of more than 350 million mortgage applications from 1990 to 2021. The loan records were obtained from Federal public source data in the Home Mortgage Disclosure Act (HMDA). This is the most comprehensive publicly available data source that identifies race, ethnicity and gender for mortgage applications.
To measure fairness, Fairplay used the industry standard metric Adverse Impact Ratio (AIR), which compares the rate of approval for protected status applicants compared to a control group (typically White or male applicants). For example, if protected class applicants had a 60% approval rate, while the control group had a 90% approval rate, the AIR would be 60/90 or 67%. An AIR of less than 80% is considered a statistically significant disparity. AIR does not control for risk.
Key findings from the State of Mortgage Fairness Report include the following:
- Native American mortgage applicants: In 1990, Native American homebuyers had an AIR of 94.8%. By 2021, AIR for Native American mortgage application approvals dropped to 81.9%.
- Black mortgage applicants: In 1990, Black mortgage applicants obtained loan approvals at 78.4% the rate of White applicants. In 2019, the AIR remained unchanged. Only in 2020 and 2021, was there a modest increase in AIR for Black applicants, to 84.4%, likely attributable to massive government stimulus and other support programs designed to stabilize the housing market during the COVID-19 pandemic
- Black homebuyers endure deep and persistent disparities in loan approvals in five states (LA, MS, SC, AL, AR) regardless of the macroeconomic environment. In 2021, Black homebuyers in these states were approved at 69% of White mortgage applicants.
- Mortgage fairness for rural Black populations (AIR of 74% in 2021) consistently lags behind the fairness of urban populations (AIR of 83% in 2021).
- FairPlay's study also found that mortgage fairness for Black applicants in a community declines as the population of Black residents increases.
- Mortgage fairness for Black women improved from 69.8% in 1990 to 86.3% in 2021.
- Female mortgage applicants: The most positive trend seen in the HMDA data relates to mortgage fairness for women. Between 1990 and 2021, the AIR for mortgage applications filed by women rose from 91.8% to 99.2%, which is nearly on par with the control group (men).
- Hispanic mortgage applicants: HMDA data on Hispanic applicants only dates back to 2008, so there is an incomplete picture for fairness trends for this population.
- Since 2008, Hispanic Americans have seen a steady increase in mortgage approval fairness, from 77.7% to 87.7%.
- Hispanic mortgage applicants, in contrast to Black applicants, tend to experience higher approval rates for mortgages in communities where they make up a larger percentage of the overall population.
- Asian mortgage applicants: For Asian homebuyers, the fairness story continues to remain positive. Asian Americans had fairness parity with White mortgage applicants in 1990, and have consistently maintained comparable levels of mortgage approvals to White applicants.
Many government programs intended to increase homeownership and financial inclusion have been put in place since 1990. Financial regulators have 30 years of additional enforcement of fair lending laws. The Consumer Financial Protection Bureau (CFPB) has emerged on the regulatory scene and has conducted multiple supervision and enforcement actions related to fair lending in the mortgage market. This 30-year period also coincides with the introduction of modern credit scores. Despite these regulatory efforts at removing bias from lending, progress has clearly been uneven, with particularly troubling data for Black and Native American borrowers.
"Despite decades of government intervention and the growth of high-priced consultancies devoted to fair lending practices, there is clearly much work to be done," said FairPlay CEO/founder and report co-author Kareem Saleh. "It's time for policymakers, regulators and lending institutions to admit that our efforts to reduce bias in mortgage lending have not moved the needle. If we want to extend the American dream to historically underrepresented groups, we must start encouraging new approaches to lending fairness."