Minority home mortgages increased more than white home mortgages between 2013 and 2015 in several metros across the U.S., according to a recent report from Urban Institute. The report is quick to add that this increase was not without a “virtual roller coaster” of sorts starting with a homebuying surge during the housing boom and a large decrease during the housing crisis, before the increase beginning in the recovery.
“During that period, the share of purchase loans made to African Americans increased from 4.8 percent to 5.5 percent, and the Hispanic share grew from 7.3 percent to 8.3 percent,” say report authors, Bhargavi Ganesh and Ellen Seidman. “Minority borrowers hit the housing market at the worst time and while some have recovered, too many are still paying for the bad timing.”
The authors say that modest wage growth, tight credit standards, student loan debt, and loss of equity during the recession are some possible factors to minorities slow recovery in the housing market.
“For example, average wealth went up 6.4 percent for white families from 2001 to 2013, while African American and Hispanic wealth declined 6.2 percent and 6.6 percent, respectively,” adds the report. “Minority loss of equity during the recession is making it harder for homeowners to move up and is squeezing the next generation, as parents cannot help their children with a down payment.”
According to the report, tight credit standards could also be a contributing hindrance to minority homeownership. The report adds that data from the Federal Reserve analysis of Home Mortgage Disclosure Act and Consumer Credit Panel/Equifax show that the FICO scores of all borrowers, including minority borrowers, have greatly improved since the housing crisis, but minority borrowers’ FICO scores remain concentrated in the lower range.
“For a full mortgage market recovery, we need to expand the credit box again. A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom,” says the Urban Institute. “A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today’s tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African American and Hispanic families from building wealth and benefiting from the recovery.”