A new report from the Urban Institute estimates that as many as 1.2 million potential home buyers – most of them minorities – are being shut out of the market annually due to tighter lending standards that have come into play since 2008.
‘We estimate the number of 'missing loans' that would have been made if credit availability were at normal levels â�¦ could be as high as 1.2 million units annually,’ the report, authored by Laurie Goodman, Jun Zhu and Taz George of the Urban Institute, states.
The report finds that ‘minority borrowers, especially African-Americans and Hispanics, have been disproportionately shut out of the market.’ What's more, some states, such as Florida, are seeing a greater impact from tightening credit than other states.
Using data from CoreLogic, the report shows that in 2001, 24% of purchase loans had FICO credit scores under 660. In 2012, that share dropped to 13% – and in 2013 it fell to 10%. The share of loans with FICO scores greater than 750 increased from 31% in 2001 to 45% in 2012 and 47% in 2013.
The report shows that since 2001 the number of new purchase borrowers with FICO scores above 750 has decreased by 18%; the number of borrowers with FICO scores in the 660-750 range decreased 46%; and the number of borrowers with FICO scores below 660 decreased 70%.
Drawing on Home Mortgage Disclosure Act (HMDA) data through 2012, the report shows that African-Americans and Hispanics "have been hit far more heavily than non-Hispanic whites and Asians" in terms of credit availability. The share of non-Hispanic white borrowers increased from 68.1% of the total in 2001 to 71.2% of the total in 2012, and the share of Asian borrowers rose from 3.8% to 5.7%.
By contrast, the share of African American borrowers spiked from 6% in 2001 to 8% in 2005, before dropping to 4.8% in 2012. The pattern for the Hispanic share is similar: 8.85% in 2001 to 13.3% in 2005, before dropping to 8.6% in 2012.
Comparing 2001 to 2012, the number of purchase loans to African-American and Hispanic borrowers declined by 55% and 45%, respectively. In contrast, purchase loans to non-Hispanic whites and Asians dropped 41% and 15%, respectively.
In terms of loan counts, comparing 2001 with 2012, the number of purchase loans to African-American borrowers decreased from 292,944 to 131,470, while the number of purchase loans to Hispanic borrowers decreased from 430,043 to 236,507.
The report does not provide a breakdown on average FICO scores or income by race/ethnicity.
As the report points out, the trend was almost the opposite during the period from 2001 to 2005, when the volume of purchase mortgages to African-Americans increased by 102%, for Hispanics by 129%, for Asians by 106% and for whites by 41%.
From 2005 on, however, the number of purchase loans to African-American and Hispanic borrowers declined by 76% and 78%, respectively, compared with declines of 56% and 59% for non-Hispanic white and Asian borrowers.
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