A report released by a multi-state collaboration of regional research, policy and advocacy organizations documents the dramatic decrease in low-cost home loans made between 2006 and 2008, and highlights that communities of color were hardest hit by the drop-off in lending.
The report, Paying More for the American Dream IV, examines the mortgage lending patterns of banks, including the nation’s four largest financial institutions, in seven metropolitan areas in the United States: Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York City, and Rochester, NY.
“After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, Senior Vice President of Woodstock Institute. “We are concerned that we have gone from a period of reverse redlining to a period of re-redlining.”
Key findings include:
• Prime mortgage lending in communities of color declined more than twice as much as it did in predominantly white communities. While prime lending decreased between 2006 and 2008 in all seven metropolitan areas, the decline in lending was much greater in neighborhoods where people of color comprised 80% or more of the residents. Neighborhoods of color experienced a 60.3% decrease in lending, compared to a 28.4% decrease in lending in white neighborhoods, where people of color comprised less than 10% of the residents.
o In Chicago, the decline in prime lending in neighborhoods of color was 2.6 times greater than the decline in predominantly white areas, with a 53.7 percent decline in communities of color compared to 20.3 percent decline in white communities.
• The drop in prime lending for neighborhoods of color was even steeper for refinance loans that allow borrowers to take advantage of lower interest rates or access home equity. Such lending declined by 66.4% in neighborhoods of color, but declined by a mere 13.9% in white neighborhoods.
o In Chicago, prime refinance lending actually increased in predominantly white communities while prime refinance lending in communities of color declined by 49.1 percent.
• Between 2006 and 2008 the share of prime refinance loans made in communities of color dropped 35% whereas the share of these loans made in predominantly white communities increased 11%.
o In Chicago in 2006, neighborhoods of color received 10.5 percent of the region’s prime refinance loans. By 2008, the number of regional prime refinance loans going to communities of color declined by nearly 46 percent to 5.7 percent.
• The nation’s four largest banks—Bank of America, Citibank, JPMorgan Chase and Wells Fargo—demonstrated similar lending patterns, targeting white communities for new refinance loans while pulling out of neighborhoods of color. Prime refinance lending by these four banks in white communities increased by 32.2% between 2006 and 2008, but decreased in neighborhoods of color by 33.1%.
o In Chicago, the top four banks increased their refinance lending to white communities by 62 percent between 2006 and 2008, but saw their refinance lending to communities of color decline by 24.1 percent over the same period.
“It is troubling that banks that were stabilized by the federal government for the very purpose of continuing to make loans to stabilize communities made significantly fewer loans in the very neighborhoods most in need of credit,” Smith said.
• Expanding and modernizing the Community Reinvestment Act (CRA) so financial institutions cannot evade its goal of increasing lending, investment and services in low- and moderate-income neighborhoods, consistent with safety and soundness.
• Creating a strong Consumer Financial Protection Agency (CFPA) to protect families and communities from abusive financial products and to prevent a future crisis from further destabilizing already struggling families and their communities.
• Updating the Home Mortgage Disclosure Act (HMDA) to include additional data necessary to keep pace with changes in the financial services industry and to achieve its stated goal of helping to identify discrimination in lending.
• Prioritizing fair lending enforcement in lending and loan modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.
• Repairing neighborhoods hard hit by foreclosure by working to keep families in their homes, mitigating the harmful effects of foreclosure, and significantly increasing investment in neighborhoods so that residents, small businesses and community institutions can thrive.
The Paying More for the American Dream series is a collaborative effort of the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project, Ohio Fair Lending Coalition, and Woodstock Institute. This is the collaboration’s fourth annual report examining systematic inequalities in the housing finance system and their impact on lower-income neighborhoods and communities of color. The first report, released in March 2007, examined disparities in mortgage pricing by several of the country’s largest mortgage lenders that offered both prime and subprime loans. The second report, released in March 2008, looked at the geographic lending patterns of a set of defunct subprime lenders whose loans largely fueled the wave of foreclosures that is currently devastating communities across the country and found that these loans were highly concentrated in communities of color and lower-income communities. The third report, released in April 2009, analyzed and compared the lending patterns of lenders that were covered by the Community Reinvestment Act with lenders that were not covered by the CRA.