Fewer than half of Black applicants were approved by the biggest bank mortgage lender
When Mauise Ricard III paid a $560.43 application fee to Wells Fargo & Co. on Valentine’s Day in 2020 to refinance his mortgage on a four-bedroom brick colonial in a leafy suburb of Atlanta, he had every reason to expect an easy ride. The Microsoft Corp. engineer is married to a doctor and has a credit score north of 800, putting him in America’s credit elite. The loan officer at the bank even told him he was probably eligible for a fast-track appraisal.
It didn’t take long for problems to appear. Ricard’s house—an investment property that was his home before he moved to another Atlanta suburb in 2017—is in a predominantly Black neighborhood, and in April, the loan officer emailed to say that “perhaps the area is not eligible” for a rapid valuation. By May, she was writing to say the underwriter had more questions. Soon after, Ricard was told he would have to pay a higher 4.5% rate, even though the Federal Reserve had slashed rates to historic lows. Within weeks, Wells Fargo had denied his application. “They kept moving the needle,” Ricard says. “They didn’t want to move forward for whatever reason.”
Ricard wasn’t alone. Nationwide, only 47% of Black homeowners who completed a refinance application with Wells Fargo in 2020 were approved, compared with 72% of White homeowners, according to a Bloomberg News analysis of federal mortgage data. While Black applicants had lower approval rates than White ones at all major lenders, the data show, Wells Fargo had the biggest disparity and was alone in rejecting more Black homeowners than it accepted.
If, as expected, the Fed’s policy committee moves to hike interest rates at its March meeting, it will begin closing the door on a remarkable wealth event that has seen U.S. homeowners refinance almost $5 trillion in mortgages over the past two years, the most since the early 2000s. It’s one that allowed White homeowners to save an estimated $3.8 billion annually by refinancing their mortgages in 2020, according to researchers at the central bank. But it’s a door that barely opened for Black Americans, who make up 9% of all homeowners and locked in just $198 million a year, less than 4% of the savings.
Wells Fargo, which declined to comment about individual customers, didn’t dispute Bloomberg’s statistical findings. It says it treats all potential borrowers the same, is more selective than other lenders, and an internal review of the bank’s 2020 refinancing decisions confirmed that “additional, legitimate, credit-related factors” were responsible for the differences. But even when taking selectivity into account, the San Francisco-based bank had by far the worst record among major lenders when it came to refinancings by Black homeowners, according to Bloomberg’s analysis of Home Mortgage Disclosure Act data for 8 million completed applications to refinance conventional loans in 2020.
JPMorgan Chase & Co., the largest U.S. bank by assets, accepted 81% of refinancing applications from Black homeowners in 2020 compared with 90% from White ones. Bank of America Corp. approved 66% of its Black applicants and 78% of White ones. Rocket Mortgage LLC, which received 1 million refinancing applications in 2020, more than any other lender, had the smallest gap: It approved 79% of Black applicants and 86% of White ones.
Among major lenders, only Wells Fargo approved a smaller share of refinancing applications from Black homeowners in 2020 than a decade earlier. The bank’s 47% approval rate was its second lowest during the past decade. JPMorgan, Bank of America and Rocket Mortgage, formerly known as Quicken Loans, all approved Black borrowers in 2020 at the highest rate since 2010.
The data also show that 27% of Black borrowers who began an application with Wells Fargo in 2020 withdrew it. That meant only one-third of the 17,702 Black homeowners who sought refinancing were successful. Like the industry as a whole, Wells Fargo approved a greater share of applications from low-income White homeowners than all but the highest-income Black applicants, who had an approval rate about the same as White borrowers in the lowest-income bracket.
Data for 2021 won’t be released until later this year. Wells Fargo says it hasn’t completed an analysis yet and couldn’t comment about whether its refinancing outcomes had changed.
The U.S. Justice Department has hammered banks for lending practices that tend to elevate costs for minority borrowers. After the 2008 housing crisis revealed discriminatory treatment, authorities unleashed a wave of penalties against U.S. lending giants. Wells Fargo agreed in 2012 to pay more than $184 million to settle federal claims that it unfairly steered Black and Hispanic homeowners into subprime mortgages and charged them higher fees and interest rates. The bank didn’t admit to any wrongdoing and said at the time that it treated all customers fairly regardless of race.
U.S. law has long held that a “disparate impact” on minority communities can be evidence of institutional discrimination, meaning regulators don’t have to prove a bank was engaging in deliberate racism to show that it broke fair-lending or fair-housing laws.
The Biden administration is increasing scrutiny of banks and modern forms of discrimination. “If we allow racist and discriminatory policies to persist, we will not live up to our country’s ideals,” Rohit Chopra, head of the Consumer Financial Protection Bureau, said at a press conference in October announcing a new push by the Justice Department and regulators to combat so-called redlining by financial institutions. Among the issues he singled out was the role of mortgage underwriting algorithms that banks have long used, calling the disparities in lending outcomes a sign of “digital redlining, disguised through so-called neutral algorithms.”
Kristy Fercho, who in August 2020 became the first Black woman to oversee Wells Fargo’s home-lending business and its more than 25,000 employees, says the bank’s processes are race-blind and that its lending decisions were “consistent across racial and ethnic groups.” Any racial disparity in outcomes for refinancing in 2020 was the result of variables Wells Fargo doesn’t control, she and other executives say, including credit scores, the appraised value of homes and broader inequities in the U.S. economy.
The problem is certainly broader than any one bank and gets at the root causes of the racial wealth gap in the U.S. Housing activists have long pointed to a history of mortgage discrimination and resulting disparities in homeownership rates as the major source of enduring wealth inequality. A typical White family had eight times more wealth than a Black one, according to a triennial Fed survey last published in 2019. By the end of September 2021, separate Fed quarterly wealth data showed the gap between White and Black Americans had widened by $20 trillion during the pandemic.
The refinancing gap gets at the ability of Black families to build on the wealth they have. Not being able to refinance a home “means that people have less resources to invest in their children, less resources to start businesses, less resources to renovate their homes, less resources to buy additional homes,” says Andre Perry, a senior fellow at the Brookings Institution whose 2018 study found that the average Black home was valued at $48,000 less than its White equivalent. That differential amounts to $156 billion in missing Black wealth.
The anticipated move by the Fed to raise interest rates in March to combat inflation “effectively locks us out of this wealth-creation event,” Perry says. “It was a brief period of time where we really did need lenders, especially, to step up to the plate in terms of racial equity.”
Perry says that while Wells Fargo and other banks have made efforts to increase lending to minority communities, some still treat Black homeowners with institutional disdain. “How you know that Black people are valued less is by looking at the data,” Perry says. “And for me, Wells Fargo has to look itself in the mirror collectively and say, ‘OK, why are our outcomes worse than other lenders?’”
WELLS FARGO, like other lenders, has been working to distance itself from the past. When the murder of George Floyd prompted a nationwide reckoning over race and America’s economic inequities in 2020, the bank joined the chorus of companies promising to do better. “This is an important moment at our company, and we will not let it go by without substantive changes,” Chief Executive Officer Charlie Scharf wrote in that year’s annual report. “We must move with haste to execute on our plans, and know we will be judged based on our outcomes.”
Scharf was hired in late 2019 after a series of scandals that began with the revelation that employees opened millions of fake accounts to meet sales goals. That led to sanctions, including a Fed-imposed growth ban and the departures of two of Scharf’s predecessors. He’s installed new leaders, including Fercho, who took over a home-lending unit that’s been the source of some of Wells Fargo’s long-standing problems. Regulators spotlighted improper mortgage fees in a 2018 order, and the bank was handed a fresh sanction over lack of progress on that order last year.
The bank has settled several class-action lawsuits brought by municipalities claiming that foreclosures during the financial crisis depressed property values and that Wells made it difficult for minority homeowners to refinance high-interest mortgages. It still faces others. In one federal case filed last year, lawyers for Georgia’s Cobb, DeKalb and Fulton counties cited foreclosures Wells Fargo had sought in minority neighborhoods as recently as May 2019. The foreclosure files included an Atlanta property with a 12.125% adjustable-rate mortgage. Wells Fargo has denied any wrongdoing and in court filings questioned both the counties’ standing to bring a suit and whether too much time had elapsed since the alleged wrongdoing.
Fercho says Wells Fargo is looking at how to better serve Black communities that have often been suspicious of lenders based on generations of discrimination. Among the steps: encouraging Black homeowners, who refinance less frequently than White ones, to take advantage of opportunities to lower their rates. Fercho cites her own mother’s reluctance to refinance her mortgage at any point in its 30-year life as an example of a broader issue. When she asked her mother why she had never refinanced given the money she could have saved, “her answer was ‘I could afford my payments. So there was no reason for me to change it.’”
Wells Fargo has also announced a push to increase Black homeownership and in 2021 invested $50 million in 13 Black-owned community banks. In 2017, it pledged to help create 250,000 new Black homeowners by 2027, a goal Fercho says the bank is on pace to meet or exceed.
But the difficulties some Black customers faced left them frustrated with Wells Fargo. When Cherylnita Cone sought to refinance the Wells Fargo mortgage on her three-bedroom bungalow in College Park, Georgia, in 2020, she was surprised to find that the bank quoted her a rate half a percentage point higher than she found elsewhere. Cone, a software systems analyst for a packaging company, and her husband, an aircraft painter for Lockheed Martin Corp., have lived in the home for 25 years. “I would think, ‘Hey, I’m with you all,’” she says. “I pay timely. I have a good credit score. And this is all with the same lender, hoping it would be cheaper.”
Instead it reinforced a view Cone has held since the couple financed their first home in the late 1990s with a 7% mortgage. “Being an African American, a Black female, any time I talk to any other individuals that are Caucasian, their rate is always cheaper,” she says, referring to the broader home-financing market.
Disparate-impact cases can be hard to prove with data alone and often have to involve another element, says Steve Dane, who has brought discrimination cases on behalf of the National Fair Housing Alliance and other clients. “If that’s all you had, and nothing else, I would not bring a case like that,” Dane says. Evidence that a bank’s lending outcomes are at odds with its industry peers could provide that additional element, he says.
So could the location of loan officers. When the Justice Department announced its push on redlining in October, it also unveiled a $5 million settlement with Trustmark National Bank over lending discrimination in Memphis, Tennessee, including allegations that the bank’s loan officers were located in predominantly White neighborhoods.
In Atlanta, Baltimore and Philadelphia, Wells Fargo’s online tool for people looking to refinance directs borrowers in predominantly Black ZIP codes to loan officers in more White areas. The nearest Wells Fargo loan officer available to homeowners in New Haven, Connecticut, which in 2020 was a hot spot for denials, according to the Bloomberg analysis, is in Westport, 25 miles away. Other banks offer loan officers much closer. Wells Fargo declined to comment on the results its online tool provided.
BLACK HOMEOWNERS seeking to refinance mortgages in 2020 faced lower approval rates nationwide than those of any other race. About 70% of 254,000 Black applicants who completed applications had their requests approved by lenders, the data show. By comparison, 87% of 4.9 million non-Hispanic White homeowners were accepted.
The banking industry has long argued that credit scores rather than race explain any disparities, but it has lobbied against the release of federal mortgage data containing those scores. A 2021 study by Fed researchers given access to a privileged version of the same data used by Bloomberg that included applicants’ credit scores showed racial gaps can be largely attributed to those scores and the recommendations automated underwriting systems make to lenders. The study, which looked at both home purchases and refinancings, identified some differences among lenders, but the researchers didn’t document them.
Other researchers and activists say the way credit scores are assembled discriminates against Black families, an increasingly accepted view that has prompted a push to reform the 33-year-old system developed by Fair Isaac Corp. and known as FICO. Those scores are based on the use of mortgages, credit cards, and auto and student loans. But that leaves many people out—almost one-third of Black Americans, according to a 2019 Urban Institute report. “There’s probably about 50 million people that can’t be scored right now under FICO’s main model,” says Kelly Thompson Cochran, deputy director of FinRegLab, a nonprofit technology research group.
Including rental payments in the mix would fix a large part of the problem, housing activists say. Minorities make up half of renters in the U.S. and just a quarter of homeowners, according to U.S. Census data. Studies have shown that including rental payments can help raise credit scores and that renters’ histories of paying rent on time are a good predictor of their ability to make mortgage payments.
Despite research into the validity of alternative credit-scoring models and the limitations of current ones, barriers remain. “It’s hard for individual lenders to say, ‘We’re going to start underwriting these in a completely different way than anybody else,’” says Cochran.
Still, some institutional changes are underway. Fannie Mae decided in September to include rent payments in credit assessments. The rethinking is also happening at banks, including Wells Fargo, and Fercho is a voice in the broader national conversation. She chairs the Mortgage Bankers Association and leads the affordable housing working group for the Office of the Comptroller of the Currency’s Project Reach, which is examining how to improve access to credit in the U.S.
Wells Fargo is considering following Fannie Mae’s decision to use rental payments in its lending decisions, according to Fercho. “We have to get creative as an industry around how do we level the playing field and create some equity,” she says.
The issues surrounding mortgage discrimination can be dizzying. Studies have documented everything from the reluctance of Black homeowners to refinance mortgages to the behavior of loan officers, who tend to approve White homeowners earlier in the month than Black ones. There is also an increased focus on the issue of appraisal discrimination.
But experts say that beyond credit scores and appraisal bias two things have stood out as the cause of the disparities in this refinancing boom: the impact of lenders’ proprietary algorithms, or overlays, and the failure of policymakers to mandate streamlined refinancing programs.
Nikitra Bailey, senior vice president of public policy at the National Fair Housing Alliance, says the stricter overlays many lenders put in place after the financial crisis raised the average credit score needed to refinance a mortgage as high as 775 in 2020. “That’s well above credit scores for communities of color who lacked that intergenerational wealth,” Bailey says.
A streamlined refinancing program would also help address the high upfront costs that discourage many Black homeowners. One such program helped more than 3.5 million borrowers refinance from 2009 to 2018, saving an estimated $35 billion. If a similar program were still in place, says Laurie Goodman, an Urban Institute fellow, “we could make a huge difference in decreasing the racial gap.”
WHEN MYRON MCKELLER set out in 2020 to refinance the $159,000 Wells Fargo mortgage he took out on his three-bedroom townhouse west of downtown Atlanta seven years earlier, he had two goals: reducing his interest rate and getting his home reappraised. The 32-year-old software sales engineer was hoping the reappraisal would reflect how appreciation should have removed the need for him to pay mortgage insurance required of homeowners with less than 20% equity in homes.
But he didn’t even attempt to refinance with Wells Fargo. He’d tried two years earlier and was instead directed into a loan modification with a 5.125% interest rate after an appraisal that felt at odds with what he was seeing in the market.
Many Black homeowners who sought to refinance with Wells Fargo during the pandemic were, like McKeller, middle class and had good credit scores. But even for members of the Black middle class the pandemic has brought blunt lessons in the legacy of housing segregation in Georgia’s Fulton County, which includes Atlanta. Home prices in the county’s predominantly Black southwestern suburbs have lagged behind those to the north for generations, largely because of redlining that labeled Black neighborhoods riskier lending propositions than their White counterparts.
Appraisals for Black-owned homes in Fulton County often come in low, says Bilal Shareef, president of the Empire Board of Realtists, which since 1939 has represented Atlanta’s Black real estate agents. He learned long ago that he needed to fight for clients. In 90% of cases, Shareef says, his pushback leads to dramatically higher new appraisals. That can mean $50,000 to $60,000 more on properties worth $300,000 or less, or a swing in homeowner equity in a property of as much as 20%. “Unfortunately that’s the kind of stigma that we deal with,” Shareef says.
Fair-housing activists also complain of “soft denials” for loans when lenders leave applicants hanging or encourage them to look elsewhere before an application is even submitted. Federal records don’t detail why some refinancing applications aren’t completed, but for people who work in the Atlanta suburbs the patterns of behavior by lenders have become familiar.
When interest rates tumbled in 2020, McKeller took all of his banking business elsewhere, refinancing with an interest rate closer to 3% with a local mortgage company. “Once I was able to refi, I pretty much terminated my relationship with them,” McKeller says. “It was definitely time to move on.”
Wells Fargo approved fewer than 43% of refinancing applications completed by Black homeowners in Fulton County in 2020, Bloomberg’s analysis shows, the lowest approval rate among major lenders. Overall, 69% of Black applicants in the county were approved.
After Wells Fargo rejected his application, Ricard, the Microsoft engineer, found another lender to refinance the mortgage on his house. Ricard, who grew up in Chicago and Tulsa, Oklahoma, moved to Atlanta for college and stayed because it felt like a progressive paradise for young Black professionals. He and his wife moved their young family to a bigger home in the more expensive, and predominantly White, Fulton County suburb of Sandy Springs in 2017 to be closer to better schools. The transition hasn’t always been easy. The day he moved in, he says, White neighbors called the police. “I’ll just speak the truth,” Ricard says. “Some of my neighbors in our community don’t want us here.”
The move has also given him a rare perspective on the economics of segregation. His new home and those around it are valued far higher than those in the predominantly Black southwestern Fulton County suburb they left behind, where they still own the property they sought to refinance with Wells Fargo. But Ricard says he pays almost as much for the home insurance on his old home, which he now rents out, as his new one.
When he went to refinance the Sandy Springs mortgage in 2020 with another lender, he had a much easier time. He also had an easier experience with another lender when he closed on the refinancing of his original home in December 2020, securing a 3.35% rate, more than a percentage point lower than what Wells Fargo had offered him.
“It’s sad that as a banking institution that they essentially can’t be trusted,” Ricard says of Wells Fargo. “As an African American, a person of color, we deal with enough hardships that life hands us. To be discriminated against financially is a hardship.”
Bloomberg analysis of Home Mortgage Disclosure Act data for 8 million completed applications to refinance conventional loans in 2020.
Bloomberg News analyzed data collected from 8 million refinancing loan applications in 2020 under the Home Mortgage Disclosure Act, or HMDA. Only applications for conventional, non-jumbo, single-family and first-lien dwellings were examined because other loan types, such as FHA loans, must meet more restrictive underwriting rules required by the U.S. Department of Housing and Urban Development. Lenders processed 15 million refinancing applications in 2020. Of those, 11 million were for conventional loans and 3 million were either withdrawn or incomplete. Details on credit scores and automated recommendations are compiled by federal officials under HMDA, but that information isn’t available to the public.
To look for potential patterns and significant differences among lenders, we examined approval and denial rates across all lenders. But the findings focus on the biggest refinancing lenders, including the largest, Rocket Mortgage LLC, and the three top commercial banks—JPMorgan Chase, Bank of America and Wells Fargo.
We looked at approval rates of completed applications to account for which groups of borrowers lenders deemed more creditworthy. We calculated two statistics: the share of approved applications for each racial group and an approval ratio between White and non-White borrowers. Using a ratio accounts for differences in banks’ internal underwriting guidelines that some lenders say affect all borrowers. Incomplete or withdrawn applications were examined separately because lenders made no decisions on them. Nonetheless, housing advocates consider many withdrawn or incomplete applications to be “soft denials” resulting from inattention or discouragement from lenders. Wells Fargo had the highest share of those who withdrew or did not complete their applications.
Looking at applicants by income, we divided the total number of applications into five similarly sized quintiles to determine the acceptance rate among different racial and income groups. The dataset provided both the county and metropolitan statistical area (MSA) for each loan, which allowed for geographic analysis. Since many rural counties had few applicants, and even fewer Black applicants, we opted to use MSAs, which have a larger sample size to work with, and only included those that had at least 10 Black applicants.
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