The racial wealth gap at the low end of the mortgage distribution: Evidence from smallest dollar mortgage lending in Metro Detroit

Abstract

Does small-dollar lending help to close the racial wealth gap in Metro Detroit? Using data from the Home Mortgage Disclosure Act on the 2,236 smallest-dollar loans made in the Metro Detroit region from 2018 to 2021, we find that lending at the low end of the mortgage distribution perpetuates the racial wealth gap. Specifically, we find Black borrowers are more leveraged, have less purchasing power, and thus experience far less wealth-building potential through homeownership than White borrowers. Moreover, homeownership is more expensive in majority-Black neighborhoods in Metro Detroit than it is in majority-White neighborhoods, leaving borrowers little room to accumulate equity in their homes. Implications for homeownership as a mechanism to close the racial wealth gap are discussed.