On May 7, The Consumer Financial Protection Bureau (CFPB) released the 2017 Home Mortgage Disclosure Act (HMDA) data, detailing mortgage lending information from nearly all lenders across the country and the trends are troubling for low- and moderate-income (LMI) borrowers.  Banks have significantly reduced loan originated for low- and moderate-income borrowers and these income brackets have continued to decline as a share of all home buyers overall—a decrease of more than 10% since 2009.

As NCRC points out, “The loans that they rely on, FHA and VA lending, tend to cost more than the conventional loans banks offer to middle and upper-income buyers. Buying a home is increasingly difficult, more expensive, or impossible, for the nation’s working class. This is reflected in the nation’s homeownership rate, which is near a 50-year low.”

There are numerous causes, including wage stagnation while housing costs increase, tightening loan standards, but also larger banks are not as actively offering FHA/VA mortgages which cost them more originate than conventional mortgages. In fact, the data overall suggest that banks, to some extent, are transitioning to other credit products and away from mortgages. That explains how non-bank lenders, those financial institutions that do not take or hold deposits, have dramatically increased their share of mortgage lending, particularly for LMI borrowers. They now accounted for 56% of all origination in 2017.

Nearly half of LMI borrowers use FHA/VA loans to buy their homes, but the top three bank lenders reported an average of just 15% of their lending went to LMI borrowers, compared to 29% for the three largest non-banks. The largest non-banks use FHA/VA loans for their borrowers 35%-45% of the time.

There are also important data implications for borrowers based on race. Black and Hispanic borrowers use FHA/VA 65% and 55% of the time, respectively, meaning fewer traditional bank institutions meet their needs as fewer are offering the government-insured loan programs that have been vital to homeownership opportunities.

The CFPB report also notes, “As in past years, black, Hispanic white, and “other minority” borrowers had notably higher denial rates in 2017 than non-Hispanic white borrowers, while denial rates for Asian borrowers were more similar to those for non-Hispanic white borrowers. For example, the denial rates for conventional home-purchase loans were about 19.3 percent for black borrowers, 13.5 percent for Hispanic white borrowers, and 14.9 percent for other minority borrowers.”

In order to ensure greater access to homeownership opportunities, particularly for LMI households, Prosperity Indiana believes it is critical to examine the fair housing implications in these denial rates. We also need to explore safe, alternative mortgage products that better meet LMI household needs while incentivizing traditional banks to expand their lending to them again.