2009 HMDA Report Shows Setbacks for Blacks, Latinos
Charlene Crowell | 9/28/2010, 6:59 p.m.
CRL Terms Findings a National Tragedy
In the 1930s movie classic, It's a Wonderful Life, a family run savings and loan was the only opportunity in a town for working families to secure a mortgage and know the pride of home ownership. Fast forward to 2009, and the available financial tools to home ownership are still elusive, especially for people of color.
According to the recently released Home Mortgage Data Act (HMDA) Report, last year African-Americans and Latinos experienced "notably higher" application denial rates than those experienced by white applicants. Moreover, this disparity existed even when taking risk factors into account whether the application was for a home purchase or refinance of an existing loan.
An analysis by the Center for Responsible Lending (CRL) termed the new HMDA report as one indicator of a "national tragedy" for its "far-reaching and highly disturbing mortgage trends". Beyond the higher rate of mortgage loan denials, African-American and Latino borrowers who do get mortgages are also likely to pay more for them once approved. They also face a higher share of foreclosures.
According to the CRL, "A superficial look at the mortgage situation today might make it tempting to conclude that low and moderate income borrowers and borrowers of color simply had too much access to credit before the housing bubble burst. However, research indicates that the problem went deeper, extending to systemic risks that originated in the mortgage market itself."
"If there had been high access to sustainable mortgages, the subprime market would have behaved quite differently", continued CRL. "In fact, empirical research shows that high foreclosures have largely been driven by defective mortgage products and push-marketing families into bad loans."
The HMDA report covers mortgage lending transactions at 8,124 financial institutions across the country and includes information from banks, savings associations, credit unions and mortgage companies. The specific data available through the report covers applications, originations, purchases of loans, denials, and other actions such as incomplete or withdrawn applications. Most importantly, the report includes information on applicant race, ethnicity, sex, household income and census tract composition.
HMDA, which was enacted by Congress in 1975, requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the government, and make the data publicly available. In 1989, Congress expanded HMDA data to include information about denied home loan applications and the race, sex, and income of applicants and borrowers. In 2002, the Federal Reserve Board amended the HMDA regulations to require lenders to report price data for certain higher-priced home mortgage loans, and other new data.
For 2009, about 15 million applications resulted in nearly nine million loan originations and 4.3 million loan purchases. Additionally, 210,000 requests for pre-approvals did not result in a loan.
The report also revealed a growing reliance on loans backed by government insurance such as the Federal Housing Administration (FHA) and/or Veterans Administration (VA). For home purchases, FHA's share of first-lien loans grew from only seven percent in 2007 to 26 percent in 2008 and 37 percent in 2009. Although VA lending represented a smaller market percentage, increases were also evident, growing from 2.7 percent in 2007, to 4.9 percent in 2008 and 6.7 percent in 2009.
With more than 2.5 million foreclosures in recent years and several million more projected in the continuing crisis, CRL is focused on what can be done to avoid another subprime fiasco. For example, CRL has testified before Congress on the effects of credit scoring and its relation to loan decisions, and in turn, HMDA results. Currently, lenders do not report credit scoring data.
While the implementation of the new Dodd-Frank Wall Street Reform Act is an important first step towards systematic change. The new Consumer Finance Protection Agency, also authorized by Dodd-Frank is expected to become operational and of service to the public by next year. Even so, CRL believes much more remains to be accomplished.
GSE reforms that tie government guarantees on mortgage securities to responsible and sustainable loans; Vigilance in ensuring that FHA continues to focus on its key mission of supporting homeownership opportunities for under-served communities, safeguards to ensure that all banks - especially those that receive access to low-lending rates through the Federal Reserve - have a commitment to fair lending practices.
To review the complete CRL issue brief, visit:
Charlene Crowell is the Center for Responsible Lending's communications manager for state policy and outreach. She can be reached at: Charlene.firstname.lastname@example.org