Editor: David Reiss
Brooklyn Law School

September 23, 2015

Homeowners Keeping the Wolf at Bay

By David Reiss

Wolf at the Door by Gidi

The Center for Responsible Lending has released a policy brief with the lengthy title, 2014 HMDA data shows that Federal rules did not have a chilling effect on lending, despite lender predictions. Borrowers of color continue to be under-served by the mortgage market. While it is not a pithy title, it does say it all. The brief opens with some finer detail:

The 2014 mortgage data submitted by lenders under the Home Mortgage Disclosure Act (HMDA) reflects a slowly recovering mortgage market, but one that troublingly continues to under-serve important market segments. The implementation of federal mortgage underwriting standards (known as Ability-to-Repay or “ATR” and the Qualified Mortgage rule or “QM”) in early 2014 did not cause a departure from mortgage lending trends in recent years. However, access to credit remains tight; people of color and low and moderate-income families continue to receive a far lower share of home purchase loans than they have historically and than would be expected based on their share of the population. These borrowers also are much more likely to be served by government-backed loan programs than by the conventional market, and are increasingly paying more for mortgages than other borrowers. (1, footnote omitted)

The brief closes, arguing that

recent mortgage lending reforms support sustainable homeownership and wealth building opportunities for lower-wealth households. However, continued problems with access to credit stem from the constrained lending of the post crisis market. Since the crisis, mortgage lending has been mostly limited to borrowers with the most pristine credit history. This constrained lending environment is reflected in the 2014 HMDA data. This environment is most harmful to lower-wealth households as well as to borrowers of color. (5)

The missing piece in this analysis is a proposal for to how to loosen mortgage underwriting so that homeownership can be achieved by more households while also making sure that they can keep making their mortgage payments over the long term.

The key to a sustainable homeownership policy is a plan to keep the wolf at bay while households deal with the unemployment, sickness and divorce that is predictably going to affect some of them all of the time. This policy brief does not chart a path forward to that goal. There is more work to be done.

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