Black and Latino Homebuyers in California Receive Disproportionately Fewer Bank Loans, New Report Finds

Black and Latino homebuyers across California have far less access to loans from banks than do other groups, according to a new report released Tuesday by the Greenlining Institute.

Those disparities persist even when taking into account population and income, the Oakland-based group found.

And in the absence of bank loans, many Black and Latino homebuyers turn to non-bank lending options. Known as “fintech,” these loans are often — though not always — replete with high-interest rates that pile on debt.

Rawan Elhalaby, the report’s author, says stronger federal regulations are needed to compel traditional banks to serve Black and Latino communities.

“Nobody is telling them you have to lend to people of color, and until it makes more financial sense for them, they will not do it,” said Elhalaby, a program manager at the Greenlining Institute, a racial and economic justice policy group.

The group used mortgage data collected under the Home Mortgage Disclosure Act, passed by Congress in 1975, to analyze lending patterns in six major metropolitan areas across California.

For instance, in the Oakland-Berkeley-Livermore metropolitan area, encompassing 2.8 million people, the Black population makes up 9.4% of the population, but were awarded only 4% of all home purchase loans in 2019, it found.

That disparity is even more extreme among Latinos in the same region, who represent 23.7% of the population, but were awarded only 10.8% of home-buying loans last year.

Across the bay, in the San Francisco-San Mateo-Redwood City metropolitan area of roughly 1.6 million people, Black people make up 3.6% of the population, but they netted just 78 home-purchasing loans in 2019, or 0.73% of all loans awarded.

Meanwhile, white people, who make up over 39% of that region, were awarded about 4,200 home-buying loans in 2019, a rate roughly proportionate to their population.

The report recommends the following series of steps to improve equity in awarding home loans:

• For banks to create more loan products and extend access and outreach in lower-income and immigrant communities;
• For banks to increase their branch presence in rural communities and communities of color;
• For communities to better fund nonprofits led by people of color to support homeownership counseling;
• And for federal reform to strengthen the Home Mortgage Disclosure Act and other regulations to make more loans available to households in low- and moderate-income communities.

Elhalaby’s said her parents, who emigrated from Palestine to San Diego in 1989, benefited from working with culturally competent banks. There is a prevalence of Arabic-speaking bank tellers among Wells Fargo branches in that city, which Elhalaby said was key to her parents securing a home loan when she was a teenager.

“That was kind of a game changer,” she said. “There was someone that [could] really explain the whole system, like anything that they signed. They felt confident that they knew what they were getting into.”

There is a similar dynamic playing out across the most recent loan data, Elhalaby said. Asian communities in California — and the Chinese community in particular — receive home loans at rates similar to those of white people, a factor due largely to bank access, Elhalaby said.

There are many culturally competent banks serving Asian communities in the Bay Area. East West Bank, for instance, has tellers who speak Cantonese and Mandarin, and are located in key Chinese neighborhoods like Oakland’s Chinatown or San Francisco’s Irving Street. Their website lists the languages spoken at each branch.

That points a way forward to increase banking access in Latino communities, with more Spanish-speaking tellers who can offer loan services targeted to their specific needs. Doing so may mean structuring loans in a way that allows multiple family members to contribute financially to buying a home, for instance, which is more common in immigrant communities, Elhalaby said.

Women of color face some of the greatest disparities in getting home loans in California: They make up 30% of the state's population but net just 7% of all home-buying loans, the report found.

Women of color are often the sole supporters of their extended families and are likely to be entrepreneurs, Elhalaby said. So “creative underwriting” that acknowledges the many payment obligations they have, may make home loans more accessible.

While language access isn’t necessarily an issue in California’s Black communities, bank access often is, the report found. It suggests they would be better served if banks opened more branches in those communities and offered more home-buying counseling.

That’s old news to Nikki Beasley, executive director of Richmond Neighborhood Housing Services, which largely serves Black communities in Oakland and Richmond. The organization hosts homebuyer workshops and tries to clear up common misconceptions among many first-time homebuyers.

“People tend to be comfortable in the community they live,” she said. But as a former banker herself, Beasley says there is sometimes “bias” in the lending process. “I will admit, as bankers, you tend to assess based on what people look like, how they dress,” she said, noting that those judgements can be made inadvertently.

Placing more bank branches in traditionally underserved communities with employees from those communities can reduce that bias, Beasley said.

With scarce access to loans from traditional banks, Beasley worries Black homebuyers with less income may face dauntingly steep interest rates — sometimes as high as 30% — from fintech loans.

People still say yes to that raw deal because it’s their only option, she said.

“Typically, that, in my mind, is a predatory practice because they are targeting people that may not be able to get this particular loan or offer because of poor credit, overutilization of debt, or low income,” Beasley said.

To counter that, Beasley said her organization helped over 100 first-time homebuyers in her community in 2020 alone, putting her organization on track to secure about the same number of loans they closed in 2019.

“We bring information to individuals, keep them encouraged and motivated,” Beasley said. “Because — there is a way.”