The Great Recession and Ethno-Racial Disparities in Access to Mortgage Credit

Abstract

The mortgage industry has long been central to racially and ethnically stratified access to homeownership. Liberalized access to credit during the 1990s and early 2000s targeted subprime and other high-cost loans to individuals and communities of color. This article draws on annual data from the Home Mortgage Disclosure Act (HMDA) from 2004 through 2017 to assess short-term variation in racial and ethnic disparities in loan outcomes associated with the Great Recession. We show that, relative to the boom, this period is associated with a reduction in disparities in loan outcomes between non-Hispanic whites and Asians on the one hand and blacks and Latinos on the other. This is particularly true for the disproportionate channeling of black and Latino applicants into high-cost loans, and in communities with higher minority concentrations. As the economy and access to credit improved, particularly after 2011, black and Latino over-representation in high-cost loans began to rebound, though ethno-racial disparities in loan rejection continued well below levels observed during the boom years. The return of inequality in high-cost lending is particularly troubling in light of the sharp drop in minority applications. Implications for ethno-racial stratification are discussed.

Differential Access in Mortgage Credit: The Role of Neighborhood Spatial and Racial Stratification

“…As such, the housing collapse of the Great Recession had a disproportionate impact on communities of color, as they faced higher foreclosure rates, mortgage debt, and negative equity (owing more on a home than it is worth) compared to white communities (Amromin and McGranahan 2015; Anacker and Carr 2011; Anacker, Carr, and Pradhan 2012; Bayer, Ferreira, and Ross 2016; Faber and Ellen 2016; Massey et al 2016). In the years following the Great Recession, the volume of high‐cost loans has begun to rise once again (Haupert 2019; Loya and Flippen 2020), thus requiring a re‐evaluation of neighborhood racial inequality in the mortgage market.…”

“…During the housing boom of the early 2000s, subprime loans accounted for as much as 50 percent of homeownership growth in minority communities, which left these neighborhoods particularly vulnerable during the Great Recession (Rugh, Albright, and Massey 2015a; Williams, Nesiba, and McConnell 2005). While mortgage lending has steadily increased since the Great Recession (Estenssoro and Cissi 2015), lending rates in minority communities remain lower compared to white communities (Haupert 2019, 2020; Loya and Flippen 2020).…”

Perceptions of Banking Officials on African American Creditworthiness: A Phenomenological Inquiry

“…Researchers have noted racial disparities concerning opportunities for credit access and whom credit lenders may find more creditworthy (Bartlett et al, 2021;Rakshit and Peterson, 2021). With the end of the recession, such factors as decreased household debt, a resurgence in asset prices, and consumer credit access renewal have increased consumer spending for most of the population (Loya and Flippen, 2020). However, African Americans may experience difficulties in credit access due to a lack of knowledge regarding consumer credit policies as well as financial expertise (Loya and Flippen, 2020).…”

“…With the end of the recession, such factors as decreased household debt, a resurgence in asset prices, and consumer credit access renewal have increased consumer spending for most of the population (Loya and Flippen, 2020). However, African Americans may experience difficulties in credit access due to a lack of knowledge regarding consumer credit policies as well as financial expertise (Loya and Flippen, 2020). Due to these same reasons, African Americans may also lack the ability to leverage the equity in their home or fail to save money (Loya and Flippen, 2020).…”

“…However, African Americans may experience difficulties in credit access due to a lack of knowledge regarding consumer credit policies as well as financial expertise (Loya and Flippen, 2020). Due to these same reasons, African Americans may also lack the ability to leverage the equity in their home or fail to save money (Loya and Flippen, 2020). Their lack of knowledge may prompt credit lenders to perceive them as less creditworthy.…”