Recently released mortgage disclosure data findings indicate that a majority of future U.S. households could face significant challenges in achieving homeownership. Data collected and made public under the Home Mortgage Disclosure Act (HMDA) indicates that Black homebuyers represented an astonishingly low 4.8 percent of all home purchase loans originated in 2013.
Additionally, conventional loan denial rates for Black and Hispanic borrowers were more than twice that of the national average, with Black applicants being rejected at levels ranging from 25.5 percent, as reported by 2013 HMDA data, to levels perhaps as high as 56 percent, as suggested by the Mortgage Bankers Association earlier this year.
The Joint Center for Housing Studies at Harvard University projects that as many as 17 million new U.S. households will be formed over the course of the 15 year time period from 2010 to 2025. As many as 13 million of these new households could be comprised of non-White minority families. These findings are significant for reasons far more impactful than the obvious surface-level calculus of mere right versus wrong. Unless corrected, this present reality could represent a grave challenge to our national economic future.
Established by a 1975 Act of Congress, Home Mortgage Disclosure Act data details the disposition of each application for mortgage credit, from the type of loan sought and various pricing information, to a series of demographic characteristics of the borrower applicant, including race or ethnicity, income, and more. The intended purpose of such extensive data collection and subsequent public reporting is the tracking of mortgage applications to provide real-world empirical data in the effort to enforce fair lending standards, in addition to other related policy goals. The most recent set of data tells us that such fair lending goals remain as elusive as ever, and the stakes could not be higher for homeownership in America.
Perhaps even more telling than the alarming declining rate of minority participation in American homeownership are the many contributing factors highlighted by the 2013 HMDA data.
Black home-purchase loan activity has spiraled downward in the wake of the foreclosure crisis, falling from an already anemic 8.7 percent in 2006, to the 4.8 percent reported in 2013, while White non-Hispanic home-purchase loan activity has stabilized and even shown modest growth, rising from 61.2 percent in 2006 to 70.2 percent in 2013. It also bears mentioning that both the percentage and aggregate number of loans made to low and moderate income borrowers have seen sharp declines since 2012, while the overall number of loans originated over the same time period has grown.
At more than 70 percent, the overwhelming majority of mortgage loans made to Black homebuyers in 2013, as well as 63 percent of home-purchase loans made to Hispanic borrowers, came by way of non-conventional loans made possible by government-sponsored agencies such as the Federal Housing Administration (FHA) and Veterans Administration (VA), programs which represent a steadily declining share of overall mortgage originations given the growing fiscal constraints of the federal government. While it can be argued that the housing marketplace as a whole has leveled off from a state of freefall, Black, Hispanic, and borrowers of low to moderate economic means from all racial backgrounds are becoming increasingly, and perhaps even permanently marginalized.
Of course, it should be noted that this is not an entirely hopeless situation. There are a host of tools and policies available that are tested and proven in the effort to extend prudent and sustainable homeownership to everyday families of stable economic means, regardless of race. The 97 percent loan-to-value (LTV) mortgage is just one such tool. Once purchased with vigorous enthusiasm by both Fannie Mae and Freddie Mac, the 97 percent LTV mortgage has a track record of affordability and sustainability alike. The default rate for such loans tracks almost identical to that of loans with down payments as high as 10 percent--roughly seven out of 100 such loans originated between 1999 and 2012.
It should be mentioned that 97 percent LTV loans are still commonly purchased by state housing finance agencies throughout the country due in part to their history of overall sustainability. In a recent public speech delivered to mortgage industry professionals, Federal Housing Finance Agency (FHFA) Director Mel Watt stated that his agency, the ongoing government conservator of both Fannie Mae and Freddie Mac since September 2008, will consider reinstating the purchase of these loans by the two government-sponsored enterprises. Such a common sense policy remedy cannot take place soon enough.
Additional remedial policy measures worthy of consideration include alternative credit scoring models, as well as the wider use of pre- and post-purchase housing counseling for first-time homebuyers, each proven effective and endorsed at various times by policymakers and mortgage industry professionals alike. What is required is leadership that goes beyond the collection of data and the dispiriting parsing of numbers. A thoughtful approach must be taken toward using available policy means and long-term sustainable lending products to accommodate those borrowers that have demonstrated the income stability and fiscal responsibility that homeownership requires, regardless of race, relative-wealth, or geography. To simply count the numbers and state the findings is not enough. Basic record keeping and reporting, while helpful and necessary, is no substitute for meaningful leadership.
The undeniable reality is that the current state of affairs cannot continue indefinitely without the expectation of potentially grave economic consequences. Jobs are at stake. Small businesses are at stake. Municipal services and the quality of life in communities across America are also at stake. Local, state, and even federal fiscal vitality each rely upon the continued health of our national housing marketplace and the ability of would-be first-time homebuyers to climb the first rung on the ladder of economic ascendancy that leads to America's Middle Class.
The truth of the matter is that there are quite literally millions more potential homebuyers of color and borrowers of all ethnicities with lower and moderate, yet stable and consistent incomes than there are sufficiently affluent White borrowers emerging to sustain the marketplace. These underserved families must be responsibly accommodated in order to maintain the level of job growth and the resulting quality of life that the world's single largest national economy demands. Take special notice of the term "responsibly" as it is used here. Accessible home-purchase loan options for everyone is not meant to be synonymous with loosely underwritten loans for practically anyone. There is a distinct and significant difference between the two outcomes. We have the mortgage and policy tools needed to bridge the gap. What is missing today is serious-minded housing policy leadership and political will at the national level.
In a residential housing marketplace responsible for contributing almost 20 percent on average to our national gross domestic product, or roughly 20 cents of every dollar of American economic output, the system cannot be maintained in a world where 13 million of our next 17 million American families "need not apply."