By J. K. Schmid
The legacy of redlining continues to undermine Black homeowners, a new Freddie Mac study finds.
Fair and equitable access to home loans and insurance are key conditions in securing a home, and the math starts with the appraisal.
The research finds an “appraisal gap,” Black and Latino homebuyers and sellers are trading and financing homes at a reduced valuation compared to contract price, the value for which the home really sells. This initial undervaluation cuts into any profits from a sale that Black homeowners might hope to achieve as they make improvements to their property and the home gains value, in a free and fair market.
Black homes are being appraised at 12.5% less than the contract price, an 8% gap behind Whites. The gap increases as studied tracts increase in the proportion of Black homeowners, buyers and sellers.
The study went deeper to find that this is not attributable to one or a few appraisers, but is an industry-wide failing.
On the other side of these bad appraisals, Blacks and Latinos are paying more for homes of less value.
“An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller, but it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American Dream, in the first place,” Michael Bradley, senior vice president of modeling, econometrics, data science and analytics in Freddie Mac’s Single-Family division, said in a press statement. “This is a persistent problem that disproportionately impacts hundreds of thousands of Black and Latino applicants.”
Home ownership remains the cornerstone of generational wealth building in the United States, it is the aspiration and anchor of any middle class.
The study analyzed 12 million appraisals across 30 metropolitan districts from 2015 to 2020. The study was limited to transactions within the Freddie Mac program.
Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC), is a government-chartered mortgage buyer, created in 1970 to expand the secondary mortgage market. Freddie Mac has over $2 trillion in mortgage assets.
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