By Joe Light
As the housing recovery continues in fits and starts, black and
Hispanic borrowers are receiving a smaller share of mortgage loans,
according to Federal Reserve data.
The report, released Monday, comes as some lenders face lawsuits
alleging they aren't making enough loans to minority borrowers.
Since the financial crisis, banks have tightened credit
standards beyond the criteria typically allowed by government
agencies such as the Federal Housing Administration or
mortgage-finance companies Fannie Mae and Freddie Mac to avoid
regulatory problems. Some of the regulators themselves also have
raised fees they charge or heightened standards.
Lenders worry that if borrowers default, regulators might find
defects in the loans and force lenders to pay penalties. Banks have
paid billions of dollars since the financial crisis to settle cases
with the government over poor lending practices during the housing
boom. Fannie and Freddie don't make loans but instead buy them from
lenders and package them into securities that are sold to other
investors. During the financial crisis, many of those securities
soured, eventually leading the government to take over the
companies.
In part because black and Hispanic borrowers tend to have lower
incomes and less-favorable credit histories, those groups have been
disproportionately affected by the tough new standards, bankers and
consumer advocates said.
"It's just simple math," said David Stevens, CEO of the Mortgage
Bankers Association. "Tightening the credit [rules] has an
unusually high impact on minority borrowers."
The latest figures suggest the government's effort to collect
penalties for past mistakes continues to weigh on lending decisions
years after the financial crisis ended.
Overall, the Federal Reserve report found that the number of new
mortgage loans made in 2013 declined 11%, to 8.7 million, as
interest rates rose. The number of loans made to purchase homes
increased 13%, to 3.1 million, while refinance loans decreased 23%,
to 5.1 million.
At the same time, the share of loans made to black and Hispanic
borrowers to buy homes has declined. In 2013, 4.8% of loans made to
buy homes were made to blacks while 7.3% of such loans were made to
Hispanic borrowers. In 2012, the groups accounted for 5.1% and 7.7%
of such loans, respectively. Those groups combined accounted for
more than a fifth of such mortgages in 2006.
"We keep hearing reports that minority borrowers are being
priced out of the market or can't get loans at all," said Barry
Zigas, director of housing policy for the Consumer Federation of
America.
Overall, about 19% of loans to buy homes made by all
institutions were to minority borrowers, according to the Fed
report, compared with 20% of such loans in 2012. At Quicken Loans
Inc., about 13% of loans were made to minorities in 2013, while at
U.S. Bank, which is part of U.S. Bancorp, 11% were made to such
borrowers.
Quicken Loans chief economist Bob Walters said all of the
company's applications come via its website or the telephone,
making it difficult to assess the ethnicities of borrowers who
choose not disclose it. Mr. Walters said the proportion of loans
made to low- and moderate-income buyers is consistent with that of
other lenders.
A U.S. Bancorp spokesman didn't respond to requests for
comment.
More than a fifth of home-purchase loans were made to minorities
at Wells Fargo & Co.'s Wells Fargo Bank, J.P. Morgan Chase
& Co.'s J.P. Morgan Chase Bank, Bank of America Corp. and
Citibank, part of Citigroup Inc.
In 2013, 10% of loans to buy homes were from borrowers with a
credit score under 660, on a scale of 300 to 850, according to the
Urban Institute, a think tank in Washington. In 2012, that was the
case for 13% of such loans; in 2001, it was 24%.
Many consumer advocates and banks generally agree the decline in
the share of lending to minorities is a result of lenders' and
regulators' more-stringent credit requirements. Even though the FHA
allows some borrowers to have a credit score of as low as 580, many
lenders won't lend to borrowers with a score below 640.
Lenders blame the tougher limits on recent penalties exacted by
federal officials for mistakes made on loans during the housing
boom. That, combined with the high cost of servicing a loan in
default, has led some banks to mostly avoid riskier borrowers.
White House officials over the past few weeks have met with
lenders and consumer advocates in part to hear what changes could
be made to ease lenders' fears.
In his first major policy speech last week, Julián Castro, the
new secretary of the Department of Housing and Urban Development,
said one of his priorities will be to clarify the rules and
penalties for loans insured by the FHA, which HUD oversees.
Another factor hindering minority borrowing: Homes in black and
Hispanic neighborhoods lost more in value than those in other
areas, said Stan Humphries, chief economist of real-estate
information service Zillow Inc.
Home values are down about 10% from the peak in neighborhoods
where whites outnumber all other ethnic groups, according to
Zillow. Home values are down 20% in predominately black
neighborhoods and 26% in Hispanic neighborhoods, according to
Zillow.
That makes it more likely for black and Hispanic borrowers to
owe more than their home is worth and to be unable to buy a new
home or refinance their mortgage, Mr. Humphries said.
This month, New York Attorney General Eric Schneiderman sued
Evans Bank of Hamburg, N.Y., for allegedly avoiding making loans in
black neighborhoods in Buffalo. In May, the city of Providence,
R.I., filed a lawsuit against Banco Santander SA, making similar
allegations. The banks have disputed the allegations.
Write to Joe Light at joe.light@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires