March 28, 2022
Identifies home ownership as pathway to economic equity
DETROIT – Detroit Future City (DFC) released “Buying In: Opportunities for Increasing Homeownership in Detroit through Mortgage Lending” today, which examines trends, challenges and solutions for increasing homeownership through mortgage lending.
“Buying in” is the first major report out of DFC’s Center for Equity, Engagement, and Research (the Center) after the 2021 release of “The State of Economic Equity in Detroit” and its complementary digital dashboard. The Center chose to focus on mortgage lending as an immediate follow-up to the economic equity report because a mortgage loan is more than just a pathway to homeownership, it is an indicator of capital flow and a building block of economic equity and growth, neighborhood stability, and wealth building for people of color.
“We are seeing home mortgage lending increase in Detroit, which is an important marker of the city’s revitalization, but this report shows that at the same time disparities in lending by race persist,” said Anika Goss, DFC President and CEO. “There are systemic inequities throughout the lifecycle of the homebuying process that create barriers to homeownership for communities of color, who make up the vast majority of the city’s population. To address these issues, we need to take a close look at mortgage origination processes and policies, and advocate for change so we can have a city where all residents have an equitable opportunity to participate and achieve home ownership.”
This report builds upon six years of DFC’s research and advocacy in housing and community development, including the “Renting Home” report in 2017 and “Growing Detroit’s African American Middle Class” released in 2019. Last year’s “State of Economic Equity” report called for an imperative to strengthen neighborhoods, stemming from data that shows only 11 middle-class neighborhoods exist in Detroit, over 50% of city residents are renters, 62% of whom are cost burdened, and home values for white Detroiters are $46,000 higher than that of African Americans.
“There have been layers of data released about inequities in the mortgage origination landscape in the last year or so, but the Center thought it was important to provide a singular, comprehensive overview of the predominant components to the challenges and opportunities to increasing homeownership through mortgage lending,” said Ashley Williams Clark, DFC vice
president and director of the Center. “‘Buying In’ provides a source for data and policies, and how they interrelate around mortgage lending in Detroit, and prioritizes recommendations for a roadmap forward.”
“Buying In” briefly takes readers through the mortgage process and outlines recent trends in Detroit home purchase lending at the neighborhood level and by race, and then presents the opportunities, challenges and solutions for the city’s home purchase market and how to improve it. The three key focus areas that emerge from the report are lending processes, the homebuyer pipeline, and neighborhood and housing quality.
The report shows Detroit has seen an increase in lending since 2012, with the rate of mortgage denials declining from 51% to 24%. While this is an indicator of an improving home purchase market in Detroit, the racial disparities in the mortgage lending process remain present regardless of income. Upper-income African Americans are experiencing a 24% denial rate while moderate-income white residents’ denial rate is 20%. The report also presents a map showing concentrated areas of Detroit with little mortgage activity, including 15 percent of census tracts in the city where there were no mortgage applications in 2020.
“There are a multitude of reasons why there may have been little to no mortgages being made in these areas, from limited demand to a higher share of cash purchases,” said Williams Clark. “This sparks an interest for the Center to do future research on these areas to identify solutions to help bolster all areas of the city and continue removing barriers for future homebuyers.”
Low credit scores are a consistent barrier for Detroiters, along with collateral and debt-to-income ratio. According to a 2021 Urban Institute report, 52% of Detroiters had subprime credit scores. For African Americans, the most frequent reason for denials was credit scores, and for white residents the primary barrier was collateral.
DFC also looks at how Detroit can establish a stronger pipeline of homebuyers. Currently, Detroit is attracting African American residents across the income spectrum, yet most new white homeowners in Detroit are upper income. Additionally, Detroiters’ medium income is $34,000, and lenders typically look for buyers with debt of no more than 43% of their income, lending to a slim margin of residents who would be eligible for a loan. Programs and policies that raise Detroiters’ income level and provide support to the borrower throughout the lending process are a clear pathway to increasing Detroit’s homebuyer pipeline.
As a pipeline of homeowners builds in Detroit, DFC also recommends more support to help buyers through the mortgage lending process. Nonprofits can play a critical role in addressing this through pre- and post- purchase counseling.
DFC also recommends revisiting how credit scores are calculated to help increase the homebuyer pipeline. This could entail utilizing alternative data sources to include rental and housing related payments, such as utilities.
“In a city where the majority of its residents are African American, renters and cost burdened, we need to meet residents where they are from a lending perspective,” said Goss. “Credit
scores are an imperfect measure that disportionaly impact people of color. We need to assess eligibility requirements for loans as well as lending institutions’ policies so that they are based on more equitable practices and alternative measures.”
One of the leading issues of mortgage denial in the city is that the property appraised at lower value than what the buyer is willing to pay for it. This is a substantial issue in Detroit, and for the African American community nationwide.
DFC points to who is appraising as a source of the issue, in addition to what is being appraised, noting that only 1.2% of property assessors are African American, according to the National Fair Housing Alliance. “Building a more diverse population of property appraisers can help remove biases that African American home buyers face,” Goss said.
Improving the housing stock has its challenges, as well. While the number of home purchase loans in the city is relatively low, there are even fewer home improvement loans, and they are denied at a far higher rate than home purchase loans.
Coordinated investments in key neighborhoods, such as those that are part of the City’s Strategic Neighborhood Fund, have made these areas more desirable and thus strengthened the housing market. DFC suggests in the report the need and opportunity for more accessible lending programs to renovate homes so that housing quality is improving and there are more comparable sales, which will make great strides in building a strong mortgage market.
The Center conducts robust engagement for its reports through its Innovation Series, which brings audiences together around local perspectives and national best practices to help educate and inform actions and advocacy. The Center’s upcoming Innovation Series event on April 20 will feature this report and bring national and local innovators together to discuss solutions for improving the mortgage market. To view the “Buying In” report and register for the Innovation Series, visit www.detroitfuturecity.com.
“Buying In” is funded by The Kresge Foundation, Hudson-Webber Foundation, Ralph C. Wilson Jr. Foundation, and the W.K. Kellogg Foundation, and was developed in partnership with John Gallagher, who provided research, writing, and editorial support. Gallagher is a veteran journalist, who spent 32 years at the Detroit Free Press reporting on the City’s development and real estate industry, and is an author whose book, “Reimagining Detroit: Opportunities for Redefining an American City,” was named by the Huffington Post as among the best social and political books of 2010.
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