“Between 2004 and 2014, black borrowers’ applications for Fannie- and Freddie-eligible mortgages fell 82%…

…Their applications for government-backed mortgages—mostly those insured by the Federal Housing Administration—jumped 60%, according to the report. FHA mortgages are generally easier to get approved for—in large part because they permit lower credit scores—but can also come with higher costs for borrowers. Mortgage lending to African-Americans has declined since the last housing boom, a direct result of tightened underwriting standards that persist eight years after the meltdown, according to a new report…Black borrowers accounted for a smaller share of mortgage originations in 2014, at 5%, than in 2004 when they were 7%. The decline is largely because of tighter underwriting requirements that most lenders have been sticking to since the recession. In part, this has been to avoid the threat of having to buy back loans from the agencies, according to the report.”, AnnaMaria Andriotis, “Tighter Underwriting Rules Cut Portion of Mortgages to Blacks, Report Says”, The Wall Street Journal, August 17, 2016

“Pre-crisis, every major mortgage lender had lowered their underwriting standards over time, under pressure from consumer groups and the government (including government housing and banking regulators) and because the decades long housing price boom masked any bad credit/underwriting decisions. Post crisis, the only ones who continues with lower underwriting standards are FHA and VA (almost like the nationalization/federalization of student loans), because the private mortgage lenders were unfairly blamed (and sued and settled for tens of billions) when the housing bubble burst and credit standards (pushed by the government, consumer groups, and housing prices) went too far….so today, blacks and other minorities, as a group, are getting fewer mortgages and paying higher rates for their mortgages. Memories are already forgetting the 2008 crisis and consumer groups and the government are already starting once again to pressure banks and other mortgage lenders to lower their lending standards and the Federal Reserve has “helped”, by dramatically inflating home prices once again via their monetary manipulations….and once again, some day in the next decade or so, we will have another housing bubble burst and possibly another mortgage crisis….but this time, most of those loans may end up being held by the government, at FHA and VA (just like the government holds most of the bad student loans….via the federal student loan program) and most of the lenders they will hope to blame/sue will be smaller firms, who won’t have any meaningful net worth to tap (as many of the Big Banks have wisely said, “No Mas”, when it comes to FHA loans and being unfairly sued by the government).”, Mike Perry, former Chairman and CEO, IndyMac Bank

Markets

Tighter Underwriting Rules Cut Portion of Mortgages to Blacks, Report Says

Blacks made up smaller share of originations in 2014 vs. 2004, African-American trade group finds

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A ‘for sale’ sign sits in front of a home in Vienna, Va. Black borrowers accounted for 5% of mortgage originations in 2014 compared with 7% in 2004, according to an analysis of the most recent Home Mortgage Disclosure Act data by the National Association of Real Estate Brokers. PHOTO: REUTERS

By AnnaMaria Andriotis

Mortgage lending to African-Americans has declined since the last housing boom, a direct result of tightened underwriting standards that persist eight years after the meltdown, according to a new report.

Black borrowers accounted for a smaller share of mortgage originations in 2014, at 5%, than in 2004 when they were 7%. By contrast, white borrowers accounted for 69% of mortgages in 2014 versus 58% 10 years before then. That is based on an analysis of the most recent Home Mortgage Disclosure Act data in a report commissioned by the National Association of Real Estate Brokers, or NAREB, a trade group of African-American real-estate agents and brokers.

Using similar data, The Wall Street Journal in June reported that minorities are receiving a smaller share of mortgages from the largest U.S. retail banks as many have shifted their mortgage operations toward so-called jumbo mortgages. These cater to more affluent borrowers with loans exceeding $417,000 in most parts of the country.

Jumbos have become increasingly appealing to banks in recent years because of their low default rates. The loans are mostly held on banks’ books.

The report released Monday by NAREB doesn’t address jumbo loans. It focuses on the decline of black borrowers receiving smaller mortgages that are eligible for purchase by Fannie Mae or Freddie Mac. Only 3% of Fannie Mae- and Freddie Mac-eligible mortgages went to black borrowers in 2014, down from 6% in 2004, according to the report.

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The decline is largely because of tighter underwriting requirements that most lenders have been sticking to since the recession. In part, this has been to avoid the threat of having to buy back loans from the agencies, according to the report.

Default rates have been declining on mortgages in recent years as many lenders have required higher credit scores and as the economy has improved. Defaults on mortgages used to purchase or refinance homes totaled 0.65% in June, down from 0.80% a year ago, according to the S&P/Experian Consumer Credit Default Indices. That figure was 5.58% in June 2009 during the housing crisis.

Also pushing defaults down is the near extinction of subprime mortgages, or those to borrowers with low credit scores, which were widespread during the last housing bubble. Those loans “disproportionately went to black and Latino households,” said James Carr, a professor in Wayne State University’s Department of Urban Studies and Planning, who co-wrote the report for NAREB.

Nearly half of all mortgage dollars extended to borrowers in 2015 were sold to Fannie Mae or Freddie Mac, according to trade publication Inside Mortgage Finance.

Between 2004 and 2014, black borrowers’ applications for Fannie- and Freddie-eligible mortgages fell 82%. Their applications for government-backed mortgages—mostly those insured by the Federal Housing Administration—jumped 60%, according to the report. FHA mortgages are generally easier to get approved for—in large part because they permit lower credit scores—but can also come with higher costs for borrowers.

The report also says “outdated credit scores” are holding back black borrowers from getting mortgages. It says many black borrowers lost their homes to foreclosure or experienced other negative credit events that still weigh down their credit scores. Others don’t use banking services often and their lack of historical usage of loans is also negatively affecting their scores.

Posted on September 30, 2016, in Postings. Bookmark the permalink. Leave a comment.

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