Mortgage giant Freddie Mac said on Monday that the racial gap in home valuation is a real phenomenon, hampering the wealth-building power of homeowners in black and Latin neighborhoods.
The company has released an analysis showing that valuations are likely to be below contract prices for census homes and a high proportion of black and Latin households. The conclusions were based on Freddie Mac’s survey of 12 million valuations ordered for purchase transactions from 2015 to 2020.
Rating gaps are important because it creates a barrier for black and Latin American consumers who want to buy a home.
Michael Bradley, Senior Vice President of Modeling, Econometrics, Data Science and Analytics at Freddie Mac, said:
Measurable racial gap
Freddie Mac’s study added data points to the claim that appraisers may unknowingly underestimate non-white homes. Of course, valuing a home is an inaccurate art, so Freddie compared the valuated value to the purchase price the buyer agreed to pay.
According to the survey, predominantly black and Latin American census homes were often assigned lower than contract prices than white census homes. Only 7.4% of homes in the white area experienced undervaluation, while 12.5% of homes in the black area were valued at a price lower than the contract price.
In addition, Freddie Mac found that the appraisal gap widened as black or Latino residents concentrated in the census area.
According to Freddie Mac, the criminal is not a small number of untapped appraisers. The majority of appraisers who completed appraisals in both minority and non-minority areas created statistically significant gaps.
According to the survey, lenders will continue to investigate “the complete root cause of the gap.”
Housing industry aims for appraisal gap
Freddie’s work reflects a new focus on racial inequality by leading companies in the housing sector. Earlier findings on the same topic found that a 2018 study by the Brookings Institution found that black-owned homes averaged $ 48,000 undervalued.
And this year, Chase invested $ 3 million in the Institute for Appraiser Diversity. Mega Bank said its goal was to “eradicate prejudice in the housing appraisal process.”
In another statement on Monday, the Evaluation Institute praised Freddie Mac for investigating the matter.
“Unconscious prejudice is a reality and exists in every industry,” says trade associations. “Appraisals are part of a larger ecosystem, and appraisal groups work with consumer groups, real estate brokers and agents, banks, government agencies, think tanks, etc. to see where housing inequality comes from. We are investigating whether we should consider a combination of solutions. “
Assessments are only part of the stubborn racial disparity in the US housing market. African Americans are less likely to own a home because they are generally less wealthy. Also, if you own a home, you are likely to have a higher mortgage payment rate.
Black homeowners often struggle to build long-term wealth because their assets are undervalued. There is no easy way to challenge or change a rating.
Black homeowners, such as those living in Chicago’s South Side, often struggle to build long-term wealth because their assets are undervalued. There is no easy way to challenge or change a rating.
Freddie Mac reports that the rating gap in black neighborhood homes is realistic and permanent.
Source link Freddie Mac reports that the rating gap in black neighborhood homes is realistic and permanent.