Coming full circle, over the past year I have co-authored a new report by the Detroit Future City think tank called “Buying In: Opportunities for Increasing Homeownership in Detroit Through Mortgage Lending.” Like my long-ago series for the Free Press, “Buying In” finds that mortgage lending in the city, while improved in recent years, remains anemic at best, with many parts of Detroit seeing no mortgage lending at all, and with racial disparities still stubbornly present.
Detroit faces many challenges, and we know that solutions must come across many fields of effort. But certainly, the city will never get to where it deserves to be without a more robust home mortgage market. As “Buying In” puts it: “A mortgage loan is more than just a pathway to homeownership, it is a building block of economic equity, neighborhood stability, and wealth-building, especially for African Americans.”
In many ways, the homebuying market in Detroit faces even more challenges today than it did in 1988 when “The Race for Money” sparked widespread debate on disinvestment in the city. Detroit’s population has shrunk since the late 1980s, the cancer of vacancy and abandonment has metastasized, the subprime loan catastrophe and foreclosure crisis of a decade ago devastated the city, and overassessments have cost many people their homes.
Data collected by the government under the federal Home Mortgage Disclosure Act reveal both the dismal past and some recent improvements. Immediately after the Great Recession, in 2012 only about 200 home purchase mortgage loans were made in Detroit, a city of nearly 700,000 residents. The market has recovered somewhat since then; in 2020 about 2,000 home-purchase mortgage loans were made in Detroit, and the areas where mortgages were made expanded from a mere handful of mostly white enclaves to a broader range of neighborhoods, especially on the city’s northwest side.
But as Detroit Future City’s recent State of Economic Equity in Detroit report showed, between 2010 and 2019, Detroit continued to see a decline in homeownership and went from a city of majority homeowners to a city where the majority of households are renters. Many things contributed to this decline in homeownership; the question posed by “Buying In” is how the challenges afflicting mortgage lending in the city contribute to this decline in homeownership.
Even with the rebound in mortgage lending over the past decade, substantial challenges remain, and obtaining a mortgage remains difficult for many. In 2020, only a little over half of home purchase loan applications in Detroit made it through the lending process and resulted in a loan approval. And despite the recent growth in mortgage lending in the city, the total remains low, even when compared to peer cities such as Cleveland, where there were more than 600 more loans in a city with two-thirds the number of occupied housing units.
The racial disparities continue to jump out of the data. In Detroit, African American homebuyers are still twice as likely to be denied a mortgage approval as white applicants. And this disparity exists even across income levels. Even upper-income Black homebuyers are denied mortgages at a higher rate than middle-income white applicants.
Where do these disparities come from? That question deserves more investigation as there is no simple answer. The appraisal industry has recently received widespread criticism for undervaluing Black neighborhoods relative to white areas. That undervaluation could impact lenders’ decisions. Then, too, credit scores remain subpar for at least half the Detroit population, leading to more challenges for Black residents, who make up almost 80% of the city’s population. Racial outcomes can enter the mortgage process in many ways.
What to do about it? “Buying In” offers several solutions, and it’s important to try them all. Since credit scores almost never consider rent and utility payments among measures of creditworthiness, lenders should include some of these alternative measures of ability to pay in their decisions.
Then, too, there needs to be more support for the non-profit agencies that counsel first-time homebuyers, fix up dilapidated houses, and generally work to improve their neighborhoods. Non-profit agencies ranging from the Opportunity Resource Fund, which makes mortgage loans to buyers who otherwise might be denied by mainstream banks, to counseling agencies like Southwest Housing, all do good work in the housing space. With more resources, they could go more yet.
There are still other steps that can and should be taken. As an old saying has it, nothing works but everything might – if we try everything, and each effort nudges the needle even a little, we eventually will see real progress.
Should I be disappointed that we’re still debating how to improve mortgage lending in Detroit 35 years after “The Race for Money” was published? Sure. But we don’t have the luxury of giving in to discouragement. Cities remain a work in progress, and with an independent press and agencies like Detroit Future City continuing to press financial institutions for greater accountability, there is always hope. If “Buying In” leads to a better financial future for more Detroiters, the effort will have been worth it.