Opportunity and Ownership Project
An Urban Institute ­
Project Exploring
Upward Mobility
No. 14, October 2013
Class and Color in the
Credit Crunch
Mortgage Lending to Low- and
Moderate-Income Borrowers and Borrowers
of Color during and after the Great Recession
Claudia Ayanna Sharygin
By most accounts, the housing market
appears to be recovering: prices increased
substantially during the past year in many
markets, and the number of homes bought
and sold is increasing as well. However,
not everyone is participating
in this recovery. While some may be
wary of home­ownership after the housing
crash, many are simply unable to obtain
mortgage credit. In particular, lowand moderate-income borrowers and borrowers of color, who bore a disproportionate burden during the housing bust and
recession, are now being denied for mortgage credit more frequently than whites
and households with higher incomes.
This research brief uses data from
2004 to 2011 collected under the Home
Mortgage Disclosure Act (HMDA) to
document trends in mortgage lending
for low- and moderate-income borrowers (those with incomes under 80 percent,
and between 80 and 120 percent, of the
area median income [AMI], respectively),
as well as black and Hispanic borrowers.
It focuses on explaining the gaps between
these borrowers and others through
the boom, bust, and recovery years. The
lessons learned by examining the shape of
the recovery can guide the policy response
to future market fluctuations.
Among the key findings:
77 Low- and moderate-income borrowers
and borrowers of color, and especially
77
77
77
77
moderate-income and black borrowers,
experienced a disproportionate drop in
mortgage borrowing during the bust.
Although the Hispanic population has
continued to grow, borrowing among
Hispanics has not continued apace.
Hispanic individuals’ home purchase
borrowing rates were near whites’ during the housing boom, but fell to near
blacks’ during the bust.
The picture is similar for home refinance borrowers, although there has
been a slightly better recovery in the
number of refinance originations to low
and moderate-income borrowers in
2010 and 2011.
Examining loan denial rates, it appears
that demand for mortgage credit among
low- and moderate-income households
and households of color has recovered
in recent years, but lenders are far less
likely to make loans to these applicants
than during the boom.
Low-income and black borrowers face
the highest denial rates, and these rates
have increased between 2009 and 2011
even as rates for other groups have
declined.
These potential borrowers’ race, ethnicity, and relative income status are not
the driving factors behind these shifts in
mortgage borrowing. The central factors—
excessive leverage and declines in housing values causing underwater
1
OPPORTUNITY AND OWNERSHIP
mortgages and foreclosures, job
loss and underemployment, and
increases in other liabilities such as
student loan debt—deteriorated the
most for these groups during the
housing bust. Today, low- and
moderate-income households are
increasingly unable to access
homeownership and the finan-cial
benefits it continues to provide.
Ongoing reforms to housing finance
regulation and policy, which aim to
encourage sustainable homeownership, should avoid creating unnecessary barriers to obtaining mortgage
credit for qualified borrowers who
stand to benefit the most from
becoming homeowners.
Related Literature
Although housing and mortgage
markets tend to follow a boomand-bust pattern, this housing cycle
differs from previous experiences.
During the boom, many borrowers received nonstandard, high-risk
mortgage products, and a disproportionate share of those borrowers had
low or moderate income and were
people of color. Without housing
appreciation, equity-stripping products made it more difficult for households to refinance into loans with
better terms, or to sell their house and
purchase another one. A number of
studies have documented the consequences of irresponsible lending
practices during the housing boom
An Urban Institute Project Exploring Upward Mobility
(Belsky and Richardson 2010; Bocian
et al. 2011).
Researchers now are exploring
the current situation in mortgage
markets, finding that from 2010 to
2011, borrowers of all income and
ethnic groups experienced declines in
mortgage lending (Avery et al. 2012).
While the policy focus is on potential
avenues for reforming structural and
regulatory factors in the mortgage
market that contributed to the boom
and bust (Apgar 2012), there is little
consensus on the most likely path
to reform (Furman Center 2011).
Researchers widely agree, however,
that delays in resolving these issues
are hampering the housing market’s
recovery.
Understanding Access to
Mortgage Credit, 2004–11
To examine trends in mortgage
lending for different segments of
the population, this analysis uses
HMDA data from 2004 to 2011. The
statistics reported below are for firstlien loans for one- to four-unit and
manufactured housing. Many secondlien loans originated during the
boom were intended to cover additional borrowing costs on the same
property. These “piggyback loans”
enabled borrowers to qualify for a
first-lien loan with a loan-to-value
ratio under 80 percent, thus avoiding
paying for mortgage insurance. Since
Understanding Home Mortgage Disclosure Act Data
The Home Mortgage Disclosure Act, enacted in 1975 to assess financial institutions’ ability to meet their local communities’ housing credit needs, requires lending institutions to report information about the individuals applying for mortgages,
their applications, and how the applications are resolved. Financial institutions are
required to report when the value of their assets or loan originations exceeds a
certain threshold and they have banking activity in a US metropolitan area during the
reporting year. It is estimated that HMDA data include 90 to 95 percent of FHA
loans and 75 to 85 percent of other first-lien home loans (HUD 2011). Among other
information, the data include the neighborhood location of the property securing the
loan application, the type (conventional or government-insured), purpose (purchase,
refinance, or improvement), lien status of the loan application, whether the loan was
originated or denied (and reasons for denial), and basic demographic data on the
applicants. Multiple changes to the dataset beginning in 2004 make it appropriate to
begin a longitudinal analysis of the data in that year.
2
the goal of this analysis is to measure mortgage lending activity that
corresponds with individuals’ housing investment activity, the analysis
excludes these loans (which would
effectively double-count purchaserelated lending activity).
Home Purchase Lending
As is well known, the number of
loans originated grew dramatically during the housing boom and
fell just as dramatically during the
bust. While high-income borrowers
experienced the sharpest absolute
decline in the total number of loans
originated, middle-income borrowers
and borrowers of color made up a
decreasing share of borrowers from
2005 onward—that is, their borrowing dropped proportionately more
(figure 1).
Some of these trends are likely
explained by changes in the income
distribution of potential borrowers.
The definitions of low, middle, and
high income are relative to AMI and
adjust over time. A recession adds
to the number of unemployed and
underemployed, increasing the share
of potential borrowers with income
under 80 percent of AMI and decreasing the share with income above
120 percent of AMI. However, it is
still noteworthy that borrowers who
dropped down into the lowest income
tier were able to obtain credit even as
their incomes fell.
The share of home purchase loans
obtained by black and Hispanic
borrowers peaked in 2006, fell
sharply through the following years
and has not increased significantly
since then, even as the total number
of originations has begun to recover
(figure 2). This falloff in home purchase originations, particularly
among Hispanic borrowers, is even
more striking when we consider that
the population of Hispanic adults
between 18 and 64 years old—a
very rough proxy for the size of
the pool of potential homebuyers—
was growing faster than the
An Urban Institute Project Exploring Upward Mobility
Figure 1. Middle-Income Borrowers Bear the Brunt of the Home Purchase
Lending Decline
Number of loans (millions)
6
5
4
3
2
1
0
2004
2005
2006
2007
High income
2008
Middle income
population of other groups during
this period.
In a normal housing market,
the share of black and Hispanic
borrowers would increase over time
simply as a result of differences in
population growth. If the population of black and Hispanic adults
2009
2010
2011
Low income
ages 18–64 had been growing at the
same (slower) rate as the population of white adults over this period,
there would have been over 100,000
fewer loans originated to blacks and
Hispanics between 2005 and 2011. In
other words, if black and Hispanic
borrowers had maintained their
Figure 2. Home Purchase Lending to Borrowers of Color Continues to Decline
Relative to Others
85%
80%
White
75%
70%
15%
Hispanic
10%
Asian
Black
5%
0%
2004
2005
2006
2007
2008
2009
2010
2011
OPPORTUNITY AND OWNERSHIP
2004 market share during the housing bust, they would have received
100,000 more loans based on their
faster population growth. Instead,
the declining share of black and
Hispanic borrowers in the mortgage
market increased the gap between
their originations and the originations
of white borrowers.
Although Hispanic borrowers
account for a larger share of mortgage
borrowers than other nonwhites,
and this share has remained roughly
constant since 2008, home purchase
borrowing among Hispanics has taken
the biggest fall since 2005. Figure 3
shows the number of loan originations
for each 100 adults ages 18–64—a
rough proxy for the eligible population of mortgage borrowers—in each
group. The rate of borrowing among
Hispanics neared that of whites
in 2005 and 2006, but this gap has
increased in recent years as borrowing
among whites has begun to recover
more quickly than borrowing among
Hispanics.
Refinance Lending
Although the total number of refinance originations has rebounded
substantially in 2010 and 2011, the
trends for low- and middle-income
borrowers and for borrowers of
color are similar to the purchase
origination trends. While highincome borrowers increasingly took
advantage of low interest rates and
refinanced in the recovery, fewer
low- and moderate-income borrowers,
and black and Hispanic borrowers,
did so. Figure 4 reports the total number of refinance loan originations by
income tier, and figure 5 displays the
share of refinance loans originated
by borrowers of different races and
ethnicities.
Refinancing activity contracted
significantly among low- and middleincome borrowers through 2009,
recovering only slightly compared to
high-income borrowers in 2010 and
2011. Black and Hispanic borrowers
originated a smaller share of refinance
3
An Urban Institute Project Exploring Upward Mobility
OPPORTUNITY AND OWNERSHIP
are losing their homes or are stuck in
loans with unfavorable terms.
FIgUrE 3. Hispanics’ Borrowing rates Were Near Whites’ before the
Bust and Near Blacks’ After
Loan originations per 100 adults
18–64 in group
3.5
Exploring Supply versus Demand
Factors: Loan Denial Rates
3
2.5
2
1.5
White
Asian
1
Hispanic
0.5
0
Black
2004
2005
2006
2007
2008
loans than purchase loans during the
boom and bust. Their share of the
refinance market also peaked in 2006
and has fallen since then.The same
demographic phenom-ena affecting
the size of the potential homebuyer
market affects the num-ber of people
who might refinance their
mortgages. However, since lowincome borrowers and borrowers of
color were more likely to lose their
mortgages—and their homes—to
foreclosure during the housing bust,
2009
2010
2011
we might expect to see even fewer
refinances among these groups than
would be caused by general market
trends.
Without knowing exactly how
many homeowners in each income
tier and ethnic group lost their homes
to foreclosure in each year, it is not
possible to calculate exactly how
many fewer refinances to expect
based on a shrinking pool of homeowners. However, the news is not
good either way, whether homeowners
Figure 4. Refinancing Activity Bounces Back among High-Income Borrowers but
Not Low- and Middle-Income Borrowers
7
Number of loans (millions)
6
5
4
3
2
1
0
2004
2005
2006
High income
4
2007
2008
Middle income
2009
2010
Low income
2011
The number of loans originated is
a market outcome of demand from
potential borrowers and supply
from lenders’ decisions to approve
loans. By looking at loan applications, we can get a sense of the level
of demand for mortgage credit. The
supply of mortgage credit depends
on the overall supply of funds flowing to the mortgage market and
lenders’ decisions to approve loans
to borrowers. The amount of capital
available to be lent is an outcome
of many important policies (see
Duke 2013 on monetary policy and
Mortgage Finance Working Group
2013 on the secondary mortgage
market) and depends primarily on
prevailing interest rates. However,
examining denials as a share of
applications can give an idea of lenders’ willingness to originate loans.
Perhaps counterintuitively, loan
denial rates rose during the boom
and fell during the early bust. Rates
rebounded in 2010 and 2011 for
low- and middle-income applicants
but not for high-income applicants
(figure 6). These trends primarily
reflect changes in the number of
loan applications and tightening of
underwriting standards that prevented low- and middle-income
applicants from being approved for
loans. As the number of applications
fell off during the housing bust, in
large part because less-creditworthy
borrowers exited the market, the
loan denial rate fell. In recent years,
the number of applications from
all groups has increased, but lenders are more likely to reject new
applications from low- and middleincome applicants, while the denial
rate for high-income applicants continues to fall.
Examining denial rates by race
and ethnicity, increases in denials for black applicants appear to
An Urban Institute Project Exploring Upward Mobility
Figure 5. Refinancing Activity Bounces Back among White and Asian Borrowers
but Not Black and Hispanic Borrowers
90%
and Rosenthal 2007; Shapiro,
Meschede, and Osoro 2013).
Where to Go from Here
White
85%
80%
75%
70%
15%
10%
Asian
Hispanic
5%
Black
0%
2004
2005
2006
2007
2008
be driving recent increases among
low- and middle-income applicants
(figure 7). Denial rates increased in
2010 for all racial and ethnic groups
except Asians, but they fell back
slightly between 2010 and 2011 for
all groups except blacks, who had
the highest loan denial rates over
this entire period. High loan denial
2009
2010
2011
rates may provide one explanation of why black individuals tend
to form independent households
as renters at younger ages than
individuals of other races, but take
longer to become homeowners than
individuals of other races, a pattern
that adversely affects their ability to
accumulate housing wealth (Haurin
FIgUrE 6. Loan Denial rates Increasing for Low- and Middle-Income
Applicants in the recovery
0.3
0.25
Low income
0.2
Middle income
0.15
High income
0.1
0.05
0
OPPORTUNITY AND OWNERSHIP
2004
2005
2006
2007
2008
2009
2010
2011
The mortgage market is at a crossroads as changes in regulations governing lending are formulated and
debated, affecting the future of the
government-sponsored enterprises
and the role of the Federal Housing
Administration in supporting the
mortgage market. These regulations
(such as the size of the required down
payment for loans to be securitized
without restrictions) will have their
largest impact on those who have
struggled to obtain mortgage credit
in the past.
Policies regarding homeownership are also under scrutiny. Although
the cost of owning a home is lower
than renting in many areas, there is
debate in the wake of the housing
bust over whether homeownership
financially benefits low-income
households and households of
color to the same extent as other
households (Bayer, Ferreira, and
Ross 2013; Mallach 2011). The home
mortgage interest deduction, once
untouchable, may also be redesigned
to better encourage homeownership
and bolster housing values, focusing
on less affluent households (Turner
et al. 2013).
It is important that public policy
be informed by the housing crash,
but there is a danger that policies
may respond to the last crisis and
not to future challenges and opportunities. Without discounting the
lessons from the housing crash,
homeownership will still be a key
element of long-term asset building for less affluent households and
households of color. Delayed homeownership is the most important
factor explaining the racial wealth
gap between blacks and Hispanics
(Shapiro et al. 2013), and responsible
housing investment is thwarted by
pro-cyclical policies that encourage
households to buy when prices are
high but discourage buying when
5
An Urban Institute Project Exploring Upward Mobility
OPPORTUNITY AND OWNERSHIP
Figure 7. Loan Denial Rates Continue to Increase among Black Applicants While
Stabilizing for Other Groups
0.45
0.4
0.35
Black
0.3
Hispanic
0.25
0.2
Asian
0.15
White
0.1
0.05
0
2004
2005
2006
2007
2008
prices are low (Lerman, Steuerle,
and Zhang 2012).
Although few would recommend a return to the “anything goes”
lending environment of the housing boom, lenders currently may be
overly cautious in restricting lending
to less-than-perfect borrowers. In the
early 2000s, over half of first-time
homebuyers had credit scores below
680; lending fell by about 90 percent
for these borrowers between 2007 and
2012 (Duke 2013). Homebuyers also
have less capacity to make substantial
down payments than in the past, due
to the debt overhang from the housing bust, the recession, and record
levels of student loan debt (Steuerle
et al. 2013). Low housing demand
among those who would become
homeowners makes it difficult for current homeowners to sell, and holds
down housing values for households
who bought their homes at the peak,
prolonging the effects of the housing bust for low- and middle-income
households and households of color
(Pendall et al. 2012).
Housing finance policy also affects
the ability of low- and middle-income
households and households of color
to build wealth by reducing highercost debt. Many loans made to these
households during the housing boom
6
2009
2010
2011
were not designed to build housing
equity, so locking them out of the current refinance market, with its historically low interest rates, is a doubly lost
opportunity.
Without making specific recommendations on the appropriate levels
of borrowing or regulation of mortgage markets, this brief makes clear
that low- and moderate-income borrowers and borrowers of color experienced a disproportionate drop in
mortgage borrowing during the housing bust, and that their recovery has
been anemic compared with the
general population. Lacking further
information on the complete financial
situation of borrowers in these
different groups, it is impossible to
identify the precise factors responsible for the discrepancy in lending
activity between borrowers of
different income levels and races.
However, given the evidence that
homeownership facilitates wealthbuilding among low- and moderateincome households in both the short
term (Grinstein-Weiss et al. 2011) and
the long run (Shapiro et al. 2013),
policymakers should move swiftly
to enact changes that fix the housing
finance system while ensuring that
the fixes do not shut out borrowers
who might benefit the most from
homeownership.
References
Apgar, William C. 2012. “Getting on the
Right Track: Improving Low-Income
and Minority Access to Mortgage Credit
after the Housing Bust.” Working paper.
Cambridge, MA: Joint Center for Housing
Studies, Harvard University.
Avery, Robert, Neil Bhutta, Kenneth P. Brevoort,
and Glenn B. Canner. 2012. “The Mortgage
Market in 2011: Highlights from the Data
Reported under the Home Mortgage
Disclosure Act.” Federal Reserve Bulletin
98(6): 1–46.
Bayer, Patrick, Fernando Ferreira, and
Stephen L. Ross. 2013. “The Vulnerability
of Minority Homeowners in the Housing
Boom and Bust.” Working Paper 19020.
Cambridge, MA: National Bureau of
Economic Research.
Belsky, Eric, and Nela Richardson. 2010.
“Understanding the Boom and Bust in
Nonprime Mortgage Lending.” Working
paper. Cambridge, MA: Joint Center for
Housing Studies, Harvard University.
Bocian, Debbie Gruenstein, Wei Li, Roberto
Quercia, and Carolina Reid. 2011. “Lost
Ground, 2011: Disparities in Mortgage
Lending and Foreclosures.” Durham, NC:
Center for Responsible Lending.
Duke, Elizabeth A. 2013. “Comments on
Housing and Mortgage Markets.” Remarks
presented at the Mortgage Bankers
Association Mid-Winter Housing Finance
Conference, Avon, Colorado, March 8.
Furman Center for Real Estate and Urban
Policy. Institute for Affordable Housing
Policy. 2011. “Navigating Uncertain
Waters: Mortgage Lending in the Wake
of the Great Recession.” New York: New
York University.
Grinstein-Weiss, Michal, Clinton Key,
Shenyang Guo, Yeong Hun Yeo, and
Krista Holub. 2011. “Homeownership and
Wealth among Low- and Moderate-Income
Households.” Working paper. Chapel Hill:
Center for Community Capital, University
of North Carolina at Chapel Hill.
Haurin, Donald R., and Stuart S. Rosenthal. 2007.
“The Influence of Household Formation
on Homeownership Rates across Time and
Race.” Real Estate Economics 35(4): 411–50.
Lerman, Robert I., C. Eugene Steuerle, and
Sisi Zhang. 2012. “Homeownership Policy
at a Critical Juncture: Are Policymakers
Overreacting to the Great Recession?”
Opportunity and Ownership Brief 13.
Washington, DC: The Urban Institute.
Mallach, Alan. 2011. “Building Sustainable
Ownership: Rethinking Public Policy
toward Lower-Income Homeownership.”
Discussion paper, Community Development
Studies and Education. Philadelphia, PA:
Federal Reserve Bank of Philadelphia.
Mortgage Finance Working Group. 2011.
“A Responsible Market for Housing
An Urban Institute Project Exploring Upward Mobility
Finance: A Progressive Plan to Reform
the U.S. Secondary Market for Residential
Mortgages.” Washington, DC: Center for
American Progress.
Pendall, Rolf, Lesley Freiman, Dowell Myers,
and Selma Hepp. March 2012. “Demographic
Challenges and Opportunities for U.S.
Housing Markets.” Working paper, Housing
Commission, Economic Policy Program.
Washington, DC: Bipartisan Policy Center.
Shapiro, Thomas, Tatjana Meschede, and Sam
Osoro. 2013. “The Roots of the Widening
Racial Wealth Gap: Explaining the BlackWhite Economic Divide.” Research and
Policy brief. Waltham, MA: Institute on
Assets and Social Policy, Brandeis University.
Steuerle, Eugene, Signe-Mary McKernan,
Caroline Ratcliffe, and Sisi Zhang. March
2013. “Lost Generations? Wealth Building
among Young Americans.” Washington,
DC: The Urban Institute.
Turner, Margery Austin, Eric Toder, Rolf
Pendall, and Claudia Sharygin. 2013. “How
Would Reforming the Mortgage Interest
Deduction Affect the Housing Market?”
Washington, DC: The Urban Institute.
US Department of Housing and Urban
Development. Office of Policy Development
and Research. 2011. “A Look at the FHA’s
Evolving Market Shares by Race and
Ethnicity.” U.S. Housing Market Conditions
(1st quarter): 6–12.
OPPORTUNITY AND OWNERSHIP
About the Author
At the time this brief was written,
Claudia Ayanna Sharygin was a
research associate at the Urban
Institute’s Metropolitan Housing
and Communities Policy Center.
Her real estate and urban economics
research focused on the effects of
housing market fluctuations on
household financial decisionmaking
(including spending and investment
decisions) and on household
composition and family structure.
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Given the chance, many low-income families can acquire assets and become more financially secure. Conservatives and liberals increasingly agree that government’s role in this
transition requires going beyond traditional antipoverty programs to encourage savings,
homeownership, private pensions, and microenterprise. The Urban Institute’s Opportunity
and Ownership Project policy brief series presents some of our findings, analyses, and
recommendations. The authors are grateful to the Annie E. Casey Foundation and the
Ford Foundation for funding the policy briefs.
The author thanks Edward Golding, Signe-Mary McKernan, Rolf Pendall, Kathryn Pettit,
Nancy Pindus, Caroline Ratcliffe, Ellen Seidman, and Gene Steuerle for helpful comments,
and Fiona Blackshaw for careful editing.
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