CRL research finds low lending levels perpetuate racial wealth gaps and segregation.
Mortgage lending in the nation's most populous state continues to lock out many of California's consumers of color, finds the Center for Responsible Lending (CRL). A new analysis of first-lien, owner-occupied home purchase mortgages made from 2012-2014, reveal a lack of access to conventional mortgages for many Latino and African-American consumers. These troubling lending patterns perpetuate racial wealth gaps and housing segregation.
"These post-crisis mortgage lending trends in California help to inform our continuing national discussion of homeownership and the importance of responsible mortgage credit," commented Sarah Wolff, report author and a CRL senior researcher. "The communities that lack access to mortgages post-crisis are the very same communities that were disproportionately affected by foreclosures and lost wealth during the housing crisis."
CRL's analysis of Home Mortgage Disclosure Act (HMDA) data in California found that:
- More than two-thirds of homebuyers in every race or ethnic group had middle or high incomes for their area;
- Among African-Americans receiving mortgages, 79 percent had middle or high incomes relative to other households in their areas. Similarly, among Latino borrowers, 66 percent had these same income levels.
- Few conventional mortgages, the most affordable and sustainable loans, were made to African-American and Latino consumers; and
- The dearth of conventional loans to African-Americans and Latinos results in disproportionate usage of higher-cost government-insured mortgage loans such as VA and FHA. Most of these purchased homes are also in majority minority census tracts.
"Recent law [Dodd-Frank Wall Street Reform Act], has made today's loans much safer for borrowers than those of the past," states the report. "Most importantly, the law's Ability-to-Repay requirement ensures that lenders confirm that a potential borrower can afford the loan. However, restricted access to credit in the post-crisis period has resulted in the very same families and communities which have been historically disadvantaged finding it difficult to access today's responsible mortgages."
CRL's analysis found that Asian-Americans were the only consumers of color to enjoy broad mortgage access in California. Whites and Asian-Americans combined accounted for more than 75 percent of all mortgage loans reviewed during the study period.
The report also analyzes four large California counties: Alameda, Fresno, Los Angeles and Solano. While regional differences are apparent, statewide trends were also evident in these counties. For example, African-American consumers who represent 14 percent of Solano's population, received only 8 percent of that county's loans and 72 percent of those were government-insured loans.
Similar figures for African-Americans were consistent in the other three counties studied, with African-American borrowers in both Los Angeles and Alameda Counties receiving 4 percent of respective county loans. In Fresno County, African-Americans received only 2 percent of that county's mortgage loans.
Smaller lenders focused on these populations and geographies compared with larger lenders. Although California's largest lenders made the greatest number of loans to African-Americans and Latinos, these loans represented a much smaller share of overall originations among the state's largest lenders. By contrast, some smaller lenders, though generating fewer loan totals, appeared to focus on serving Latino borrowers in particular.
Over the coming decade, people of color are expected to represent three-quarters of all household growth. The report also connects its findings to these shifting national demographics.
"If the trends found here continue, few families will become homeowners, with implications for overall national wealth and for the health of the real estate market," concluded the report.
For information on CRL's mortgage research, visit: http://www.responsiblelending.org/issues/mortgage-lending
For more information or to schedule an interview, contact Charlene Crowell at charlene.crowell@responsiblelending.org or 919.313.8523