- Non-banks continued their dominance of home lending, reported 57% of all originations.
- Just 7 of the 25 lenders that reported the most applications were banks.
- Of those seven banks the three largest, Wells Fargo, JPMorgan Chase, and Bank of America, reported just 16% of their lending went to LMI borrowers.
- The three largest non-banks made 26% of their loans to LMI borrowers.
- Banks remained out of the FHA/VA market. Virtually all of their mortgages were conventional loans.
- About half of LMI borrowers used FHA/VA loans to buy their homes. Black and Hispanic borrowers used FHA/VA 61% and 49% of the time, respectively.
- Modest increases in the share of loans to LMI borrowers suggests that banks started to find some conventional loan products that served the needs of these homebuyers.
- New data on loan price, racial subgroups, borrower age and other factors opens up new tools and makes possible new research to help communities.
- The end of easy public access to HMDA data is a further sign of the lack of transparency too common among regulators under this administration.
- Lower incomes, high housing costs and poor credit or no credit history continue to hamper black and Hispanic loan applicants.
The Consumer Financial Protection Bureau (CFPB) released the 2018 Home Mortgage Disclosure Act (HMDA) data on August 30, 2019, detailing mortgage lending information from nearly all lenders in the United States. HMDA is the most complete record of who makes mortgage loans, where they make them and to whom they make them. It is a critical tool for the public and local leaders to ensure lenders are not redlining in their communities, for consumer advocates who serve low-and-moderate income (LMI) or minority communities, regulators and lenders that want to make sure they are fulfilling their chartered obligations.
NCRC’s preliminary analysis of the new data reveals a troubling continuation of patterns we have observed in previous years.
Non-banks and independent mortgage companies not affiliated with a bank or credit union continued to take more market share, reporting 57.2%of all originations in the data this year. Sixty one percent of loans to black home buyers and 49% of loans to Hispanics made use of FHA, VA or RHS lending programs. The share of loans that featured one of these insurance programs declined again in 2018, to just 33% of all loans compared with 36.3% in 2017. Almost all of this decline is due to less FHA originations. Banks have generally reduced or eliminated their lending with these programs, leaving minority borrowers disproportionality served by non-banks. Lacking large assets or branches, non-banks are not regulated under the CRA. This potentially leaves minority borrowers exposed to issues such as steering, redlining or other predatory behavior that CRA examinations take into consideration. Modernization of CRA should include the expansion of CRA coverage to these non-banks, as some states have already done on a smaller scale.
Quicken took a commanding lead in originations in 2018 with 364,000 loans made, 121,000 of which were home purchase loans. Wells Fargo fell further behind this year in originations, making just 204,000 loans (114,000 home purchases). But Wells Fargo also purchased 374,000 loans, for a total of 578,000. Both of these are lower than they were in 2017, when Quicken made 396,000 loans and Wells made 312,000 and purchased a staggering 481,000 loans. In total, Wells Fargo reported 214,000 fewer loans in 2018 than they did in 2017.
Just seven of the top 25 mortgage lenders are CRA regulated banks. While overall banks fell short of non-banks in lending to minority applicants or in LMI neighborhoods, the banks in the top 25 performed about as well as the top non-bank lenders. But even among the top banks, lending to LMI borrowers fell far behind the top non-banks, with the three largest bank lenders averaging just 15.8% of their loans to LMI borrowers, compared to 25.9% of the top three non-banks’ loans. According to the 2011-2015 American Community Survey and data from the Department of Housing and Urban Development there are about 133 million Americans that meet the qualifications to be considered low or moderate income, roughly 42 percent of the country.
The new 2018 data indicates that there was little or no gain in the share of loans going to LMI and minority applicants. Home purchase loans to LMI borrowers were 28.1% of all loans, an increase of 1.8% from last year. Loans to upper income borrowers declined by about the same rate. Loans with a black applicant increased just slightly in 2018, while other minority groups saw virtually no change at all.
The share of LMI borrowers that rely on government-backed FHA loans continued to decline, dropping sharply from 46.2% in 2017 to just 41.4% in 2018. FHA loans have several advantages over conventional loans which make them particularly attractive to LMI buyers, among which are low down payment requirements and more flexibility in terms of credit score and debt-to-income ratio. However, FHA lending tends to come with higher fees that the borrower pays over time and in recent years conventional products that have low down payment options have become more popular. In 2018, black and Hispanic borrowers paid substantially more for their loans than white and Asian borrowers.
Lower incomes, high housing costs and poor credit or no credit history continued to hamper black and Hispanic loan applicants. Over 69% of denials for black homebuyers and 63% of Hispanic buyers were denied due to one of these three reasons, compared with just 60% of white applicants. These continued disparities in lending to minorities hold back these families from building wealth. The gaps in wealth and homeownership between black and white Americans are wider now than they were when segregation was legal.
This year, HMDA incorporated for the first time new data points outlined by the Dodd-Frank Act of 2010. These new features include details on exactly what borrowers paid for their loans, how much they borrowed in relation to the value of the property, the age of the borrower and more specific information on their race.
After years of complaints from our members that some racial subgroups faced barriers to accessing credit, HMDA now includes more detail on these groups. For instance, the data reveals that nearly 38 percent of loans made to a Hawaiian or Pacific Islander now detail if the borrower is a native Hawaiian or from elsewhere in the Pacific region. Forty-one percent of Hispanic applicants shared details about their place of origin and 54 percent of Asian applicants did so as well. This is an important step forward for transparency and fairness in mortgage lending and allows lenders, community advocates and lenders a much better way to gauge where mortgage credit is flowing and what barriers might be leading to the disparate impact of underserved communities. Over the coming months, NCRC will be examining the real cost that borrowers paid for their loans in ways that were impossible before, and where barriers to credit exist based on the age and heritage of the loan applicant.
Almost 1.2 million loans that were purchased by lenders in 2018 lacked borrower income data and 1.3 million lacked borrower race or ethnicity data. This loophole in HMDA reporting requirements continues to mask the true extent to which minorities and LMI borrowers are excluded from the lending market. In addition, the choice by the CFPB to withhold the release of the credit score used to make the credit decision on these loans is disappointing. Citing privacy concerns, the credit score is a key piece of the puzzle used to identify redlining and discriminatory lending, given that this data is freely available for purchase from a variety of sources, The CFPB could safely anonymize the data and still further the public interest in furthering fair and equal credit access.
Unfortunately, while the Dodd-Frank Act of 2010 brought us new details about mortgage lending that open up broad and exciting new options for research, the Trump Administration has done all in its power to make it harder for the general public to examine these lenders. The HMDA Explorer website, which allowed users to easily download or compare lending across a variety of metrics, will sunset with this new data. The replacement that has been developed is harder for average users.
Since the inception of HMDA, reports on lending for individual metro areas and lenders have been published and made available to the public. Small community groups, municipalities and concerned individuals could review these records and ask lenders about their performance. Many of those reports will no longer be published. While NCRC and other organizations with sophisticated data analysis capabilities will continue to use HMDA, the general public will be left in the dark.
That’s a step backward. Free, public and easily understood data is essential to advance racial and economic equality throughout the economy and especially in home mortgage lending, a foundation of personal wealth-building and a key lever of discrimination that has profoundly worsened racial wealth inequality over decades.
Jason Richardson is NCRC’s Director of Research and Evaluation.