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Millions will be spent to help black homeowners after investigation revealed inequity

RICHMOND, Va. -- Millions of dollars will soon be spent in Richmond to help increase the number of African-Americans homeowners. A newly announced partnership between Housing Opportunities Made Equal of Virginia, Inc. (HOME) and Wells Fargo will provide $4 million to help close the racial home ownership gap.

"Differences in homeownership between African Americans and white Americans are the foundation of wealth inequality in Richmond and across the country," HOME president and CEO Heather Crislip said. "HOME is committed to rooting out these differences in opportunity to reduce racial gaps and inequities and build a strong middle class."

The partnership between HOME and Wells Fargo was created after HOME investigated mortgage lending activity and had concerns about under-service in minority communities by Wells Fargo in Richmond.

"The amount of support and the substance of Wells Fargo’s response to our concerns speaks volumes about the seriousness of purpose and the level of commitment Wells has brought to bear in addressing our concerns," Crislip said. "We look forward to working with Wells Fargo in the coming years to bring credit opportunities to qualified borrowers in neighborhoods throughout our city who have been left behind for too long."

Most of the $4 million will be spent on classes, programs and events designed to help educate potential home buyers in the do's and don'ts of real estate. Some of the money will be used to help homeowners with a down payment.

"Wells Fargo will provide $1 million over four years in down payment assistance to low- and moderate-income first-time homebuyers in the region," a HOME spokesperson said. "As part of the partnership, HOME will work with Wells Fargo to conduct fair housing compliance testing at Wells Fargo branches and provide other monitoring and training assistance."

Click here for more information about the program and Housing Opportunities Made Equal of Virginia, Inc. (HOME).

A 2015 study HOME did on lending discrimination for the City of Richmond found the following:

1. White borrowers comprised the largest segment of home purchase and refinance loan activity in the city.

Between 2010 and 2013, white borrowers accounted for 1,243 home purchase loan originations; black borrowers accounted for 112 loan originations; and Hispanic borrowers of any race accounted for just 24 home purchase loan originations.

White borrowers also comprised the largest share of the refinance loan market, accounting for 2,720 loan originations.

Black borrowers accounted for 382 refinance loan originations, and Hispanic borrowers accounted for 46 originations.

The vast majority (1,464) of refinance loans went to upperincome white borrowers; this group accounted for 53.8 percent of all loan originations to white borrowers.

2. Significant disparities exist in the origination and denial rates of all loan types based on the race/ethnicity of the applicant. For home purchase loans, white borrowers exhibited a 48.2 percent origination and 13.7 percent denial rate, while black borrowers exhibited a 25.8 percent origination rate and 34.6 percent denial rate.

For refinance loans, white borrowers exhibited an origination rate of 40 percent and denial rate of 32 percent. The rates for African-American borrowers were the inverse; the origination rate was 24 percent and denial rate 52 percent.

3. Borrower income does not account for the disparities in loan outcomes exhibited by applicant race/ethnicity. The disparity in home purchase loan origination rates between black and white applicants increased from 9.9 points for low-income borrowers to 27.5 points for upper-income borrowers.

Black applicants, regardless of income, were less likely to receive a home purchase loan.

The disparity in origination rates for refinance loans between black and white borrowers increased from 9.3 percentage points to 23.9 percentage points among upper-income borrowers. Black applicants, regardless of income, were less likely to receive a refinance loan.

4. Lending patterns reflect the city's segregated residential patterns.

Seventy-seven percent of all purchase loan originations to black borrowers were for properties in minority neighborhoods, compared to just 12 percent in both white and integrated neighborhoods. Sixty-two percent of all purchase loan originations to white borrowers were for properties located in white neighborhoods, compared to 23 percent in integrated neighborhoods and 14 percent in minority neighborhoods.

Refinance loans mirror residential patterns as they are for properties currently owned by the applicant.

Sixty-six percent of refinance loans to black borrowers were in minority neighborhoods, compared to 20 percent in integrated and 14 percent in white neighborhoods. Sixty-seven percent of refinance loans to white borrowers were in white neighborhoods, compared to 24 percent in integrated and 9 percent in minority neighborhoods.

5. The minority population of a neighborhood has a profound effect on loan outcomes.

For each percentage point increase in the minority population of a census tract, 12.5 fewer mortgages can be expected to be made. Borrowers purchasing homes in white neighborhoods experienced an origination rate of 51 percent and denial rate of 14 percent compared to an origination rate of 31 percent and denial rate of 26 percent in
minority neighborhoods.

A linear regression model was constructed to examine the relationship between the racial/ethnic composition of census tracts and the number of loan originations. It was found that for each percentage point increase in the minority population of a census tract, 12.5 fewer mortgages can be expected to be made.