What does this score mean?

A score of 100 represents racial equity, meaning there are no racial disparities in the outcomes between black and white populations. The lower the Equity Score, the greater the disparity.

For Home Loan Denial Rate, a score of 100 – a score reflecting racial equity – would mean black and white home loan applicants are denied at equal rates. It is important to note that for this indicator, equity is not our only goal; we also want to improve outcomes for all.

WHAT DOES THIS ANALYSIS MEAN?

Banks were 3.5 times more likely to deny home loans for black applicants as for white applicants. In the City of St. Louis, 23.9% of black applicants were denied a home loan compared to 6.20% of white applicants, making them nearly four times more likely to be denied. In St. Louis County, 23.1% of black applicants were denied compared to 5.5% of white applicants, a disparity of over 4.1 to 1. In St. Clair County, black applicants were nearly 3.5 times as likely to be denied a home loan (19.8% relative to 5.9%), and in St. Charles County, black applicants were about three times more likely to be denied (14.0% relative to 5.0%).

If the loan denial rate were equitable, the number of home loans that were approved would have increased by:

• 76 in the City of St. Louis,
• 26 in St. Charles County,
• 61 in St. Clair County, and
• 268 in St. Louis County.

Why Does Home Loan Denial Rate Matter?

Homeownership is an important way for residents to build wealth, and it provides housing stability. Home loans issued by financial institutions allow people to purchase and improve their homes. Higher rates of homeownership and home improvement can also stabilize neighborhoods. A history of home loan denial in a neighborhood can lead to a lack of investment in properties and prevent people from being able to move into a neighborhood.

The racial disparity in homeownership rates is undeniably in part due to higher loan denial rates. However, we must note that even if we were to eliminate the racial disparity in home loan denials tomorrow, we would not make a dent in changing homeownership rates because there are not sufficient numbers of black loan applicants.

Which Calls to Action from the Ferguson Commission’s report are linked with this indicator?

The Commission’s calls to action related to home financing include:

• Concentrate Financial Services through Empowerment Centers
• Strengthen the Community Reinvestment Act

Why is there racial disparity in the Home Loan Denial Rate?

We know that in St. Louis, black applicants are denied home loans due to their credit history more than any other reason. In 2016, banks listed credit history as the primary basis for denial for 45% of all home loans denied to black applicants. In comparison, white applicants were denied loans on the basis of their credit history 24% of the time.

In 2017, the Urban Institute reported that St. Louis City had the largest racial disparity in credit scores of all 60 cities whose financial health they studied. In predominantly white areas, the median credit score was 732, which is considered a good credit score. In predominantly non-white areas, the median credit score was 552, considered a very poor credit score. Traditional lending products are not available to people with poor credit scores. People with poor credit scores are more likely to fall victim to predatory lending practices, such as high fees and high interest rates. In the worst case scenario, the borrower will agree to lending terms that they cannot meet and further damage their credit.

Questions for Further Investigation:

• What can St. Louis do to reduce racial disparities in Home Loan Denial Rate?
• What initiatives are currently underway to reduce racial disparities in Home Loan Denial Rate?

Home Loan Denial Rate Data