At this point, everyone knows that the housing market is limping along and hobbling the nation's economic recovery. One reason for that, as I noted recently is our failure to provide real relief to millions of responsible borrowers facing foreclosure due to circumstances they couldn't control. But there's another piece to the story:
It has become increasing clear that there are large numbers of qualified borrowers who can't get a loan. Disturbingly, there are signs of a racial pattern to this phenomenon, suggesting that the ugly practice of "redlining" -- refusing to lend or invest in communities of color -- is making at least a partial comeback.
A recent CNN story captured the problem succinctly: "Prices are low! Mortgages cheap! But you can't get one." Lawrence Yun, chief economist for the National Association of Realtors, told CNN, "Good borrowers with one or two blemishes on their credit are being denied credit."
Fed Chair Ben Bernanke has made similar statements, noting earlier this year, "Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain." Last month, American Banker reported that the number of loans supported by federally backed housing agencies -- the FHA, Fannie Mae and Freddy Mac -- has dropped sharply, and these programs "are no longer serving many of the creditworthy homebuyers who have relied on government financing in the past."
There are a number of reasons for this, from increased capital requirements to toughened lending standards, and some of these are appropriate reactions to the wildly lax and often predatory lending that exploded during the housing bubble. But there is a danger of overreaction. And there are worrisome signs that people of color, who were disproportionately victimized by predatory lending a few years ago, are again being disproportionately impacted.
Late last year The Greenlining Institute analyzed federal government data from 2008 (the most recent available) and found that lending to Latinos and African Americans had dropped far more severely than lending to whites. Anecdotally, we hear many reports of minority borrowers with solid credit records having trouble obtaining mortgages.
Meanwhile, we're seeing more and more reports of banks avoiding or abandoning communities of color. Sometimes, as in the case of Citizens Bank in Michigan, this has attracted the attention of federal officials who then cracked down. But such cases aren't always clear cut and easy to enforce.
For example, the California town of East Palo Alto, which is over three quarters black and Latino, is about to lose its only bank branch. In August, California Bank and Trust will close down its East Palo Alto branch, moving all the accounts eight and a half miles away to the much whiter and more affluent town of Mountain View.
Let me be clear: I am not calling for a return to the unregulated, Wild West atmosphere that prevailed in the mortgage business five or six years ago. And I am not saying there is some conspiracy to deny loans to racial minorities. But if large numbers of solid homebuyers can't get loans, and if communities that are already a majority in California and will soon be a majority nationwide are being disproportionately hurt, that's not just unfair, it's going to affect the entire U.S. economy.
This is serious, and while it's encouraging that some officials have expressed concern, that concern needs to be translated to action.