New York City has taken some steps to address the city’s housing crisis with the passage of City of Yes and other pro-housing initiatives. But according to recent data, Black and Brown home buyers continue to face discriminatory lending practices and higher interest rates in comparison to white homebuyers.
The New Economy Project (NEP) released an analysis of home mortgage loan data for three of the city’s major banks: Bank of America, Citibank, and JPMorgan Chase.
“We found that Black borrowers were receiving the short end of the stick,” said Will Spisak, senior program associate at NEP. “Even when interest rates were at historic lows they were being charged higher interest rates than white borrowers. And when interest rates started to increase, those rates increased faster and higher for Black borrowers.”
From 2018 to 2023, the report found that the city’s biggest banks continued to charge Black New Yorkers higher rates than other borrowers. This interest rate disparity cost a Black homeowner about $30,000 more in interest payments over the course of a 30-year mortgage. During the recovery period following the COVID-19 pandemic, between 2021 and 2023, the report said racial lending disparities in the city were especially pronounced as borrowing costs surged. Even Black borrowers with incomes above $100,000 had higher interest rates than white borrowers with lower incomes, said the report.
The banks also denied Black homeowners refinancing loans, which helps lower mortgage payments, at nearly twice the rate of white homeowners. This happened even at the height of the COVID-19 pandemic when interest rates reached historic lows, said the report.
Justin Pack, 35, works for Amazon Web Services and owns a 3-family home built in 1901 in Bushwick, Brooklyn. Pack grew up in New Jersey, and lived in Texas during and after college. He moved to a Bronx apartment near Yankee Stadium a few years ago. Looking for his first home, he put in offers on four different properties ranging in price from $650,000 to $880,000 in the Bronx, he said, but the neighborhood was rapidly gentrifying. He also tried for a vacant, debilitated property in Harlem that “had no plumbing, no electricity” and you could see through the ceiling. It was still listed for $1.8 million.
“The city has so many regulations and even with an attorney, if you don’t know, you could be in violation,” said Pack about how difficult the homebuying process is and homeownership is in the city. “The city systems are onerous. Like to register you have to go online, fill out a form and then print out the form and then fill it out by hand.”
Pack’s home in Bushwick previously belonged to a Jamaican family that had owned the house since the 1950s. The elderly owners had passed during the pandemic, and their children didn’t want to keep the house, said Pack. His current mortgage rate is 6.25%. He opted to use a broker and a smaller mortgage company as opposed to going through a major bank.
“We’re seeing the effects of gentrification,” said Pack. “I think if we have access to credit and access to capital, we can be a part of that process. Gentrification doesn’t have to be a bad thing [but] displacement is.”
Jamael Romans is a Black loan officer at United Mortgage Corp in Woodbury, Long Island. He owns a home in Canarsie, Brooklyn. According to Romans, many Black borrowers in his experience are “discouraged” and often “overwhelmed” during the home buying process, either because they don’t have family that will help them or because of their negative experience with a realtor. He’s had plenty of clients of color who do not get pre-approved for larger loans, aren’t well informed about financial planning and different loan options, and suffer from high fees and poor communication from lenders.
Many lenders, he said, deploy a “bait and switch” method where they send a customer a favorable option but when the loan estimate and appraisal comes out, the person is blindsided by fees and a higher mortgage rate. For minorities in particular, said Romans, big banks offer down payment assistance usually (about 3% down) that could raise a mortgage payment by hundreds of dollars in the long run because it has its own interest in addition to a housing loan.
“A lot of those big banks have the control because many times people don’t think to come to a company like mine, a brokerage-mortgage bank. It’s something they’re not familiar with. They’re familiar with Chase or Wells Fargo because they just know it’s a big brand and they put their trust in them,” said Romans. “But the bank doesn’t have the best interest when it comes to those people. You’re just another number.”
History of NYC banking
New York City has a long, and at times sordid history with banks, going all the way back to the creation of the country’s first banks. Alexander Hamilton famously founded the Bank of New York in 1784. In 1799, Hamilton’s rival, Aaron Burr, created the Bank of Manhattan. The site of Wall Street in lower Manhattan was a government-sanctioned slave trade venue at that time, and had been in operation since 1711. It became more associated with banking and the New York Stock Exchange in later centuries.
The city became the epicenter of financial power in the U.S. as its population grew, meaning that only certain federally or state chartered banks could handle housing the city’s money while meeting strict collateral requirements, said Spisak.
“The city collects a lot of money through taxes, fines, fees, and other revenue sources to the tune of about $100 billion a year. And all of that money, before it gets distributed to other budget priorities, has to go sit in a bank account just like any one of us that gets money from work with a checking account. The city does the same thing. Those billions that the city collects ends up going to banks like JP Morgan Chase, Citibank, Bank of America, Wells Fargo. The city has an official list of banks they do business with called designated banks,” said Spisak.
“The unfortunate thing is these banks are also banks that have historically and continue to today to exploit poor, working-class neighborhoods, Black and Brown communities, through predatory lending, through redlining, and through discriminatory practices,” he continued.
Because of these disparities, Congress passed the Community Reinvestment Act (CRA) in 1977. The hope was that banks would be forced to reinvest in communities where they operate to combat redlining–a practice where banks would not give loans to people in majority Black neighborhoods. New York State adopted its own version in 1978. Rather than fixing the problem, Spisak said that most banks went from excluding Black homebuyers to exploiting them.
In 2003, New York City adopted a Banking Development District (BDD) program, under the New York City Banking Commission, to designate which banks are eligible for city funds. The idea was to promote individual wealth and community development. However, racial disparities in the banking system persisted. This led to the city council attempting to pass banking regulations, such as the Responsible Banking Act (RBA) in 2012. The bill was opposed by former Mayor Michael Bloomberg, the state Department of Financial Services, and the New York Bankers Association (NYBA). Bloomberg vetoed the RBA bill later that year, which the city council overturned. The RBA was ultimately struck down in the courts in 2015.
“Even when the city has tried to assert itself and say we want to regulate the banks more and hold them accountable, it turns out that the city doesn’t have that much authority. Its primary lever is really as a customer of the bank saying, ‘We’re not going to do business with you,’ but there are very few banks we can do business with,” said Spisak.
Mayor Eric Adams and Comptroller Brad Lander challenged Wells Fargo’s designated status because of disproportionate denials of mortgages to Black applicants in 2022. They publicly promised to cut ties with the bank, but as of this year, it was reapproved for the city’s designated list.
“I am deeply concerned by the troubling findings in this report. The all too unfortunate reality is that Black New Yorkers continue to be disproportionately impacted by decades of harmful mortgage lending practices and policies,” said Lander in a statement. “In previous cycles we voted to conditionally designate banks that failed to meet their application requirements, and we declined to open new accounts with Wells Fargo following reports of racial discrimination.”
Solutions
City Council Speaker Adrienne Adams and Councilmember Justin Brannan wrote a joint letter to the NYC Banking Commission on Nov. 27 demanding that the entity review lending practices of the city’s designated banks and address discriminatory practices.
“We write to express our deep concerns about Black homebuyers in New York City being charged higher interest on mortgages by major banks than their white counterparts with similar incomes and debt levels,” they wrote. “The revelations in this report, showing an apparently discriminatory impact of the lending decisions made by banks holding the largest deposits of the City of New York, are alarming and unacceptable. The report only underscores the barriers that persist in achieving fair and equitable access to capital for homeownership, particularly for Black New Yorkers.”
Lander agreed that when these banks apply for renewal of their designation in 2025, the city will have to “pay careful attention” in order to hold them to the highest standards under existing rules.
However, Lander’s office pointed out that the NYC Banking Commission does not have the legal authority to regulate the banking industry, nor does it have the power to enforce anti-discrimination laws. These patterns of disparate impact should be thoroughly investigated by federal authorities, such as the Consumer Financial Protection Bureau, as well as the NYC Commission on Human Rights, said Lander’s office.
On the more radical side, NEP suggests that the city cut ties completely with Bank of America, Citibank, and JPMorgan Chase, as well as move to establish an equitable public banking system. “Since we’ve been on the Banking Commission,” said Lander. “We’ve worked to implement new measures to advance transparency, equity, and safeguard our City’s finances: first-ever Banking Commission public hearing, new procedures for certifying banks’ practices for non-discrimination, and stronger scrutiny for soundness in light of recent bank failures.”
The city council held a hearing in April 2023 to review bills introduced that would establish transparent banking laws and call on the state to enact the New York Public Banking Act.
“For far too long, predatory lenders have preyed on East New York homeowners and tenants,” said Debra Ack, a founding member of East New York Community Land Trust, in a statement. “Meanwhile, the big banks are more interested in turning a profit than in ensuring Black and brown young people have access to truly affordable housing and community wealth building opportunities. We need a public bank chartered to serve the public interest that will invest in real affordable housing in our communities of color.”
In the meantime, Romans recommended first time home buyers gravitate towards Federal Housing Administration (FHA) loans and find the “right real estate deal” that’s profitable for them with equitable brokers. He also suggested, once a home is bought, renting out to City Fighting Homelessness and Eviction Prevention Supplement (CityFHEPS) voucher holders to help supplement house payments.
Thank you for highlighting this decades-old issue. It was only a couple of years back that Chase, my long-term lender for my Harlem brownstone turned me away from refinancing to the then lower rates. Despite my having an 825 credit score, I couldn’t get past the screener, sho after taking my basic information became very offish. I couldn’t even get a supervisor to call me back.