Black homebuyers receive a record number of home loans in Massachusetts in 2020 but persistent inequalities continued, according to a new study.

While Black borrowers received a record number of home mortgage loans in Massachusetts in 2020, they were also denied mortgages at higher rates compared to other prospective homebuyers.  

Even with the most qualified borrowers – those with at least a 20 percent down payment and low debt-to-income ratios – lenders continued to deny a higher share of Black mortgage applicants, according to a recent report from the Massachusetts Community & Banking Council.  

Homeownership seen as key to eliminating the significant wealth gap between Black and white residents of Massachusetts.  

“It’s worth noting that Massachusetts is getting more diverse, and our homebuying population is getting more diverse,” said Thomas Callahan, executive director of the MCBC. “Probably not quickly enough to close the racial homeownership gap by any stretch of imagination, but it is progress of sorts.” 

But advocates say their inability to access to credit score data is creating a major barrier to understanding what drove the lending disparities seen in the 2020 data.  

More Loans Than Any Other Year 

The MCBC’s annual report on Home Mortgage Disclosure Act data covering 2020 found that 3,900 Black and 7,155 Latino borrowers in Massachusetts received purchase mortgages in 2020, both record highs. Total home-purchase mortgage volume across the state was 76,380 loans, the most since the MCBC began reporting on mortgage data more than 30 years ago. 

The report, prepared for the MCBC by the University of Massachusetts’ Donahue Institute, focused on first-lien mortgages for owner-occupied homes. 

While Black and Latino borrowers received a record number of loans, lending to these groups remained below their share of the population. Black residents, who make up 6.5 percent of the Massachusetts population, received 5.1 percent of total loans and 3.4 percent of non-FHA loans. Latino residents represent 12.6 percent of the state’s population and received 9.4 percent of total loans and 6.6 percent of non-FHA loans.  

FHA loans are more expensive than conventional loans due to private mortgage insurance requirements, but are often Massachusetts lenders’ offering of choice for first-time buyers despite the existence of other, cheaper options. 

The report covers HMDA data from 2020, a year that highlighted racial inequities, first at the start of the pandemic and then with the murder of George Floyd by a Minneapolis police officer and subsequent nationwide protests.  

“If you had said to us, when the pandemic hit, that by the end of the year more Black homebuyers, more Hispanic homebuyers will have taken up mortgages than any other year previous, I think most people in March of 2020 would have been skeptical of that claim,” Callahan said. 

Callahan, who was executive director of the Massachusetts Affordable Housing Alliance in 2020, said both lenders and community organizations like MAHA reported record participation in homebuyer classes, which before the pandemic had been primarily in-person events. Some potential homebuyers, he said, thought home prices might go down, potentially opening up opportunities for low- and moderate-income homebuyers.  

Though prices did not drop, interest rates did, keeping homeownership relatively affordable for these same borrowers. 

Advocates say HMDA data doesn’t fully explain why racial disparities in access to purchase mortgages continued in Massachusetts last year.

Mortgage Companies Most Active 

Independent mortgage companies did 53.6 percent of the state’s home purchase lending in 2020, according to the MCBC, the first time these companies had done more than half of the state’s lending. Mortgage companies had accounted for 48.9 percent of loans in 2019 and have been the state’s most active lender type since 2016.  

Unlike most other states, Massachusetts has state-level Community Reinvestment Act evaluations which include credit unions and, since 2007, independent mortgage companies.  

While Callahan said mortgage companies could do more to reach low- and moderate-income borrowers, he credited the state law as a key tool to encourage lenders to work with these borrowers. 

“From a low- and moderate-income perspective, we’re better situated than virtually any other state,” Callahan said.  

The top lender to LMI borrowers was Residential Mortgage Services, now part of Guild Mortgage, which made 40 percent of its loans to these homebuyers. The company also made the most loans to Black borrowers in 2020 at 295, or 8 percent of its home purchase mortgage volume.  

Of the 30 most active lenders, Total Mortgage Services made the largest share of mortgages to Black borrowers, 13 percent of its 1,113 mortgages. Cross Country Mortgage made the most loans to Latino borrowers at 408, representing 18 percent of its volume. New Fed Mortgage had the highest share of loans to Latino borrowers among the top 30 lenders lending to that demographic, 26 percent of its 794 loans. 

Whether mortgage companies’ dominance of the state home mortgage market will have any long-term effects on racial homeownership gaps remain to be seen, Callahan said. While some bank lenders have reduced or pulled out of mortgage lending, like Santander this year, other banks have recommitted to the business.  

In the statement announcing the MCBC’s report last month, Elliot Schmiedl, co-chair of MCBC’s mortgage lending committee and director of homeownership at the Massachusetts Housing Partnership, said lenders and community organizations should use the report and collaborate with the MCBC on ways to reach underserved borrowers.  

“This report highlights the importance of the Community Reinvestment Act, especially now that federal regulators have initiated a review of this critically important law, in encouraging all lenders – banks, credit unions and mortgage companies – to reach underserved borrowers and neighborhoods,” Schmiedl said. 

Denial Rates Raise Questions 

While more of Massachusetts’ Black and Latino borrowers got loans in 2020, they also continued to get denied for loans at higher rates compared to white borrowers.  

Black borrowers saw their applications denied 10.5 percent of the time compared to 4.8 percent for white applicants. For Latinos, the denial rate was 9.5 percent, and Asian borrowers had a denial rate of 6 percent. 

For the 2020 report, the UMass Donahue Institute also looked at several factors that could make a borrower more creditworthy, including having a down payment of 20 percent or more, a debt-to-income ratio of 43 percent or less and income above the median. Controlling for one or more of these criteria, the study found white borrowers were denied at lower rates compared to Asian, Latino and Black borrowers. 

Among applicants who planned to make down payments of 20 percent or more, denial rates were 4.2 percent for white borrowers, 6.4 percent for Asian borrowers, 8.7 percent for Latino borrowers and 12.6 percent for Black borrowers. 

The MCBC did find that fewer Black borrowers planned to make a down payment of 20 percent or more. While 47 percent of Asian borrowers and 34 percent of white borrowers had a loan-to-value ratio of 80 percent or less, 13 percent of Latino borrowers and 9 percent of Black borrowers met that criteria. 

When all three criteria were present – a down payment of 20 percent or more, a debt-to-income ratio of 43 percent or less and income above the median – White, Asian and Latino borrowers each saw denial rates cut approximately in half. Black applicants, however, saw a smaller improvement, from a denial rate of 10.5 percent to 9 percent. 

Missing Credit Scores Leaves Gap 

Debt-to-income ratio was the most common reason for denial for all borrowers, the report found, with the ratio often affected by changes in income or debt that occurred during the loan process. 

Diane McLaughlin

For Black borrowers, the second most common reason for denial was credit history.  

Currently the public cannot see the effects of credit scores on loan data, with privacy concerns keeping this information out of the publicly available HMDA data. 

Having access to this data could help organizations like the MCBC better understand why Black borrowers in the state get denied mortgages. Callahan sees potential opportunities to study this data. 

With access to the confidential HMDA data, including credit scores, researchers at the Federal Reserve Bank of Minneapolis released a report in May that showed disparities in denial rates in the Twin Cities. Callahan would like to see the MCBC certified to gain similar access to confidential data or collaborate on a study with the Federal Reserve Bank of Boston to better understand denial rates 

“The Black denial rate for arguably the best situated buyers went down, but it didn’t go down by nearly the amount for the rates for the other racial categories,” Callahan said. “Why is that? The report doesn’t answer that, but I think it raises some important questions to look at and try to analyze.”