Home Loan Denial Rate

The percentage of applications for home improvement and home purchase loans that are not approved by lenders for a specific, listed reason

Equity Score
Indicator scores are represented on a scale from 1 to 100.
Disparity Ratio
Disparity direction: black-white
Application denial rate for home improvement and home purchase loans

Black loan applicants are nearly four times as likely as white applicants to be denied a home loan.

Source: American Community Survey 1-year PUMS

A score of 100 represents racial equity, meaning there are no racial disparities in outcomes. The lower the Equity Score, the greater the disparity.

For Home Loan Denial Rate, a score of 100 — a score reflecting racial equity — would mean black and white applicants for home loans are denied at equal rates. It is important to note that for this indicator, equity is not our only goal; we also want to improve outcomes for all. 

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What does this indicator measure?

Home Loan Denial Rate measures the percentage of applications for home improvement and home purchase loans that are not approved by lenders for a specific, listed reason. Some of the reasons lenders deny loans are insufficient collateral, incomplete credit application, poor credit history, high debt-to-income ratio, employment history, insufficient cash for down payment or closing costs, and unverifiable information. In 2016, 280 of the 3,306 loan applications were denied, for a home loan denial rate of 8.5%. 

Home Loan Denial Rate analysis

Application denial rate for home improvement and home purchase loans in St. Louis City.

  All Black White Disparity Ratio Equity Score
Loan Denials 280 102 178 - -
Loan Applications 3,306 426 2,880 - -
Home Loan Denial Rates 8.5% 23.9% 6.2% 3.874 to 1 28

Data Source: Home Mortgage Disclosure Act, 2016.

What does this analysis mean?

Banks are nearly four times as likely to deny home loans for black applicants as for white applicants. In 2016, 23.9% of black applicants were denied a home loan, compared to 6.2% of white applicants. Black applicants were even more likely to be denied for home improvement loans than for home purchase loans (see table below). If the loan denial rate were equitable, 76 more black applicants’ home loans would have been approved. 

Bank decisions for home purchase loan applications by applicant race
  Black applicants White applicants
Number of applications 361 2,707
% Originated 58% 77%
% Denied 20% 5%
Bank decisions for home improvement loan applications by applicant race
  Black applicants White applicants
Number of applications 65 173
% Originated 8% 32%
% Denied 46% 20%

Data Note: Totals do not add up to 100% because not all loans are originated (issued by the bank and accepted by the applicant). A loan might have been approved but the applicant did not take the loan, or withdrew their application.

Why does Home Loan Denial Rate matter?

Homeownership is an important way for residents to build wealth, and it provides housing stability. Home loans issued by financial institutions allow people to purchase and improve their homes. Higher rates of homeownership and home improvement can also stabilize neighborhoods. The St. Louis Federal Reserve states, "While HMDA data provide a useful start in assessing lending practices, the data alone do not prove discrimination." In addition, a history of home-loan denial in a neighborhood can lead to a lack of investment in properties and prevent people from being able to move into a neighborhood. 

The racial disparity in homeownership rates are undeniably in part due to higher loan denial rates. However, we must note that even if we were to eliminate the racial disparity in home loan denials tomorrow, we would not make a dent in changing homeownership rates because there are not sufficient numbers of black loan applicants. 

Which Calls to Action from the Ferguson Commission report are linked with this indicator?

The Commission’s calls to action related to home financing include:

Why is there racial disparity in the Home Loan Denial Rate?

We know that in St. Louis, black applicants are denied home loans due to their credit history more than any other reason. In 2016, banks listed credit history as the primary basis for denial for 45% of all home loans denied to black applicants. In comparison, white applicants were denied loans on the basis of their credit history 24% of the time.

In 2017, the Urban Institute reported that the City of St. Louis had the largest racial disparity in credit scores of all 60 cities whose financial health they studied. In predominantly white areas, the median credit score was 732, which is considered a good credit score. In predominantly non-white areas, the median credit score was 552, considered a very poor credit score. Traditional lending products are not available to people with poor credit scores. People with poor credit scores are more likely to fall victim to predatory lending practices, such as high fees and high interest rates. In the worst case scenario, the borrower will agree to lending terms that they cannot meet and further damage their credit.

Urban Institute financial health of cities

Median credit score, white areas and nonwhite areas.

Selected cities* Median credit score, white areas Median credit score, non-white areas Disparity ratio
St. Louis 732 552 1.33
Atlanta 727 560 1.30
Wilmington (DE) 722 554 1.30
Chicago 732 586 1.25
Buffalo 696 563 1.24
Pittsburgh 720 591 1.22
Cincinnati 693 572 1.21

*These cities are presented because the Urban Institute grouped them together as "Cities with tenuous stability and uneven opportunities."

Questions for further investigation

  • What can St. Louis do to reduce racial disparities in Home Loan Denial Rate?
  • What initiatives are currently underway to reduce racial disparities in Home Loan Denial Rate?

How can I learn more about this issue?

The City of St. Louis Planning Department publishes an annual report on the residential lending activities of the banks that have applied to be City of St. Louis Depositors. You can learn more about racial disparities in lending at the national level from a series of articles from The Center for Investigative Reporting. For those looking for a home loan, Community Development Finance Institutions (CDFIs) specialize in providing mortgage financing to low-income and first-time homebuyers. The Missouri Housing Trust Fund helps finance home repairs

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