Testimony of Brent Adams before the Senate Insurance Committee. In this testimony Adams discussed banning the use of credit scoring in establishing auto insurance rates.
For many creditworthy low- and moderate-income consumers, it’s a challenge just to get a car loan, let alone a mortgage loan. And yet, for the housing market to work for everyone, a new way for determining creditworthiness for these consumers must emerge. This is not about lowering the bar of creditworthiness; it’s about changing the way we look at creditworthiness that reflects new demographic shifts and market realities.
A recurring theme throughout the conference was the gap in the amount of assets—such as savings for emergencies or retirement, home equity, and investments—that women own versus the amount of assets that men own. This disparity is called the “wealth gap.” Assets matter because they mark the difference between getting by and getting ahead; they are the financial building blocks that allow individuals to weather a crisis, improve their financial situation, and pass on wealth to the next generation.
Through a series of “secret shopper” investigations, NCRC discovered that many of the top 50 FHA lenders would not offer home loans to borrowers with scores between 580 and 620. A large percentage of people of color fall into that range of scores.
We gathered top leaders from financial institutions and community groups to discuss the scope of the problem and current approaches to improving access to credit. Our Senior Vice President Geoff Smith presented the findings of our credit score report and used the availability of refinance lending as an example of diminished access to credit in communities of color. The below chart demonstrates that in predominantly white communities, refinance lending doubled from 2008 to 2009; however, it dropped precipitously in communities of color.
In “Bridging the Gap: Credit Scores and Economic Opportunity in Illinois Communities of Color,” our researchers found that Illinois communities of color had high concentrations of individuals with very low, “non-prime” credit scores.
• Statewide, 20.3 percent of people had credit scores below 620, a common boundary for consideration for prime credit. In contrast, 54.2 percent of the population in highly African-American neighborhoods had scores below 620 and only 16.5 percent of the population in predominantly white neighborhoods credit scores below 620.
The report explains the importance of credit scores and how they are used, and recommends several policies to improve economic opportunity for people and communities impacted by low credit scores. Included is an appendix with demographics and credit score averages and distributions for large Illinois zip codes.