Discrimination is an ugly, pervasive problem. Even in real estate. Americans have come a long way over the course of history, but we still have work to do, especially in Chicago. I can think of at least three areas that need work: the undervaluing of many minority-owned properties, the over-taxing of Cook County's poorer neighborhoods, and the bias against minority homebuyers in automated mortgage underwriting.
As with any problem, these topics need needs to be examined, talked about and understood until we find effective solutions…and can
provide equal access to home ownership for all.
As I mentioned, here are three situations plaguing the Chicagoland real estate scene (there are more, to be sure). To be frank, the third was a real eye-opener in our office.
1. Minority owned properties are undervalued
No matter your heritage or zip code, your home is typically your largest financial asset and best potential wealth builder. Sadly, racism and bigotry have consistently blocked Black Americans from building wealth as properties in minority dominated areas are consistently undervalued compared to properties in other parts of the larger community. Brookings institute research suggests that in Chicago, property values of homes in majority Black neighborhoods are 28% lower. Nationwide, these racial biases have cost Black Americans more than $150 billion. Yes, billion.
2. Poor neighborhoods in Cook County are over-taxed
A 2017, Chicago Tribune/Propublica investigation found that Cook County consistently assessed taxes for residential properties in poor and minority neighborhoods at rates far higher than their actual market values. Conversely, taxes for properties in affluent areas were assessed lower than their actual market values. This meant, come tax time, poor and minority homeowners typically paid more than their fair share; while the affluent paid less.
What can you do? Our firm has long advocated that our clients contest their property assessments. And recommend that everyone do so at every opportunity.
3. Automated mortgage underwriting is biased against minority homebuyers
Right now, automated loan underwriting is the darling of the mortgage industry. Financial technology (FinTech) allows almost-instantaneous loan decisions that otherwise take up to 60 days to complete manually.
Not only is this supposed to be easier on consumers (and less labor intensive for lenders), one would think that taking the human element out of underwriting would rid the process of bias and discrimination. It turns out that one would be wrong.
This study from University of California, Berkeley, suggests that even online, mortgage lenders (unintentionally) stack the deck against Black and Latino homebuyers as software developers inadvertently built the same “logic” human loan officers use into their software.
As convenient as online applications and underwriting may be, not all lenders and not all loan programs are the same. Smart consumers comparison shop. Some programs price loans to minority borrowers higher because statistically, these buyers are less likely to shop for terms from other lenders.
How can you fight lender discrimination? Stay informed. Ask good questions. And, when it comes to getting a mortgage, always get at least one second opinion.
We work with some of the best mortgage professionals in all of Chicagoland, well suited to help all Chicagoans find the best loan products. Let us know if you’d like an introduction to any of them.
Learn more about valuation differences here:
The Devaluation of Assets in Black Neighborhoods from the Bookings Institute
Learn more about property tax disparities here:
Cook County Property Taxes Favor the Rich and White, Lawsuit Says by Courthouse News
Learn more about the problems with automated loan underwriting here: Are you a minority borrower? You may want to think twice about using an online lender By Tracy Jan