New Report Finds FHA and VA Lending Disproportionately Prevalent in Neighborhoods of Color
Leading community organizations today report evidence of a two-tiered mortgage market characterized by disproportionately high rates of government-backed lending in communities of color and to minority borrowers. These findings are presented in a 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”) – loans 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 who refinanced their existing mortgages received government-backed loans more than three times as often as homeowners in predominantly white neighborhoods.
In Boston, FHA and VA loans constituted over half of all home purchase loans made in communities of color (51.5%) compared to just 27.7% in predominately white communities. More than six out of ten Latino homebuyers (63.5%) and nearly as many Black homebuyers (58.8%) in the Boston-area obtained government-backed home purchase loans, compared to just 27.7% of white homebuyers.
“These disparities are troubling. Homebuyers of color in Massachusetts should know that FHA loans are often not the best and most affordable option and be concerned if a lender does not explore other mortgage products with them,” said Tom Callahan. Executive Director of the Massachusetts Affordable Housing Alliance. “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, compared to 31% in predominantly white communities.
• Government-backed loans made up 27 percent of the refinance loans made in communities of color, compared to 8.2% in predominantly white communities.
• Government-backed loans made up 3 of every 4 home purchase loans made to black borrowers, and 2 of 3 loans to Latino borrowers, but only 35.9% of loans to white 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 Alexis Iwanisziw of the Neighborhood Economic Development Advocacy Project. 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 Jim Campen, who carried out the research on Boston are mortgage lending for MAHA, “stark inequities in mortgage lending that disproportionately affect borrowers and neighborhoods of color.”
This report is a collaboration of the Woodstock Institute, the Empire Justice Center, the Neighborhood Economic Development Advocacy Project, Reinvestment Partners, the California Reinvestment Coalition, the Massachusetts Affordable Housing Alliance, and the Ohio Fair Lending Coalition.
MAHAMassachusetts Affordable Housing Alliance
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Dorchester, MA 02124
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