Updates on Home Mortgage Lending

FHA-guaranteed loans make up a larger share of the market. That gain is not limited to LMI communities. In 2006, for instance, FHA made up about one-fourth of loans in poor neighborhoods and about 11 percent of loans in upper-income neighborhoods. In 2009, it has grown to the point where FHA loans make up one in three new mortgages in upper income neighborhoods (and two-thirds in poor areas.)

The FHA trend began sometime ago. The role of FHA in 2009 is hardly changed from 2008, at least in terms of home purchases in low-income areas.

This is happening as a complementary piece to the conventional market. Poor areas and poor borrowers

are increasingly shut out from the conventional loan market. The next chart shows the array of lending by income categories in 2009.

This table lays out the share of lending (by loan amount) for borrowers by the income status of their neighborhood and their personal income. There are five income quintiles. The loans reflect conventional first lien mortgages on single-family properties, and they cover both refinances and home purchases.

In NY, about 80 percent of minorities in low-income areas were turned down for loans. That is much different than the case for minorities in more well-off areas. Overall, about half of all loan applications were turned down in the metro area in 2009.

The numbers show that sub-prime lending is way done. The one area where it hasn’t fallen off as rapidly is in FHA refinances.

I see that the conventional loan market is increasingly dedicated to the very well-off. Even the middle class (income between 100 and 120 percent of AMI) no make up about 12 percent of all lending. Moreover, credit seems to tighten more closely to the level of neighborhood income, rather than to personal income.

One researcher that I was talking with ran a sort for the reasons why loans were turned down. He noticed that there was a surge in loan denials because of incomplete credit applications. I can vouch for that, having sought a loan last year. Going through the requests of the credit committee was maddening. I had to send in my paycheck every two weeks and fax in information on my asset accounts. It seemed like the demands of paperwork were much higher than in the past. The researcher found that incomplete credit applications were actually more frequent among middle-and-upper income borrowers than in any other category.

It would be a good next step to document how loan demand has changed. Loan demand is way off.