Banks Have ‘Almost Completely’ Abandoned Low-Income Borrowers

Low- to-moderate-income home buyers are increasingly turning to non-banks.

Buying a home is increasingly a challenge for the U.S. working class and people of color. (U.S. Air Force photo by Staff Sgt. Teresa J. Cleveland)

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Banks are moving away from lending to low- to moderate-income borrowers and borrowers of color, the National Community Reinvestment Coalition reported in an analysis of new data on mortgage lending from the Consumer Financial Protection Bureau.

In a trend the NCRC calls troubling, banks have “almost completely” abandoned the kind of mortgage loans favored by working-class borrowers. In 2017, less than 10 percent of Bank of America and Wells Fargo home loans used the government-insured Federal Housing Administration, VA and Rural Housing Service loans; at JPMorgan Chase, fewer than 4 percent of loans were FHA or VA. These loan programs, which tend to cost more to the buyer and are more work for a bank to originate, are often the only channel into homeownership for low- to moderate-income borrowers. About half of these borrowers used FHA, VA or RHS mortgages in 2017, the NCRC said. The figures are even higher among minority applicants: 65 percent of black applicants and 56 percent of Hispanic applicants used FHA/VA and RHS mortgages.

“Buying a home is increasingly difficult, more expensive, or impossible, for the nation’s working class,” the NCRC wrote. “This is reflected in the nation’s homeownership rate, which is near a 50-year low.”

As banks have fled from these types of products, non-bank lenders such as Quicken Loans, Caliber Home Loans and Fairway Financial Services have moved in to fill the gaps, the NCRC says, accounting for 56 percent of all mortgage originations in 2017. Collectively, non-banks made 29 percent of their loans to low- to moderate-income buyers, and used FHA/VA loans 35 to 45 percent of the time.

Loans made to borrowers of color rose very slightly over the last year, National Mortgage News said. Home loans made to black borrowers grew from 6 percent of total loans to 6.4 percent, and loans to Asian borrowers grew three tenths of a percentage point, from 5.5 percent to 5.8 percent. Hispanic borrowers’ market share remained unchanged at 8.8 percent. At the same time, the report also found that borrowers of color saw greater denial rates than white borrowers.

Under the 1977 Community Reinvestment Act (CRA), banks are legally bound to meet the credit needs of the communities where they do business. Although non-banks are not, they are currently outperforming banks in lending to low- to moderate-income homebuyers. Non-banks’ reckless lending was also “an important runup to the 2008 financial collapse,” Jesse Van Tol, CEO of NCRC, added in a statement.

The CRA has led to billions of dollars in home mortgages and community development financing, as Next City has noted in the past. But it has been weakened. A Reveal News report earlier this year found that the Comptroller of the Currency, which has oversight over banks, gave 99 percent of banks “satisfactory” or “outstanding” ratings on their CRA compliance, and the Trump administration has further weakened the standards banks must meet to pass a CRA test.

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Rachel Kaufman is Next City's senior editor, responsible for our daily journalism. She was a longtime Next City freelance writer and editor before coming on staff full-time. She has covered transportation, sustainability, science and tech. Her writing has appeared in Inc., National Geographic News, Scientific American and other outlets.

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