Many minority and lower income families continue to be shut out of the home-buying market because of serious racial and economic disparities in obtaining mortgages, according to a report released today by the Association of Community Organizations for Reform Now (ACORN).
The group used data available under the Home Mortgage Disclosure Act to examine such factors as denial rates, number of originations and number of applications for borrowers of different races, ethnicities and incomes, as well as for borrowers who live in neighborhoods of different racial and economic demographics. ACORN looked at home purchase loans originated in 2003 and compared those figures with those from 2002, 1998 and 1993.
In 2003, the country’s home-ownership rate rose to 68.3 percent, but the rates differed greatly among different ethnic groups. Whites, for example, had a home-ownership rate of 75.1 percent in 2003, while the rate among African-Americans was 48.4, a slight decrease from a year prior. For Latinos, the rate remained at 47.4 percent.
The report concludes that in addition to inequalities in getting mortgages, an increasing number of minority and lower-income homeowners are paying more for credit and are at a greater risk of losing their homes. This is due to the prevalence in lower-income and minority neighborhoods of “subprime lending with its inflated prices and attendant predatory abuses.”
The study discovered that the disparity between minority and white loan denial rates fell from 1993 to 1998, but by last year had returned to 1993 levels.
African-Americans were 2.2 times more likely than whites to be denied when applying for a conventional loan in 2003. In 1998, African-Americans were 1.8 times more likely than whites to be denied.
Latino applicants were 1.6 times more likely than whites to be denied in 2003, an increase from 1998 when Latinos were 1.4 times more likely to be denied. In 1993, they were 1.7 times more likely to be denied.
Minority home buyers saw a dramatically larger percentage increase than whites in the number of conventional loans they received from 1993 to 2003, but a significant portion of the increase in loans to minorities was due to higher cost subprime loans, the report concludes.
For example, the number of conventional home purchase loans originated to Latinos grew by 347 percent from 1993 to 2003, while rising 206 percent for African-Americans and 64 percent for whites. Of the conventional loans made, however, subprime loans accounted for 23.3 percent of those made to Latinos, 25.4 percent of those made to African-Americans and 8.2 percent of those made to whites.
The report also found that low- and moderate-income neighborhoods continue to be underserved by conventional lenders. Low- and moderate-income Census tracts account for 31.3 percent of the country, but received just 15.3 percent of the conventional loans in 2003. In contrast, upper-income neighborhoods make up 25.6 percent of the country and received 39.7 percent of the conventional home purchase loans.
There has been some progress in that area, however. Low- and moderate-income communities are receiving a greater portion of the conventional home purchase loans being originated compared to 1993 when they received 9.9 percent of the loans originated. In 1998, they received 10.9 percent of the loans originated.
Government-backed loans (Federal Housing Administration, Veterans Administration and Farm Service Agency/Rural Housing Service backed loans), continue to account for a far greater portion of the purchase loans to minorities than of those to white borrowers, the study found.
Government-backed loans accounted for 25.7 percent of home purchase loans received in 2003 by African-Americans and 21 percent of those received by Latinos. That’s compared with 12.9 percent of the loans to whites.
In the report, ACORN offers several recommendations, including strengthening the Community Reinvestment Act, which directs banks to meet the credit needs of the communities in which they are located. The group also calls for the reversal of Office of the Comptroller of the Currency’s preemption of state laws affecting national banks. Other recommendations ask for Congress and state legislatures to pass strong anti-predatory lending laws and for regulators to do more to prevent property flipping and other appraisal fraud.
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