Racial gap in home-loan denials widened last year as interest rates rose

The racial gap in denial rates for home-purchase loans widened last year as the Federal Reserve began tightening credit conditions via interest-rate increases, according to new data from U.S. regulators.

Black Americans experienced denial rates of 16.4% in 2022, up from 15.7% the year before, the Federal Financial Institutions Examination Council said last week. Rates for non-Hispanic-identifying White applicants ticked up to 5.8%, from 5.6%.

Rising disparities in denial rates help underscore the impact of tighter credit on progress toward a more inclusive economy. Even before the Fed began raising rates, the homeownership gap had been widening over the previous decade. By 2021, homeownership for Black Americans was nearly 29 percentage points less than that for White Americans, according to National Association of Realtors data published earlier this year. 

Banks have failed to live up to promises to support Black homeowners in recent years. Major home lender Wells Fargo & Co. pledged in 2017 to lend $60 billion to generate 250,000 Black homeowners in a decade, though in 2020 the lender approved fewer than half of Black homeowners' refinancing applications. 

Hispanic and Asian individuals also face challenges securing home loans. Hispanic-White applicants saw denial rates of 11.1% last year, and Asian applicants faced denials at 9.2%. "Hispanic-White" identifies individuals with Hispanic ethnicity and White race, while "non-Hispanic-White" identifies individuals with non-Hispanic ethnicity and White race. 

The FFIEC data are based on mortgage-lending transactions reported by U.S. financial institutions and are reported for first-lien, one-to-four family, site-built, owner-occupied conventional, closed-end home-purchase loans.