As policymakers and consumer advocates seek ways to fill the racial homeownership gap, a new report suggests that non-banks lend better to minorities than banks in the largest state.
Findings from the Greenlining Institute, a nonprofit based in Oakland, California, show that the eight largest non-bank mortgage lenders in California have lent more of their respective portfolios to Black and Hispanic homebuyers than top bank lenders in the state.
Independent mortgage lenders say the main reason the difference in minority lending is that non-banks focus solely on mortgage lending rather than selling a wide range of products to the same customers.
"We're in the business of lending. When a borrower qualifies for a loan, we will lend it," said Scott Olson, executive director of the Community Home Lenders Association, a trading group of independent mortgage lenders. “Banks are in business to make a profit on a wide range of products. A small profit on a loan may not help them in their business plan as they want to sell them insurance, stocks and many other products to one another. "
Greenlining analyzed loans from the top 15 mortgage lenders in six California metropolitan areas: Sacramento, San Francisco, Oakland, Fresno, Los Angeles and San Diego. Analysis of the data from the Home Mortgage Disclosure Act of 2019 found that black, Latin American, and Native American borrowers overall received far less credit than white borrowers. Loans to black, Latin American, and Native American borrowers were 97,420, compared with 157,696 for white borrowers.
However, when comparing the top eight non-banks, Greenlining found that just over 18% of their mortgage portfolios, on average, consisted of loans to Latino borrowers. That number was just over 8% for the seven largest banks. On average, just over 3% of non-bank portfolios were loans to black borrowers, compared with 1.1% on average for bank portfolios.
"In several regional markets, non-bank lenders are providing twice as many home loans to low-income borrowers as mainstream banks," the report said.
The new data comes as some anticipate that home access could catch the attention of the in-depth Biden administration. A national focus on racial inequality has increased the focus on anti-redlining, as has regulators making a major overhaul of the Community Reinvestment Act.
Community and stakeholder groups have long wanted non-banks to join the CRA. The greenlining data suggests that there is evidence that regulators should pay more attention to non-banks, including the types of credit products they come from and how to contact low- and middle-income communities.
"In California, nine of the 15 largest home purchase lenders are unregulated, unsuspecting lenders who do not provide traditional banking services, operate largely online, and are not subject to the Community Reinvestment Act. Therefore, their lending is not regularly reviewed to see if They meet the credit and credit needs of the communities in which they operate, "the report said.
Non-banks make up 90% of the so-called unconventional loans supported by the Federal Housing Administration and the US Department of Veterans Affairs. Non-banks also have about half of all conventional loans backed by Fannie Mae and Freddie Mac.
Rawan Elhalaby, senior manager, economic equity program at Greenlining and author of the report, "Housing Lending to Color Communities in California," said banks have largely withdrawn from FHA lending, part of the minority lending gap.
"Banks say they can't afford riskier loans," Elhalaby said. "They complain that they are more regulated than non-banks and cannot afford to make concessions that non-banks make."
Banks withdrew from FHA lending following the financial crisis, fearing that if a borrower defaulted, the Department of Justice could bring the bank to court under the False Claims Act. Before the financial crisis, around 50% of FHA insured loans came from custodians, but that number is now closer to 15%.
"Non-banks seem to be getting more shares from banks every year," said Jim Coffrini, president and CEO of Sierra Pacific Mortgage in Folsom, California.
While some banks have closed branches in minority neighborhoods, non-banks have increased marketing to low- and middle-income communities.
"A lot of traditional bank products are inaccessible because there are no branches in these communities and people of color don't have relationships with bankers or loan officers," Elhalaby said. "All along the line, people of color are largely under-represented in home loans."
Of the top 15 lenders in California, all eight non-banks topped the list when it came to lending to Latino and Black borrowers, even though overall lending to Black borrowers was significantly lower compared to their proportion of the population.
New American Funding in Tustin, California topped the list of minority loans. 28% of the total loan volume in California went to Latino borrowers and 4% to black borrowers last year. Freedom Mortgage, a large unbanked lender and servicer in Mount Laurel, New Jersey, extended 21% of its loans in California to Latinos and 4% to blacks. Other top lenders in the state were Finance of America Mortgage in Horsham, Pennsylvania; United Wholesale Mortgage of Pontiac, Michigan, operating as United Shore Financial; and Caliber Home Loans, in Coppell, Tex.
Among the banks, Flagstar Bank in Troy, Michigan topped the list of minority loans. 12% of their loans in California went to Latinos and 2% to blacks. The other six banks – MUFG Union Bank, JP Morgan Chase, Wells Fargo, US Bank, Bank of America, and Citibank – have each given just 1% of their loan portfolios to blacks and 10% or less to Latinos in California.
The real estate market is one of the few positive sectors of the economy while other sectors have been hit by the coronavirus pandemic, but some signs point to problems. More than 5 million borrowers have asked for leniency in paying their mortgage.
Residential property inventories fell back in March during the pandemic. Low mortgage rates and skyrocketing home demand led the Mortgage Bankers Association to forecast a record $ 3.14 trillion this year.
Greenlining advocates that banks increase their branch presence in rural communities and allocate more funds for broadband deployment in underserved areas. The group also wants nonprofits to get more funding to support first-time home homeowner advisors.
Congress would need to pass legislation to add non-banks to the Community Reinvestment Act. The Office of the Currency Auditor revised the enforcement of the law for its banks in a rule completed in May, but other banking regulators have refused to endorse the OCC plan. However, a recent draft reform drafted by the Federal Reserve suggests that the agencies' CRA policies could be further revised.
However, Olson said there would be no point in adding non-banks to the CRA regime.
"Non-banks are leading the way in providing mortgage loans to underserved and minority borrowers," said Olson. "CRA stands for Community Reinvestment Act," which means that banks and other custodians that withdraw funds from a community through deposits should reinvest in those communities. Independent mortgage lenders, on the other hand, do not take deposits from the municipalities. "