Mortgage Lending

Latinos and Blacks were disproportionally the recipients of subprime loans, even when controlling for income and credit scores.  Among borrowers with the highest FICO scores (720 or higher), 13.5% of Latino and 12.8% of Blacks received high-cost loans, compared to 2.6% of White borrowers with the same credit scores.  (Federal Reserve Bank of San Francisco, 2009)

The reasons for this imbalance are manifold, but mainly stem from the fact that people of color most often received their mortgage loans from independent predatory lenders as opposed to traditional, federally-regulated banks.  In fact, only 25% of the subprime mortgages that are roiling the financial services industry today came from the major banks (Citibank, Bank of America, etc), while the rest came from independent mortgage companies like Ameriquest, Argent, and Countrywide, as well as from mortgage companies that spun off from the major banks.

The Home Mortgage Disclosure Act (HMDA), passed by Congress in 1975, requires all commercial banks to disclose their lending by race and ethnicity.  This government-mandated transparency has greatly increased the volume of home loans going to people of color, thereby greatly increasing homeownership opportunities for disadvantaged communities.

The following are some salient data regarding lending to potential borrowers of color from the recently-released 2008 Home Mortgage Disclosure Act (HMDA) from the Federal Reserve.

• Home lending in general is down 34% from 2007 and down 50% from 2006 (Note:  2006 was peak of Latino homeownership, with 49.7% of all Latinos in the US owning their homes.  Currently, 49.1% of all Latinos own their homes, a drop of 1.8 million Latino homeowners)
• The market share of Latinos among home purchase loan borrowers dropped the most during the economic crisis:  from 12.1% of all borrowers in 2006 to 8.5% of all borrowers in 2008.  In comparison, Black market share dropped from 8.7% of all borrowers to 6.3%.  Whites picked up market share from 62.7% of all borrowers to 69.1%.
• More Latinos have been turning to traditional banks (depository institutions) for their loans, and market share for Latinos has increased in neighborhoods where loans are reportable under the Community Reinvestment Act (CRA), known as 'CRA assessment areas.'  In 2006, 23.8% of all loans to Latinos were made in CRA assessment areas, while in 2008 47% of loans to Latinos are made in these areas.
• The drop in the market share of Latinos in the home refinance loan market was even more pronounced:  from 10.5% in 2006 to 5.7% in 2008.  For Blacks the drop was from 9.5% to 6.0%.  White market share increased from 61.3% to 72.5% in the same period.
• In CRA assessment areas, loans made to Latino borrowers increased from 29.4% in 2006 to 52.9% in 2008 and loans to Blacks in these areas increased from 20.9% to 39.9%.

Related Publications

Greenlining produces an annual report card that rates the major banks in California based on their lending to communities of color:

HMDA Fiscal Year 2008 Report

HMDA Fiscal Year 2007 Report