California Communities of Color Fall Further Behind in Mortgage Access

In the U.S., homeownership forms the bedrock of generational wealth building, but communities of color continue to face disparities in accessing home loans. 

The Greenlining Institute report, Home Lending to Communities of Color in California 2020, is an analysis of federal home mortgage data from the Home Mortgage Disclosure Act. The report, released in February 2022 shows that Black, Latino, Native American and Pacific Islander Californians continue to lag behind Whites in their ability to access home purchase loans, and the numbers are getting worse. The disparity is particularly stark for women of color, who make up 30% of California’s population but receive only 8% of home purchase mortgages from the top 15 lenders in the state.

Homeownership forms the bedrock of generational wealth building, yet it remains out of reach for communities of color in one of the most racially diverse states in our country. If communities of color are locked out of home lending, they can’t buy a home, and if they can’t buy a home, they can’t build generational wealth. 

This is modern day redlining. 

The report also finds that largely unregulated, nonbank lenders, also known as fintechs, are more likely to make home loans to low-income borrowers than traditional banks and play an increasingly dominant role. These fintechs aren’t held to the same standards of traditional banks when it comes to transparency and accountability, leaving the door open to unchecked discrimination against potential borrowers. 

These are the new frontiers of redlining and our laws need to keep up. 

The Greenlining Institute assessed Home Mortgage Disclosure Act lending data from six metropolitan areas of California: Sacramento, San Francisco, Oakland, Fresno, Los Angeles and San Diego. This report evaluates the lending overall in those regions and the top 15 lenders in each region for 2020. 

Top Findings Include:

  • Communities of color living in California do not access home purchase loans at rates comparable to White communities. 
  • Largely unregulated, nonbank lenders, also known as fintechs, are more likely to make home loans to low-income borrowers than traditional banks and play an increasingly dominant role. 
  • Women of color, 30% of the state’s population, receive just 8% of home purchase loans by the top 15 lenders in California.
  • The report goes on to recommend strengthening and modernizing legislation designed to protect low and moderate income borrowers. 

Key Policy Recommendations:

  • The state should create a California Community Reinvestment Act. Unlike traditional banks, nonbank lenders are not covered by the federal Community Reinvestment Act, despite the similarity in their products and services. Nonbank lenders should have the same mandate to serve LMI communities as traditional bank lenders. This mandate can come from the state of California, which can expand beyond the many limitations of the current federal law.
  • The federal government should strengthen the Home Mortgage Disclosure Act. 
  • Lenders should provide more loan products and outreach tailored to low- to moderate- income families.
  • Lenders should provide more support to nonprofit organizations led by people of color that provide homeownership counseling.

Because this is an analysis of 2020 data, the impacts of COVID-19 on home lending are yet to be fully realized as the pandemic and related data limitations continue. However, we do know that the racial wealth gap has only been exacerbated through the unequal financial toll of the pandemic. 

With inflation at its highest in over forty years, the Federal Reserve Bank is considering raising the interest rate. That will make the average loan cost even higher for all borrowers, including Black and Latino borrowers who already on average have higher costs associated with their home purchase loans.