Leading community organizations, including Empire Justice Center, today report evidence of a two-tiered mortgage market characterized by high rates of government-backed loans made both to borrowers in communities of color and to minority borrowers in their new report, “Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending.”
Data from home mortgage loans originated in seven US cities in 2010 show that black and Latino borrowers and borrowers living in communities of color received government-backed loans (“GBLs”) – insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) – significantly more often than did white borrowers. Borrowers who purchased homes in communities of color received government-backed loans twice as often as borrowers in predominantly white communities. Homeowners in communities of color received government-backed refinance loans more than three times as often as homeowners in predominantly white neighborhoods.
In Rochester, FHA and VA loans constituted a staggering 86 percent of all home-purchase loans made in communities of color–the highest rate among the seven cities in the study. Over three-quarters of the home-purchase loans made to black and Latino borrowers were FHA and VA loans. Homeowners in Rochester-area communities of color obtained government-backed refinance loans more than twice as often as homeowners in predominantly white communities, and black homeowners received them 2.7 times more often than white homeowners.
“These disparities are very troubling. Some people who were eligible for a more affordable conventional loan may have been steered into an FHA loan based on their race or where they live,” said Barbara VanKerkhove of the Empire Justice Center. “That is why, among other things, we are urging federal regulators to take a close look at FHA lending when doing fair lending exams,” added Charles Bromley of the Ohio Fair Lending Coalition.
Key Findings. Among the seven cities:
- Government-backed loans made up almost 67 percent of the home-purchase loans made in communities of color.
- Government-backed loans made up 27 percent of the refinance loans made in communities of color.
- Government-backed loans made up 3 of every 4 home-purchase loans made to black borrowers, and 2 of 3 loans to Latino borrowers.
- Black and Latino homeowners received government-backed refinance loans 3.5 and 2.1 times more often than white homeowners, respectively.
“These patterns are symptoms of a deeper problem: the lack of access to prime conventional loans by borrowers and neighborhoods of color – in other words, on-going redlining,” noted Spencer Cowan of the Woodstock Institute. Although banks are making conventional loans, the report’s analysis indicates their provision of conventional credit is far more restricted in minority communities and to people of color. The disproportionate prevalence of FHA loans in communities of color raises fair lending flags.
The report underscores the need for specific actions by policy makers to address systemic inequalities in housing finance, with the following recommendations:
- Fair lending enforcement has to be a top priority at all levels of government
- Regulators must ensure fair access to sound, affordable mortgages
- Mortgage servicers, securitization trustees, and banks should keep foreclosed properties in good repair.
- The Community Reinvestment Act should be expanded and vigorously enforced.
This is the 6th edition of the “Paying More for the American Dream” series. “Over the six years, one dimension of the lending patterns in our seven cities has remained persistent,” said Kevin Stein of the California Reinvestment Coalition, “stark inequities in mortgage lending that disproportionately affect borrowers and neighborhoods of color.”
This report is a collaboration of: Woodstock Institute, Empire Justice Center, Neighborhood Economic Development Advocacy Project, Reinvestment Partners, California Reinvestment Coalition, Massachusetts Affordable Housing Alliance, and Ohio Fair Lending Coalition. Other contacts include: Alexis Iwanisziw (212.680.5100 x.201), Tom Callahan (617.822.9100), Chip Bromley (216.410.3879), Kevin Stein (415.864.3980), Spencer Cowan (312.368.0310), Adam Rust (919.667.1000)