The disparities extended even to subprime loans which, despite concentrations in minority neighborhoods, went mostly to white borrowers. During the six-year period, whites received more than 60 percent of these high-cost loans, which are most likely to lead to defaults and foreclosures.
But disproportionate numbers of subprime loans did go to minorities. African-Americans were three-and-a-half times more likely to have one as whites, and Hispanics about twice as likely. By 2009, even the subprime market had dried up for the two minority groups, with lending to African-Americans since 2004 down by 95 percent and to Hispanics by 92 percent, compared with 87 percent for Asians and 81 percent for whites.
Jourdain-Earl concedes that the big drops in subprime loans to the largest minorities could be interpreted as a positive development, but he adds: “At this point, African-Americans and Latinos are not even able to get high-cost subprime loans.”
The lending field was more level for mortgage loans backed by the Federal Housing Administration, which spokesman Brian Sullivan says has seen its share of the mortgage market jump from 3 percent to 30 percent since 2006. Compared with those for whites, loan approval rates were 19 percent lower for African-Americans, 13 percent for Hispanics and 9 percent for Asians.
On the other hand, the report found that the rapid growth has changed the racial composition of FHA-backed borrowers, with the higher percentages going to whites and Asians, and lower percentages to African-Americans and Hispanics. Jourdain-Earl questions whether FHA was acting in accord with its affordable housing goals.
Sullivan says the shifting racial balance of FHA borrowers merely reflected that whites predominate in the mortgage market and have turned to the agency in increasing numbers.
“That’s not because of any application of unfair lending practices, he says, speaking generally. “It was a consequence of what was happening in the marketplace.”
Sullivan notes, though, that the U.S. Department of Housing and Urban Development is investigating 22 lenders to determine whether their imposition of higher credit standards than FHA’s minimums has had a discriminatory impact on African-Americans and Hispanics.
Chris Herbert, research director of the Joint Center for Housing Studies at Harvard University, says the report has limitations in explaining why minorities fare less well in the housing market, a trend he acknowledges.
For instance, he says focusing only on first mortgages and comparing borrowers in the same income levels would provide a sharper picture of home-buying trends in particular, since African-Americans and Hispanics, on average, earn less than whites.
Academics at Harvard’s housing center and elsewhere are examining whether current credit standards are unduly restrictive and not justified by the economic situation.
In response to criticism from Herbert and the Mortgage Bankers Association, Jourdain-Earl says his focus was the flow of credit to different racial-ethnic groups, not the reasons behind the disparities.
“I wasn’t trying to ascertain the why but to shine a bright light on the outcome and the effects on wealth and homeownership rates,” he says.
In the study, Jourdain-Earl urges the FHA to study “the potential of adverse effects” from its credit standards and proposed that federal laws should require lenders to report on foreclosures, defaults, short sales and loan modifications, including the race and other demographics of those borrowers.
He also calls for implementing financial reform legislation enacted last year “in a way that promotes sustainable diverse lending.”
Reported by America’s Wire
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