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Empire Justice: Lending cut in low-income areas

By: John Fulmer//June 24, 2010

Empire Justice: Lending cut in low-income areas

By: John Fulmer//June 24, 2010//

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A report released Wednesday by the Empire Justice Center shows prime mortgage lending decreased between 2006 and 2008, and documents that low-income and minority neighborhoods were hardest hit by the slowdown.

“The River Runs Dry: Decreased Access to Mortgage Credit in Rochester’s Underserved Neighborhoods” compares lending changes in those communities to changes in majority white and middle- and upper-income neighborhoods between 2006, the start of the foreclosure crisis, and 2008, the most recent year for which mortgage lending data is publicly available.

The report also includes lending maps for Rochester and Monroe County.

“The very communities that are suffering the most from the foreclosure crisis — neighborhoods of color and low-income areas — are finding it increasingly hard to access mortgage credit,” Barbara van Kerkhove, the report’s principal author, said in a release. “We are now seeing indications of redlining in these neighborhoods, places where, until recently, there was reverse redlining going on.”

One of the interesting aspects of the new study, van Kerkhove told The Daily Record on Thursday, is that while conventional lending has decreased, FHA loans have seen an upswing, but only for white and upper-income buyers. This is a bit forbidding because lower-income and minority buyers historically have used FHA loans to purchase homes, she said.

“That has been their way of accessing credit,” van Kerkhove said.

Also, van Kerkhove said refinancing is one way to get out of a bad loan, but it’s becoming more difficult for minorities and the less-affluent. To fix the problem, van Kerkhove said she would meet with local bankers and do some more analysis.

“We want to work with banks with innovative lending,” van Kerkhove said, adding that it was simply good business to give affordable loans and refinancing opportunities to the poor and minorities if done correctly. “We don’t want banks to make bad loans.”

Key findings include:

  • While access to mortgage credit tightened across the Rochester area between 2006 and 2008, low- and moderate-income and minority neighborhoods were hit harder than middle- and upper-income and predominantly white communities.
  • Prime-refinance lending declined by 59 percent in neighborhoods with 80 percent minorities, by 33 percent in areas with 50 to 79 percent minorities, but only by 8 percent in neighborhoods with less than 10 percent minorities. Prime-refinance lending declined by 49 percent in low-income neighborhoods, 20 times the 2.5 percent decline in upper income communities.
  • Conventional lending declined more steeply in lower-income and minority neighborhoods than in middle- and upper-income and majority-white communities, and it declined from 6,368 to 4,080 loans in neighborhoods with less than 10 percent minorities. It fell from 121 to 40 loans in 80-percent minority neighborhoods and from 361 to 168 loans in 50 to 79 percent 80 percent minority neighborhoods. In upper-income neighborhoods, conventional home purchase lending declined from 3,783 to 2,656 loans while it declined from 204 to 71 loans in low-income areas.
  • Conventional loans were less likely to cost more in 2008 than in 2006, but FHA loans were more likely to cost more, particularly in lower-income and minority areas. In 2008, 40 percent of FHA refinance loans in 80-percent minority neighborhoods were higher cost compared to 18 percent in communities with less than 10 percent minority makeup, and much higher than the 0 percent and 3 percent rates seen respectively in 2006. Twenty-two percent of FHA refinance loans made in low-income neighborhoods in 2008 were higher cost compared to only 12 percent of those in upper income areas, substantially higher rates than 0 percent and 1 percent respectively in 2006.

“This research confirms that homeowners in neighborhoods hit hardest by predatory lending and the foreclosure crisis are not getting refinance loans, one of the primary ways to get out of unaffordable loans. And we already know that loan modifications are happening at a snail’s pace,” said Ruhi Maker, a senior attorney at Empire Justice. “This is just another strike against our low-income and minority neighborhoods.”

Key recommendations include:

  • Expanding and modernizing the Community Reinvestment Act to better promote responsible lending and investment;
  • Updating the Home Mortgage Disclosure Act to include additional data necessary to keep pace with changes in the financial services industry and help identify discriminatory lending; and
  • Prioritizing federal and state fair-lending enforcement in lending and loan-modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.

The center released a report in May that showed the number of low-cost home loans made in the same period dropped significantly, and that minorities were affected most by the decline in lending. The study examined lending practices in seven cities, one of which was Rochester. The data compiled for that report piqued van Kerkhove’s curiosity and she dug deeper into the statistics.

The previous report also found that major banks receiving Troubled Asset Relief Program funds made significantly fewer loans in the neediest neighborhoods. At that time, van Kerkhove said taxpayers were led to believe banks would use TARP funds to invest in minority neighborhoods. That report also showed that prime-refinance lending in the seven cities’ white communities by the nation’s four largest banks — Bank of America, Citibank, JPMorgan Chase and Wells Fargo — was up by 32 percent between 2006 and 2008, but down 33 percent in minority neighborhoods.

The full report can be found at

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