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September 25, 2014

A surprising disparity in the newest mortgage data

September 25, 2014

Last week, we released a new view of the housing boom and bust, an interactive map that allows users to see where mortgages were made from 2001 to 2012, and to which racial and ethnic groups. With 2013 Home Mortgage Disclosure Act (HMDA) data out this week, we’ve updated the map to show 13 years of mortgage originations by race and ethnicity and region. The newest data reveal two continued trends and one surprising disparity:

Continued trend: African Americans and Hispanics are still locked out of the recovery. The recovery in the mortgage market picked up steam in 2013, with the number of purchase mortgages increasing 14.8 percent over the previous year. But non-Hispanic white borrowers accounted for most of that increase, while African American and Hispanic borrowers rose by just 7.4 and 8.2 percent. Tight lending continues to block many creditworthy households from joining the recovery; borrowers with a FICO score less than 660 represented only 10 percent of new originations in 2013, compared to 13 percent in 2012 and 20 percent in 2001. With interest rates and home prices rising, the barriers for many African American and Hispanic households to become homeowners will only increase.

Continued trend: The recovery is still very uneven geographically. Our map visualizes just how different the boom and bust look in different parts of the country. The recovery period exhibits the same variation as well. For example, new purchase mortgages made to borrowers in the Chicago metropolitan area surged 27.7 percent in 2013 over the previous year. Meanwhile, two major California cities in the Central Valley experienced a decline in the number of purchase loans: Stockton, a 12.1 percent decrease, and Modesto, a 13.6 percent decrease. The housing and mortgage market in these areas are continuing to struggle to bounce back from the recession while most of the country is recovering.

The surprise: Refinance volume plummeted in 2013, but only for whites and Asians. While the uneven recovery by race and ethnicity and geography are continuing trends from 2012, the 25.4 percent reduction in the refinance volume from 2012 to 2013 is a notable change. To some extent, this decrease is expected: refinance volume is always driven by changes in interest rates, and 2013’s rates were higher than 2012’s, especially from May on. But the variation by race and ethnicity is unexpected: for white and Asian borrowers, refinances fell by a whopping 27.4 and 35.8 percent, respectively. Meanwhile, African American and Hispanic borrowers showed a barely perceptible slowing, 3.0 and 5.5 percent declines, respectively.

What’s behind the divergence? We’ll explore this question further in a future post, but it appears that white borrowers were able to refinance (and thus reduce their mortgage payments) earlier, while the benefits to minority borrowers were delayed.

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