Mortgage lending continues to lock out many consumers of color. Troubling lending patterns across the country raise concerns for African-American and Latino borrowers, in particular. These patterns call into question the future of the housing market and the nation's ability to turn the tide of rising wealth inequality and continued residential segregation.
The communities that currently lack access to mortgages are the very same ones that were disproportionately targeted for predatory loans leading up to the foreclosure crisis. Consequently, these consumers lost the most wealth.
A recent
The dearth of conventional loans made to communities of color result in disproportionate usage of higher-cost and government-insured mortgages, such as those from the Veterans Administration and Federal Housing Administration. Most of these purchased homes are also located in minority census tracts. This pattern occurred even though most of these consumers were higher-income borrowers. Among African-Americans receiving mortgages, 79% had middle or high incomes relative to other households in their areas. Of Latino borrowers, 66% had similar income levels.
African-Americans received just 3% of the loans analyzed in the report and Hispanic borrowers received 22%. In addition, few conventional mortgages were made to either group of minority consumers.
Conventional mortgages are more affordable than FHA or VA loans in part because loans in these programs require insurance premiums to be paid for the life of the loan. This can result in a borrower paying far more than they would have on a conventional loan, with private mortgage insurance, which typically expires when a certain loan-to-value has been reached. Only about one-third of the loans made to African-American and Latino borrowers were conventional, compared to nearly 70% made to white borrowers.
While it would be simple to assume that borrowers to whom FHA and VA loans were offered over conventional simply did not qualify, most conventional loans being delivered are at "the top of the credit box." In other words, there are loans that would qualify under the underwriting standards, but that are not being made. This is puzzling and could be
This trend is all the more distressing because mortgages closed today are much safer than those of the risky past. The Dodd-Frank Wall Street Reform Act includes an Ability-to-Repay requirement for new mortgages that ensures that lenders confirm that a potential borrower can afford the loan. However, restricted access to credit post-crisis has resulted in the very same families and communities which have historically been financially disadvantaged, continuing to experience difficulty finding access today's qualified mortgages.
Earlier research found that borrowers of color have been financially responsible and built wealth through homeownership — when given sustainable loans. An analysis of loans made through the Community Advantage Program, also known as CAP, reveals this truth.
CAP loans — made to borrowers who were
Over the coming decade, people of color are
When done correctly, responsible mortgages help families of all colors build wealth and achieve the American dream.
Sarah Wolff is a senior researcher with the Center for Responsible Lending.