Washington, DC — Today, the National Community Reinvestment Coalition (NCRC) said that new data released by the Federal Financial Institutions Examination Council showed continued constriction of credit, particularly for low- and moderate income communities and communities of color, and significant disparities in lending by race.
The volume of home lending was 7.1 million loans in 2011, the lowest since 1995, according to the Federal Reserve Board. Lower income borrowers, borrowers purchasing homes in lower income tracts, and borrowers purchasing homes in predominantly minority tracts experienced large drops in home purchase lending. Credit scores for borrowers are the highest in twelve years, indicating a significant contraction in lending.
“While national indicators suggest that a housing recovery is in its early stages, clearly the housing crisis continues to have a disproportionate adverse impact on low and moderate income people and communities of color,” said NCRC President and CEO John Taylor. “The housing recovery might be occurring for some, but this data suggests that it is not occurring for underserved populations.”
Lending in distressed census tracts, or those deemed distressed by the Neighborhood Stabilization Program, remains depressed and declined by a larger percentage since 2010 than in non-distressed census tracts. Highly distressed tracts suffered lending declines of 13.8 percent compared to 3.3 percent for non-distressed tracts. The overall decline in lending was 7.2 percent from 2010 to 2011.
“This latest data shows a number of very disturbing trends,” said Taylor. “It has gotten even harder for people of color and people of low- to moderate- income to access credit in the financial markets. In addition, refinancing out of higher interest rate loans to loans with historically low rates in today’s market is much harder for minorities, who are experiencing much higher denial rates in the refinance market. This impedes recovery from the foreclosure crisis for the hardest hit communities.”
About 40 percent of African-American applicants and 32 percent of Hispanic white applicants are denied refinance loans compared to 20 percent for white non-Hispanics. When borrower and lender factors are accounted for, the rejection rates for conventional refinance loans decline to 32.1 percent, 26.6 percent, and 20 percent for African-Americans, Hispanic whites and non-Hispanic whites, respectively. Even after controlling for various factors, the rejection rates for minorities remain significantly higher than for whites.
“The point is, those working-class people and minorities who have already been through the mortgage gauntlet are finding the bar raised even higher as they try to refinance into more affordable loans,” said Taylor. “This is patently unfair and un-American.”
Minorities also remain much more likely to receive FHA loans. While FHA has preserved access for traditionally underserved borrowers during the crisis, FHA loans are more expensive than conventional loans. Stakeholders must take steps to reduce the disproportionate incidence of FHA lending for minorities. For home purchase lending, 21.6 percent and 78.4 percent of African-American borrowers received conventional and government-backed loans, respectively. For Hispanic whites, the split was 29.2 percent and 70.8 percent and for white non-Hispanics, the split was 53.3 and 46.7 percent in 2011. The incidence of government-backed loans for all races declined from 2010 to 2011 but declined to a greater extent for non-Hispanic whites.
The top 10 lenders had about 37 percent of all HMDA-reportable originations in 2011, about the same as 2006. Lending by the 10 largest lenders fell more in 2011 from 2010 than lending by other institutions (17 percent compared to 2.6 percent).
Taylor concludes, “Too big to fail may also mean too big to lend. Regulators need to ensure that the market remains competitive and robust as we recover from this crisis.”
About the National Community Reinvestment Coalition (NCRC):
The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development, and vibrant communities for America’s working families.