Race potentially plays a key role in the rejection of home loan applications and appraised values of homes in Illinois, based on a study commissioned by Illinois REALTORS®.

The study involved analysis of millions of mortgage applications from the federal Home Mortgage Disclosure Act (HMDA) database from 2007 to 2020. It focused on mortgage denials due to a “lack of collateral,” an indicator that the home appraisal value was substantially lower than the amount of the mortgage. The findings revealed:

• A substantial disparity in the denial rates of African American and White applicants in every year of data
• African American applicants in Illinois are twice as likely to have mortgages denied due to lack of collateral
• Neighborhood homogeneity appears to be rewarded by appraisers. White borrowers were more likely to have their mortgages denied if they lived in neighborhoods with more people of color. However, Black and Hispanic/Latino borrowers were relatively less likely to have their mortgages denied if they lived in more diverse neighborhoods.

“It is important that we identify any lingering systemic issues in housing equity and take steps to eliminate them as soon as possible,” said Jeff Baker, Illinois REALTORS® CEO. “We want to ensure fairness in the appraisal, selling and buying of homes. Everyone deserves the opportunity to achieve the dream of home ownership.”

Illinois REALTORS® has a longstanding commitment to housing affordability and equitability. Last year, the 50,000-member association stepped up its legislative efforts to address the shortage of affordable housing throughout the state and established a Discriminatory Appraisal Task Force to conduct research, educate its members and policymakers, and identify solutions on this issue.

Illinois REALTORS® contracted with Dr. Marshall Jean, Assistant Instructional Professor of Sociology at the University of Chicago, a specialist in large-scale data analysis, to conduct an examination of appraisal discrimination in Illinois. Dr. Jean said that further study of the relationship between borrowers’ races and their homes’ appraised values and mortgage acceptance is needed. He would like to broaden the analysis to include more detailed information on home appraisals.

Dr. Jean explained, “Although the phenomenon of home appraisal discrimination has been known in the African American community for decades, there has been very little formal research on it. A key barrier is a lack of available data, which tends to be held by financial institutions and entities like Fannie Mae and Freddie Mac. There are privacy concerns, but those can be addressed with care. The first step to preventing discrimination in appraisals will be a better scientific understanding of it.”

The analysis of multiple federal Home Mortgage Disclosure Act (HMDA) data from 2007 to 2020, showed that an average disparity between one to two percentage points in home loan rejection rates. In 2019 alone, this disparity resulted in an estimated 8150 additional mortgages being denied to African American borrowers.

Disparities in denial rates varied substantially between neighborhoods, counties, and states. In Illinois, African American applicants were twice as likely to have mortgages denied due to lack of collateral, based on more than six hundred thousand applications submitted in the last three years of data. However, although disparities favoring White applicants were widespread across the nation, there were some counties where the trends were reversed.

Lastly, the findings on neighborhood context showed that both the race of homeowners and the racial makeup of neighborhoods are important, but these factors interact in unexpected ways. For Black and Hispanic/Latino borrowers, living in a census tract with a greater proportion of minority residents decreased the odds of loan denial. But White borrowers living in a census tract with a greater proportion of Black or Hispanic residents were more likely to be denied a mortgage due to lack of collateral. These effects persist even after controlling for applicant and neighborhood socioeconomic factors.

“It is very important that we get to the bottom line and eradicate these remaining vestiges of systemic injustices from the real estate appraisal and home loan process as soon as possible,” declared Lutalo McGee, Illinois REALTORS® Discriminatory Appraisal Task Force Chair and owner of Ani Real Estate. “This affects everyone, and we all need to be concerned that it still exists. Think about this being your grandmother’s hard earned nest egg being stripped away. Or you and your spouse could struggle and sacrifice only to have your financial gains eroded for no factual reason.”

Illinois REALTORS® is a voluntary trade association whose more than 50,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the association works to protect and advance the profession, homeowners, and private property rights by engaging with elected officials at the local and state level.