Community Reinvestment Act

Report Reveals Racial Disparities in Mortgage Lending, Posted in Financial News, Mortgage Rates, Refinance

Posted by

0

Funds used for refinancing home mortgages were less available in the minority sections of major U.S. cities than in predominantly white areas after the recent housing crash, according to a new study released on Thursday. The study, compiled by a coalition of nonprofit groups across the country, revealed that refinancing in minority areas has decreased since the recession.

Mortgage Refinancing Drops 17 Percent in Minority Areas

The report, titled “Paying More for the American Dream V,” took a look at seven metropolitan areas–Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York City and Rochester, N.Y.–to explore conventional mortgage refinancing.

The study, compiled by groups like California Reinvestment, the Woodstock Institute in Chicago and the Ohio Fair Lending Coalition, revealed the following:

  • Refinancing in minority areas decreased by an average of 17 percent in 2009 compared with the year prior.
  • Refinancing in white areas jumped by 129 percent.
  • Lenders “were more than twice as likely” to deny applications for refinancing by borrowers living in minority communities than in majority white neighborhoods.

The report also found that minority borrowers were more likely to obtain a high-risk subprime mortgage loan than white borrowers, even if their credit was good.

Lenders Urged to Invest More in Low-Income Communities

Because of the inconsistency the study’s authors found in lending practices, they are concerned that there are ongoing racial disparities in mortgage lending as a whole.

Adam Rust, Director of Research at the Community Reinvestment Association of North Carolina, noted in statement “Lenders are loosening up credit in predominantly white neighborhoods, while continuing to deprive communities of color of vital refinancing needed to aid in their economic recovery.”

To aid the issue, the authors are urging lenders to make changes, including:

  • Investing more in low-income communities
  • Improving disclosure requirements to protect unwary borrowers

They noted that it is subprime loans that contributed largely to the housing market crash because not only were they given to those with poor credit, but income was never checked to confirm that borrowers could repay the balance.

With foreclosures expected to flow heavily in the months to come and home sales still struggling, the authors believe that expanding fair lending opportunities to all who qualify could help repair the housing industry. It’s for this reason they think changes to lending practices should be a top priority for financial institutions.

Related Articles

Study Finds Foreclosure Crisis Had Significant Racial Dimensions, Asanet.org

Posted by

0

Residential segregation constitutes an important contributing cause of the current foreclosure crisis-

Newswise — Although the rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-documented, the foreclosure crisis was also a highly racialized process, according to a study by two Woodrow Wilson School scholars published in the October 2010 issue of the American Sociological Review.

Woodrow Wilson School Ph.D. candidate Jacob Rugh and Woodrow Wilson School’s Henry G. Bryant Professor of Sociology and Public Affairs, Douglas Massey, assessed segregation and the American foreclosure crisis. The authors argue that residential segregation created a unique niche of minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets.

The authors use data from the 100 largest U.S. metropolitan areas to test their argument. Findings show that black segregation, and to a lesser extent Hispanic segregation, are powerful predictors of the number and rate of foreclosures in the United States – even after removing the effects of a variety of other market conditions such as average creditworthiness, the degree of zoning regulation, coverage under the Community Reinvestment Act, and the overall rate of subprime lending.

“This study is critical to our understanding of the foreclosure crisis since it shows the important and independent role that racial segregation played in the housing bust,” said Rugh.

A special statistical analysis provided strong evidence that the effect of black segregation on foreclosures is causal and not simply a correlation.

“While policy makers understand that the housing crisis affected minorities much more than others, they are quick to attribute this outcome to the personal failures of those losing their homes – poor credit and weaker economic position,” noted Massey. “In fact, something more profound was taking place; institutional racism played a big part in this crisis.”

The authors conclude that Hispanic and black racial segregation was a key contributing cause of the foreclosure crisis. “This outcome was not simply a result of neutral market forces but was structured on the basis of race and ethnicity through the social fact of residential segregation,” the authors note in the article.

“Ultimately, the racialization of America’s foreclosure crisis occurred because of a systematic failure to enforce basic civil rights laws in the United States,” the authors write in the article. “In addition to tighter regulation of lending, rating, and securitization practices, greater civil rights enforcement has an important role to play in cleaning up U.S. markets. It is in the nation’s interest for federal authorities to take stronger and more energetic steps to rid U.S. real estate and lending markets of discrimination, not simply to promote a more integrated and just society but to avoid future catastrophic financial losses.”

Jacob Rugh’s research focuses on urban policy and the intersection of housing markets, land use regulation, and local politics. His forthcoming dissertation will focus on the social, economic, and local regulatory roots of the recent U.S. housing crisis and their implications for public policy.

Douglas Massey’s research focuses on international migration, race and housing, discrimination, education, urban poverty, and Latin America. He is the author, most recently, of Brokered Boundaries: Creating Immigrant Identity in Anti-Immigrant Times (Russell Sage Foundation, 2010), coauthored with Magaly Sanchez. He has also authoredReturn of the L-Word: A Liberal Vision for the New Century(Princeton University Press, 2005) and Strangers in a Strange Land: Humans in an Urbanizing World (Norton, 2005). Massey currently serves as President of the American Academy of Political and Social Science and is past-President of the American Sociological Association and the Population Association of America. He is a member of the National Academy of Sciences, the American Academy of Arts and Sciences, and the American Philosophical Society.

The research article described above is available by request for members of the media. For a copy of the full study and a two page summary, contact Daniel Fowler, ASA‘s Media Relations and Public Affairs Officer, at pubinfo@asanet.org or (202) 527-7885, or Elisabeth Donahue, WWS Assistant Dean for Public and External Affairs, at edonahue@princeton.edu or (609) 258-5988.

About the American Sociological Association and the American Sociological Review
The American Sociological Association (www.asanet.org), founded in 1905, is a non-profit membership association dedicated to serving sociologists in their work, advancing sociology as a science and profession, and promoting the contributions to and use of sociology by society. The American Sociological Review is the ASA’s flagship journal.

About the Woodrow Wilson School
Founded in 1930, the Woodrow Wilson School at Princeton University is a major international center of advanced training and research in public affairs. The Woodrow Wilson School is an institution with the energy and strength to tackle the most serious issues of the present day, and the vision and experience to prepare the leaders who will shape the public policies of the future.