Lenders Slighting Minority Neighborhoods
ROCHESTER, NY—A report released by the Empire Justice Center in Rochester documents a dramatic decrease in prime mortgage lending made between 2006 and 2008, and highlights that low-income communities and neighborhoods of color were hardest hit by the drop-off in lending.
The report, The River Runs Dry: Decreased Access to Mortgage Credit in Rochester’s Underserved Neighborhoods, examines where mortgage lending is, and is not, happening in the Rochester, New York area. It compares lending changes in communities of color and lower income communities to changes in majority white and middle and upper income neighborhoods between 2006, the beginning of the foreclosure crisis, and 2008, the most recent year for which mortgage lending data is publicly available. The report also includes maps of lending in the city of Rochester and Monroe County.
“The very communities that are suffering the most from the foreclosure crisis—neighborhoods of color and low income areas—are finding it increasingly hard to access mortgage credit,” says Barbara van Kerkhove, the report’s principal author. “We are now seeing indications of redlining in these neighborhoods, places where, until recently, there was reverse redlining going on.”
Key findings include:
ï§ While access to mortgage credit tightened across the entire Rochester area between 2006 and 2008, low and moderate income neighborhoods and neighborhoods of color were hit much harder than middle and upper income and predominantly white communities. Prime refinance lending declined by 59 percent in neighborhoods with 80 percent or more residents of color, by 33 percent in areas with 50-79 percent residents of color, but only by 8 percent in neighborhoods with less than 10 percent residents of color. Prime refinance lending declined by 49 percent in low income neighborhoods, 20 times the 2.5 percent decline in upper income communities.
ï§ The decline in conventional lending was much steeper in lower income neighborhoods and communities of color than in middle and upper income and majority white communities. Between 2006 and 2008, conventional home purchase lending declined from 6,368 to 4,080 loans (a decline of 36 percent) in neighborhoods with less than 10 percent residents of color, it declined from 121 to 40 loans (a decline of 67 percent) in neighborhoods with 80 percent or more residents of color and from 361 to 168 loans (a decline of 53 percent) in areas with 50-79 percent residents of color. In upper income neighborhoods, conventional home purchase lending declined from 3,783 to 2,656 loans (a decline of 30 percent), while it declined from 204 to 71 loans (a decline of 65 percent) in low income areas.
ï§ Communities of color and lower income neighborhoods gained only a small proportion of the area’s increase in FHA lending compared to white neighborhoods and more affluent communities. Of the 662 additional FHA refinance loans originated in 2008 than in 2006:
o 451 or 68 percent went to neighborhoods with less than 10 percent residents of color while only 19 or 3 percent went to neighborhoods with 50 percent or more residents of color.
o 581 or 88 percent went to middle and upper income neighborhoods while only 81 or 12 percent went to low and moderate income communities.
ï§ FHA loans made up substantially higher proportions of both home purchase and refinance loans in 2008 than in 2006, no matter the income level or racial/ethnic composition of the neighborhood.
ï§ While conventional loans were less likely to be higher cost loans in 2008 than in 2006, FHA loans were more likely to be higher cost, particularly in lower income areas and communities of color. In 2008, 40 percent of the FHA refinance loans made in neighborhoods with 80 percent or more residents of color were higher cost compared to only 18 percent in communities with less than 10 percent residents of color, and much higher than the 0 percent and 3 percent rates seen respectively in 2006. Twenty-two percent of the FHA refinance loans made in low income neighborhoods in 2008 were higher cost compared to only 12 percent of those in upper income areas, substantially higher rates than 0 percent and 1 percent respectively in 2006.
“This research confirms that homeowners in neighborhoods hit hardest by predatory lending and the foreclosure crisis are not getting refinance loans, one of the primary ways to get out of unaffordable loans. And we already know that loan modifications are happening at a snail’s pace,” said Ruhi Maker, a senior attorney in Empire Justice Center’s Rochester office. “This is just another strike against our low income and minority neighborhoods.”
Key recommendations include:
ï§ Expanding and modernizing the federal Community Reinvestment Act to better promote responsible lending and investment in today’s new financial services landscape.
ï§ Updating the federal Home Mortgage Disclosure Act (HMDA) to include additional data necessary to keep pace with changes in the financial services industry and to help identify discrimination in lending.
ï§ Prioritizing federal and state fair lending enforcement in lending and loan modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.
ï§ Pushing banks to focus on repairing neighborhoods hit hard by foreclosures 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.
About Empire Justice Center
Empire Justice Center is a nonprofit legal services organization in New York that provides support and training to legal services offices statewide, undertakes policy research and analysis, and engages in legislative and administrative advocacy. Empire Justice also represents low-income individuals, as well as other classes of New Yorkers, in a range of poverty law areas including consumer law.
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