By: Todd Etshman//July 20, 2012
By: Todd Etshman//July 20, 2012//
A collaborative report released today by the Empire Justice Center in conjunction with six other community organizations nationwide indicates minority borrowers and borrowers who purchase homes in communities of color receive far more government-backed loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs than conventional loans.
Information for the report came from 2010 Home Mortgage Disclosure Act data in Rochester, Boston, Charlotte, Chicago, Cleveland, Los Angeles and New York City.
In Rochester, over 86 percent of home purchase loans made to borrowers in communities of color were FHA and VA loans, the highest rate among the seven cities in the study.
Conversely, less than half of homeowners in predominantly white areas of the city received government-backed loans. Over 75 percent of all home-purchase loans made to black and Latino borrowers in the city were either FHA or VA loans.
“This is scary. We’re not sure what it means but the disparities are very troubling,” said Barbara VanKerkhove, a policy analyst at Empire Justice Center.” Some people who were eligible for a more affordable conventional loan may have been steered into an FHA loan based on their race or where they live.”
Receiving a government-backed loan isn’t necessarily a bad thing but minority consumers should have a mortgage choice, which they clearly don’t, said Ruhi Maker, Empire Justice senior staff attorney.
“It limits their options,” Maker said. “The bank might qualify someone with a lower credit score. It’s about having a choice. It’s a different product than a conventional loan. If somebody wants to get a Camry then they shouldn’t be forced to get a Corolla.”
Government-backed mortgage loans tend to have a higher interest rate, may have more fees and have higher foreclosure rates than conventional loans, VanKerkhove explained.
“The history around the FHA is not too pretty. When the FHA started lending, there used to be red lines around the communities they were concerned about and they’d make people in those areas go through more hoops,” she said, suggesting that redlining may still exist today.
The report is the sixth in a series entitled “Paying More for the American Dream,” which examines systematic inequalities in the housing finance system and their impact on lower-income neighborhoods and communities of color.
“Over the six years, one dimension of the lending patterns in our seven cities has remained persistent, stark inequities in mortgage lending that disproportionately affect borrowers and neighborhoods of color,” said co-author Kevin Stein of the California Reinvestment Coalition.
Minority communities have been hit throughout history by abusive subprime lending, high foreclosure rates and unequal lending practices, VanKerkhove explained.
In addition to the high number of government-backed home purchase loans for minorities in Rochester, refinance loans were twice as likely to be government-backed loans.
The data from all seven cities indicated most white borrowers obtained conventional home-purchase loans while black and Latino borrowers received government-backed loans.
In New York City, black borrowers obtained government-backed loans 5.5 times more often than white borrowers. In Rochester, black and Latino borrowers received government-backed loans 1.6 times more often than white borrowers, the study indicated.
The authors urged federal and state regulators to make fair lending enforcement and expansion and enforcement of the Community Reinvestment Act, a priority.
“When we make a report like this public, we definitely send it to regulators,” Maker said.