Southern residents often pay more for mortgages, credit access: CFPB

New CFPB reports highlight the cost disparity for Southern residents related to mortgages, other credit products

Consumers in the Southern region of the nation tend to face increased difficulties with accessing credit and pay higher interest rates compared to other regions, according to new reports from the Consumer Financial Protection Bureau (CFPB). This also applies to mortgage financing, despite Southern residents applying for mortgage loans at the same rate as the rest of the nation.

In the “Consumer Finances in Rural Areas of the Southern Region” report, the CFPB compares consumer financial experiences and outcomes in rural communities in the Southern region to other regions. In the “Banking and Credit Access in the Southern Region of the U.S.” report, the data focuses on banking and credit access, and mortgage lending in particular, for both rural and non-rural areas of the region.

Key mortgage findings in the second report highlight the difficult road to mortgage financing for Southern consumers.

“While Southern rural consumers apply for mortgages at the same rate as consumers nationwide (19 per 1,000 residents), they are much more likely to have their applications denied (27% of mortgage applications are denied in the rural South compared to 11% nationally),” the CFPB states in the report. “Additionally, rural Southerners who obtain credit tend to pay higher interest rates on average, 3.51% compared to 3.13% nationally.”

The reports also notes that credit scores alone cannot account for the differences among regions. Both race and rural area residency appear to weigh more in terms of a consumer’s access to credit.

“People of color are more likely to be denied credit, compared to similarly-situated white borrowers, and rural Southerners are denied at higher rates than their non-rural counterparts,” the report states. “These trends hold true among applicants with both low and high credit scores.”

While there have been some recent gains in terms of consumers who are “unbanked” in the Southern region, these rates remain high in the certain states.

“Two states in the region, Mississippi and Louisiana, have the highest unbanked rates in the country, at 11.1% and 8.1% respectively,” the report notes. “The highest unbanked rates in the region are in rural communities and communities of color; for example, in Mississippi and Georgia, the rural unbanked rate is almost double the unbanked rate in metro areas.”

There are also auto lending challenges for Southern residents, as the region has higher delinquency rates related to auto loan borrowers when compared to rural borrowers in other regions.

“In rural Southern [persistent poverty counties], 20% of consumers are delinquent on an auto loan,” the CFPB states in the report. “Rural Southerners remain highly dependent on personal vehicles for transportation due to longer commutes and a lack of alternative transit infrastructure and may therefore be particularly impacted by difficulty obtaining an auto loan.”

“The rural South faces distinct challenges when it comes to fair access to banking,” CFPB Director Rohit Chopra said. “Understanding regional differences across the country will help us determine where financial marketplaces can work better for all.”

Still, the reports show signs of progress in certain areas, particularly in terms of mortgage access and rates of unbanked consumers.

“Some mortgage lenders have strong records of reaching historically underserved markets within the region, such as rural communities, low-income borrowers and borrowers of color,” the report states. “Government lending programs and lenders’ access to the secondary market may also play an important role in increasing credit access in underserved communities.”

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