People of color – particularly Black and Latino – and low- and moderate-income people are being locked out of homeownership in New York City.
Racial disparities in lending persist, and are getting worse – 22% of New York City’s population is Black and 29% is Hispanic, yet fewer than 7.6% of all loans went to Black borrowers and 7.9% to Hispanic- a lower rate for both from the prior four years.
Non-bank lenders are increasing their presence overall, and particularly to borrowers of color and in neighborhoods of color, while banks are retreating from lending to and in those communities, placing these communities at a greater risk of paying higher costs and making them vulnerable to risky behavior (as non-bank lenders have fewer oversights than CRA-regulated banks).
Home purchase lending has risen steadily over the past four years, up 12% from 2014 to 2017 and 3.5% from 2016 to 2017. The amount loaned increased at an even faster pace, and yet, the number and percentage of loans to LMI borrowers has been declining. This is somewhat understandable, given the high and rising cost of housing in New York City; sales prices have been increasing steadily for the past six years. In 2017, sales prices increased 11% for single-family homes and 14% for 2-4 family homes.5 Meanwhile, in 2016, 44% of homeowners that already had a mortgage were rent-burdened, paying more than 30% of their income on housing. That being said, some lower-income borrowers were getting loans by banks and non-banks, but there is more banks can do to reach these borrowers today through products, financial assistance, outreach, and partnerships.
While certainly some of the CRA loan products are going to LMI borrowers, we note that many middleand upper-income borrowers are getting loans by CRA-covered banks to purchase homes in LMI tracts. Regardless of which product they use, banks get credit for the loans, and this means that many of these CRA loans are not benefiting the people that the law was intended to support and could in fact be contributing to gentrification and displacement as banks get CRA credit for all loans in LMI tracts.
In East New York, for example, the median income was $38,620 in 2016 ($3,017 per month), but the median sales price per unit that year was $412,000 for a single-family home and $245,201 for 2-4 family home. To afford a home for $412,000, with a 20% down payment, a family would have to earn nearly double that income and have $82,400 to put down. But, given the high cost of living in New York City – childcare, clothing, food, as well as the cost of maintaining such a home – a family would likely need to earn well above even double that income to afford a home at this price. A person can’t afford a $412,000 home on a $38,620 per year salary.
The percentage of non-bank lenders making home purchase lending is rising steadily in New York City, but it is still below nationwide levels at 56%.11 While this paper focuses on home purchase lending, we must note the rise in non-bank lenders in refinance lending where the percentages in New York City were much higher, matching national trends. Now, non-banks make up over 56% of all refinance loans, up from 42% in 2014.
Perhaps due to the CRA’s obligation to lend to LMI borrowers, the percentage of loans to LMI borrowers is on par or higher at banks when compared to non-banks. In 2017, banks made a higher percentage of their loans to LMI borrowers than nonbanks did; 7.3% of all bank loans were to LMI borrowers versus 6.5% of nonbank lenders. In 2016, the percentages were almost the same among the two lender types: 8.3% at banks versus 8.5% at nonbanks. However, the difference in lending to borrowers of color and in communities of color is stark. It raises questions about fair lending, and underscores the need for better enforcement and new strategies to increase lending to underserved populations, including modernizing the CRA to include an affirmative obligation to serve borrowers of color. In 2017, for example, just 3.8% of CRAcovered bank loans went to Black borrowers and 5.4% to Hispanic borrowers, versus 17% and 14%, respectfully, at non-banks. Credit unions were in the middle, but their overall volume of lending is much lower.
The CRA was passed in 1977 as a response to the racist policy of redlining and other discriminatory practices. Generations of racist policies and bias contribute to the racial wealth gap that persists today and play a major factor in the ability to purchase a home – lower earnings, less wealth, and lower credit scores, to name a few. Immigrants may face additional barriers, including language and cultural challenges as well as the lack of a credit score. According to a Pew Research Center study in 2014, the net worth of White households is 13 times that of Black households and 10 times that of Hispanic households.12 The Fiscal Policy Institute found that on average White families in New York State earned 77% more than Black families and 93% more than Hispanic families.13 This is in addition to outright discrimination and implicit bias in lending, such as the stories and data in a Reveal article and related study published earlier this year.
