Heat Map Shows Impact Of Recession On Minority Originations

Posted by Patrick Barnard on September 24, 2014 No Comments
Categories : Residential Mortgage

A recent report and accompanying ‘heat map’ published by the Urban Institute shows the disproportionate impact the economic crisis has had on the number of mortgage originations to African American and Hispanic borrowers.

The heat map, which utilizes data from the Home Mortgage Disclosure Act database, graphically shows how stricter lending standards and rising home prices resulted in fewer minorities qualifying for mortgages over time. It works like a slide show, in that it depicts the impact of the housing crisis for each year starting with 2001 and running through 2012 using color-coded dots, each representing 20 mortgages. The color of each dot is determined by the race of the mortgage holders.

When one zooms in on a certain area of the map – the New York City area for example -one can see how the percentage of mortgages originated to African American and Hispanic borrowers increased dramatically from 2001 through 2006, but then the pink and yellow dots that represent these minority borrowers quickly fade during 2007 to 2009, leaving mostly blue dots, representing white borrowers.

As the report by Urban Institute's Bing Bai and Taz George states, the share of loans made to African American and Hispanic households from 2005 to 2012 dropped from 23% to 12%.

San Francisco and Los Angeles are prime examples of metropolitan areas where the recovery has been ‘uneven.’ In 2005, African Americans and Hispanics took out more than 76,000 mortgages in those two cities, nearly 28% of all mortgage originations; but by 2012, that had dropped to about 19,000 – less than 8% – according to the report.

So, what's the solution to getting more minorities back into homes? As per the report, the only way to do that is to ‘expand the credit box again.’

‘A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom,’ the authors write. ‘A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today's tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African American and Hispanic families from building wealth and benefiting from the recovery.’

The report makes no mention of the impact the economic downturn has had on minorities' income growth or credit scores.

To view the map, click here.

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