The share of mortgage lending to minority borrowers fell to at least a 14-year low as U.S. regulators struggle to ease credit to blacks and Hispanics shut out of the housing recovery.
These borrowers, whose share of the purchase mortgage market has been shrinking since the collapse of subprime lending, continued to lose ground to white borrowers through 2013, according to federal data released this week. Blacks and Hispanics were a smaller portion of borrowers last year than they were in 2000, before the housing bubble.
Minorities, who tend to have less savings and lower credit scores than whites, have been hit hardest by lenders who are giving mortgages only to the strongest borrowers. Fair-lending advocates and civil-rights groups are urging the government to create new loan products and change how creditworthiness is determined to give blacks and Hispanics greater access to one of the best vehicles for building wealth.
“These numbers are a wake-up call that the housing market is a major driver of the economy and it can’t be a vibrant market when so many new households are excluded from it,” said Jim Carr, a former Fannie Mae executive who is now a scholar at the Opportunity Agenda, a New York-based organization that works on racial equity issues. …
Helping blacks and Hispanics enter the market may require a change in the way creditworthiness is determined, fair-lending advocates say. They criticize the reliance on scores from the Fair Isaac Corp. to determine who gets a government-backed loan.
FICO penalizes borrowers who don’t have recent credit histories, who use small lending institutions such as credit unions, or who have previously relied on payday and subprime lenders that predominate in minority neighborhoods.
Lenders should consider alternatives, such as VantageScore, which evaluate borrowers who have thin credit files or past delinquencies differently than FICO, Carr said. And rather than typical fixed or adjustable-rate loans, the government-backed agencies should encourage lenders to offer shared appreciation mortgages, where lenders benefit from price appreciation of homes, or lease purchases, which enable renters to buy their homes, he said.
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