University Reporter: February, 1999
Mortgage Lending Patterns Mapped by Professor
Since 1995, Economics Prof. Jim Campen has been mapping trends in mortgage lending to low-income and minority borrowers in Boston. In December, he released his latest findings in "Changing Patterns V: Mortgage Lending to Traditionally Underserved Borrowers and Neighborhoods in Greater Boston, 1990-1997."
So how are aspiring minority and low-income home-owners faring? "What's new is that mortgage lending to minorities and low-income people actually fell in 1997," says Campen. The most underserved group remains Hispanics. After six years of modest growth, the percentage of loans to Hispanics dropped to 5.9% in 1997, after rising from 5.1% of all Boston home purchase loans in 1990 to 7.2% in 1996. For African Americans, the percentages fell for the third year in a row, to 14.7% after a high of 20.8% in 1994. Hispanic households accounted for 8.1%, and African American households accounted for 20.6% of all Boston households in 1990, according to 1990 U.S. Census figures.
This year, Campen for the first time extended his analysis to 27 communities surrounding Boston, and found that in these communities as well the percentage of loans that went to Hispanics and African Americans fell in 1997 (Asian Americans, in Boston and surrounding communities, received slightly more than their proportionate share of all loans).
The Boston area has been experiencing a booming housing market - - low interest rates make it an attractive time to buy - - but escalating housing costs hinder many who would like to own, especially for the first time. "The single most important reason for these numbers is that Hispanics and African Americans have lower incomes, and housing in the Boston area is more and more expensive,"says Campen. "So a big issue is affordability."
Campen's report also analyzes the performances of three major types of lenders, including large banks, smaller banks and credit unions, and mortgage companies. Boston's large banks - - Fleet, BankBoston, Citizens, and Boston Safe Deposit - - had by far the best record of lending to minority and low-income borrowers, but their share of all loans fell from 35% to 25%. "Meanwhile, the mortgage companies, who do a much worse job of lending to traditionally underserved borrowers, for the first time made more than half of all mortgage loans in the city," says Campen.
"Denial rates are also important," says Campen, who says that the picture is brighter here, where denials of loan applications for minorities and low-income applicants increased slightly in 1997, but remain low in relation both to the levels here in 1990 and to nationwide denial rates today.
For local and historical context, the impetus for Campen's research on this topic can be traced back to several reports in the late 1980s issued by federal, state and local agencies revealing substantial racial disparities in Boston's home mortgage lending market. In 1990, leaders of the statewide banking industry responded to a year-long campaign by community advocates by making a commitment to increase mortgage lending to underserved borrowers, especially in minority and low-income communities.
In 1995, Campen was commissioned by the Massachusetts Community and Banking Council to look at how minorities and low-income loan applicants had fared in light of that commitment. A report has ensued annually. In addition, the Gastón Institute commissioned Campen to expand on the finding that Hispanics were the most underserved minority in the City. His report, Trailing the Pack: Mortage Lending in Sixteen Massachusetts Cities, 1992-1996, was published in February, 1998.
After delving into this issue for years, Campen has developed three recommendations for reducing lending disparities for minority and low-income borrowers. First, expand support for "targeted mortgage programs" designed to make homeowner- ship affordable to low-income residents, such as the Soft Second Mortgage Program of the Massachusetts Affordable Housing Alliance. Second, ensure that fair lending laws are enforced. Third, expand the Federal Community Reinvestment Act, "to cover mortgage companies as well as banks," says Campen, who expects to continue this research in future years.