I recently wrote about research showing that race sometimes influences New York bankruptcy chapter choices, and lawyers might misdirect black clients to chapter 13 when chapter 7 would be more appropriate. A new study from the Pew Research Center offers insight as to why black (and Hispanic) borrowers struggle with debts, specifically mortgage debts.
Pew found that in 2015, the homeownership rate was much lower for black households than white households, 41 percent to 72 percent, respectively. The same goes for Hispanic households, which owned homes at a 47 percent rate. The researchers pointed to two reasons for these discrepancies: low mortgage approval rates for minorities and higher interest rates.
Thanks to information collected under the Home Mortgage Disclosure Act, Pew discovered that in 2015 black households were nearly three times more likely to be denied a mortgage than white households, 27 percent versus 11 percent. Lenders rejected Hispanic households at a 19 percent rate. In fact those rates have fallen substantially since 2000 and 2008, before and after the housing bust. Back in 2000, mortgage lenders denied nearly half of black households and one-third of Hispanic households. Only a quarter of white households were rejected back then.
Why are black households rejected at such higher rates? The Pew study pointed to the underlying reasons lenders rejected households depending on their ethnicities. The primary reason white and Hispanic mortgage applicants were rejected is excessive debt-to-income ratios. For black applicants, however, the top reason was their credit histories.
Black and Hispanic homeowners also tended to pay higher mortgage interest rates. For 2015, Pew found that two-thirds of both groups had interest rates below 5 percent, and about 20 percent paid 6 percent or more. Meanwhile, about three-fourths of white homeowners paid less than 5 percent mortgage interest rates, and about 15 percent paid more than 6 percent.
The culprit behind these divergent interest rates was the lower down payments black and Hispanic households made when purchasing their residences. About half of each ethnicity’s homeowners pays less than 10 percent down while more than half of white households pay about 37 percent down. The larger a homeowner’s down payment, the lower the ultimate interest rate.
The Pew Research Center study can be found here.
Clearly ethnic disparities manifest themselves in the mortgage market. Undoubtedly, they contribute to bankruptcy filings—perhaps in chapters that aren’t suitable for the debtors. Regardless of your background, if you are encountering difficulties paying a mortgage or any other debt, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
