Shifts in mortgage lending are making it more difficult for low-income homebuyers to purchase a home. In 2009, 36.6% of mortgage borrowers had low and moderate incomes. In 2017, that number was down to only 26.3%. Federal rules and rising home prices are partly to blame for this problem.
Another concern is that national banks, which under the Community Reinvestment Act are required to invest a percentage in lower-income communities, are starting to move away from mortgage lending entirely. Non-banks, which are not bound by the same Act, have picked up the slack and originate 56% of all home loans.
- The percentage of low- and moderate-income borrowers for home mortgages has substantially decreased since 2009
- Federal rules, rising home prices and the trend of banks shifting away from mortgage lending are all contributing factors in the dwindling percentage of low-income homebuyers
- Non-banks now originate about 56% of all such loans to make up for the lack of mortgage lending from traditional banks
- Non-banks are not required to invest in lower-income communities, making it even more difficult for lower-income homebuyers to purchase a home
Newly-released federal data on mortgage lending from the Consumer Financial Protection Bureau shows people with low- and moderate-incomes made up only 26.3% of borrowers in 2017, down from 36.6% in 2009.
In part, that’s due to federal rules that sought to crack down on the subprime lending tactics that helped bring on the financial crisis. Also, skyrocketing housing costs have locked many people of modest means out of the market.
But the data reveals another profound shift. Big banks are moving away from mortgage lending entirely, while independent mortgage companies — or “non-banks” — pick up the slack.
“Non-bank” is a catchall term for financial institutions that don’t take deposits. Non-bank mortgage lenders just do mortgage lending, for example. So in a time of low interest rates and higher regulatory costs, traditional banks have the option of moving into more profitable ventures, like credit cards.
“Profit margins on lending have come down quite a bit,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association, which represents both banks and non-banks. “So a number of banks have de-emphasized their mortgage lending, because there are other business lines they can focus on.”
And as banks have moved away from the mortgage business, they’ve fled even more quickly from lower-income black and Hispanic buyers, who often apply through the more forgiving Federal Housing Administration loan programs. Only 15% of the new mortgage borrowers at the nations’ three largest banks were low-income in 2017, compared to 29% for the three largest non-banks.
View the original article at CNN Money