Borrowers and communities of color receive disproportionately fewer conventional mortgages and more government-backed loans than white borrowers and communities, according to a study released Thursday.
The study, which is based on a analysis of 2010 mortgage lending data, is a collaboration between six organizations, including the California Reinvestment Coalition, the Ohio Fair Lending Coalition and the Woodstock Institute. It is the sixth annual report in the “Paying More for the American Dream” series that examines mortgage lending patterns in seven cities (click on chart below) throughout the country.
According to their findings, Federal Housing Administration and Veterans Affairs loans accounted for three out of every four home-purchase loans made to black borrowers, and two out of every three loans made to Latino borrowers. By contrast, about one out of every three loans was made to white borrowers.
Borrowers who purchased homes in communities of color received government-backed loans twice as often as did borrowers in predominantly white communities.
Black and Latino homeowners received government-backed refinance loans 3.5 and 2.1 times more often than did white homeowners, respectively, the study found.
“Although FHA lending is a vital source of credit for borrowers of color, the disproportionate prevalence of FHA loans in communities of color raises fair lending flags,” the study's report states.
“First, it reflects an absence of conventional mortgage lending in communities of color and potential redlining,” it continues. “Second, advocates have concerns that lenders continue to steer loan applicants of color who qualify for conventional loans into FHA loans, particularly given the history of racial steering and other discriminatory practices by FHA lenders and brokers. Such steering not only violates fair housing laws but also harms entire communities.”
In response to the findings, the study’s authors recommend expanding and vigorously enforcing the Community Reinvestment Act to promote sound lending, services and investments in low- and moderate-income communities and communities of color.
“The Consumer Financial Protection Bureau must act now to implement the Home Mortgage Disclosure Act data enhancements mandated by the Dodd-Frank, which would provide long-overdue lending information needed to identify illegal and discriminatory patterns and practices,” they conclude.