Woodstock Institute releases "Key Trends in Chicago Area Mortgage Lending"

For Immediate Release

Data from Woodstock Institute’s Chicago Area Community Lending Fact Book Shows Declining Home Buying by Low- and Moderate-Income Households and Shifting Foreclosure Trends

A new report, Key Trends in Chicago Area Mortgage Lending, uses data from Woodstock Institute’s recently released 2004 Chicago Area Community Lending Fact Book to reveal disparities in access to high cost mortgage lending, shifting foreclosure trends, and growing concerns about the affordability of home ownership for low- and moderate-income households in the Chicago area.

Since the 1990s, there have been persistent concerns that minority markets are being targeted by mortgage lenders specializing in high cost mortgage products while being largely ignored by mainstream, prime lenders. Large concentrations of high cost mortgages in minority communities have been blamed for skyrocketing foreclosure rates in these neighborhoods and contribute to the widening wealth gap between white and minority households. 

“A borrower who may qualify for a lower-cost, prime mortgage but receives a higher cost loan will have higher monthly payments and may pay tens to hundreds of thousands of dollars more in interest over the life of a loan,” says Smith. “These extra costs make borrowers less able to contribute to savings and makes it more difficult to handle periodic economic crises. Often this lack of financial flexibility is what pushes a homeowner into default and foreclosure during difficult times.’  

Key findings from Woodstock Institute’s analysis of high cost lending and foreclosures show:

Minority borrower and communities are much more likely to receive costly mortgages than white borrowers and communities and disparities widen as income-level increases. For example, in 2004 over 40 percent of the conventional single-family mortgages to African-American borrowers in the Chicago area were high cost and over 25 percent of such loans to Hispanic borrowers were high cost. By comparison, ten percent of similar mortgages to white borrowers were high cost in 2004. This disparity grows as borrower income-level increases. An African-American borrower earning twice the Chicago area median income was over 5 times more likely to receive high cost loan than a white borrower with the same income level.

There were over 1,400 “High Risk” home loans originated in the Chicago Area in 2004. On January 1, 2004, the Illinois High Risk Home Loan Act went into effect. The law was designed to protect Illinois home owners from some of the most abusive practices seen in the subprime home equity lending market. The Act defines a set of loans with either high annual percentage rates (APRs) or high fees that are considered “high risk” and requires that these loans are subject to increased protections and disclosures. Analysis of federal mortgage lending data shows that in 2004 in the Chicago Six County Area there were 1,480 refinance and home improvement loans that crossed the APR triggers set in the Illinois High Risk Home Loan Act. The vast majority of these loans were originated by either bank-owned or independent mortgage companies.  Over 60 percent of these loans were originated in areas with above average foreclosure rates.

Between 1999 and 2004, foreclosures declined in the City of Chicago, but were on the rise in the suburbs. Foreclosures in the City of Chicago decreased by 1.2 percent between 1999 and 2004. Over the same period, foreclosures in the suburban Chicago Six County Area increased by over 20 percent.  The largest increase in foreclosures was in McHenry County where foreclosures more than doubled, increasing by over 230 percent.

Other key findings from the report raise substantial concerns about prospects of low- and moderate-income and minority home ownership in the region. Skyrocketing home values and stagnating wage growth for modest-income households have led to increasing concerns about the affordability of home ownership for low- and moderate-income families in the Chicago region. 

Woodstock Institute’s analysis finds:  

Home buying by low-income borrowers declined between 1999 and 2004. Reversing a long-standing trend, the number of owner-occupied, single-family home purchase loans to low-income home buyers, or borrowers earning less than 50 percent of the area median income, declined between 1999 and 2004 by over 15 percent. Previous research by Woodstock Institute showed that during the 1990s, the growth of home buying by low-income borrowers actually led the region, increasing by over 70 percent between 1993-1994 and 1999-2000.

The overall share of home buyers who were low- and moderate-income declined between 1999 and 2004. Region-wide, the share of home buyers who were low- and moderate-income, those who earned less than 80 percent of the area median income, declined by nearly 5 percentage points from 36.5 percent in 1999 to 31.7 percent in 2004. This is also a reversal of trends seen in the 1990s where previous Woodstock Institute’s research showed the share of home buyers who were low- and moderate-income increasing by nearly 6 percentage points between 1993-1994 and 1999-2000.

The largest declines in low- and moderate-income home buying were in West Cook County and the City of Chicago. Figure 1 shows that the largest declines in low- and moderate-income home buying were seen in West Cook County where the percent of home buyers who were low- and moderate-income declined by over 13 percentage points from 45.6 percent in 1999 to 32.3 percent in 2004 and in the City of Chicago where the percent of home buyers who were low- and moderate-income declined by over 11 percentage points from 39.5 percent in 1999 to 28.1 percent in 2004.


“These findings raise concerns about the affordability of homeownership for low- and moderate-income households in the Chicago region,’ says Geoff Smith, Project Director at Woodstock Institute.

icon Key Trends in Chicago Area Mortgage Lending: Analysis of Data From the 2004 Chicago Area Community Lending Fact Book