WASHINGTON — The number of high-priced loans declined overall in 2008, but the share of those loans going to black and Hispanic borrowers rose, according to data released Wednesday by federal regulators.
The report, which tracks and analyzes Home Mortgage Disclosure Act data received from banks, contained few surprises, saying higher-priced lending declined dramatically during the financial crisis as lenders responded to regulatory pressure to rein in such loans.
Still, as it has in years past, the data showed that the proportion of black and Hispanic borrowers denied loans rose, while black, Hispanic and Asian borrowers were also less likely to receive conventional loans than white borrowers. As higher-priced private lending fell, loans backed by the Federal Housing Administration and the Department of Veterans Affairs rose. FHA-backed loans nearly tripled from 2007 to 2008.
Some consumer groups said they are worried that the industry is backing too far away from lending to minorities. "The fact that FHA has gone from securitizing 15% of African-American loans to 50% of home purchase is astounding, and at the same time worrisome," said John Taylor, the president of the National Community Reinvestment Coalition. "The FHA cannot replace the private sector in terms of the resources it has available for housing … The government has stepped in where the private sector has withdrawn and we need the private sector back in there, but we need to have them making loans in a clean, fair, ethical way."
In the secondary market, the share of loans sold with the backing of Fannie Mae and Freddie Mac grew to 42% of the total market in 2008 from just 28% in 2006. Privately securitized loans made up less than 1% of the 2008 secondary market, down from 10% in 2006.
Industry observers said the data was not surprising. Although consumer groups often argue that the data shows that banks discriminate against minority borrowers, the industry continues to insist that the differential in denial rates and high-priced loans is because of credit scores, not race.
"Given that minority borrowers are more likely to have lower credit scores, and that access to credit has decreased for low-credit-score borrowers," said Andrew Sandler, co-chairman of the law firm Buckley Sandler LLC. "The fact that the number of high-priced loans has gone down and that denial disparity rates have gone up is exactly what should have been expected."
Gil Schwartz, a partner at Schwartz & Ballen LLP, said the next question would be whether 2009 HMDA data looks similar to 2008. "The market is starting to recover; I think that the number of loans that are made is going to go up dramatically as a result."
