Seven affordable housing groups are urging the Department of Justice, HUD and federal regulators to investigate whether the prevalence FHA and VA lending in minority neighborhoods—and the low percentage of conventional lending—is a result of racial steering.
In a new report, the housing advocates document that government-backed loans make up 67% of home purchase loans in communities of color during 2010 and 27% of refinanced loans.
“Although FHA lending is a vital source of credit for borrowers of color, the disproportionate prevalence of FHA loans in communities of color raises fair lending flags,” the joint report says.
The groups examined mortgage lending in the Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York and Rochester using Home Mortgage Disclosure Act data.
In Charlotte lenders reported making 15,400 purchase loans: 52% were FHA and VA loans. (The figures cover 2010—not last year.) Only 370 of the 7,370 conventional loans were made in neighborhoods where 50% or more of the borrowers are black or Latino. Over 870 homebuyers received financing from government-backed loans in those minority neighborhoods.
“The findings show unequal provision of conventional, prime mortgages to black and Latino borrowers and communities of color, indicating that banks and other mortgage lenders continue to engage in redlining—raising serious concerns that illegal mortgage steering persists,” the housing groups write.
Generally, 60% or more of the conventional loans Fannie Mae and Freddie Mac purchase from lenders are refinancings.
In Charlotte, conventional loans accounted for about 60% of refinancings in minority neighborhoods.
The housing groups acknowledge that FHA will accept borrowers with lower credit scores and smaller downpayments than Fannie and Freddie. And FHA and VA loans “may be the only viable option for many borrowers,” the report says.
However, their analysis of the 2010 HMDA data shows a “pattern of two-tiered lending, in which borrowers and communities of color received disproportionately fewer conventional mortgages and disproportionately more government-backed loans than did white borrowers and communities.”
The report, entitled "Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending," is a collaboration of the Woodstock Institute, Empire Justice Center, Neighborhood Economic Development Advocacy Project, Reinvestment Partners, California Reinvestment Coalition, Massachusetts Affordable Housing Alliance and Ohio Fair Lending Coalition.
