A two-tiered mortgage market has emerged in the U.S., favoring the affluent — and mostly white — borrowers, while saddling middle-class and minority workers with an array of fees and extra costs, according to an article in the LA Times.
Lending standards have loosened since the Great Recession, but that mostly applies to homebuyers with excellent credit scores of more than 700; for other borrowers, even those with minor credit dings, lenders are routing them toward higher-cost Federal Housing Administration (FHA) mortgages, designed for low-income or bad-credit borrowers, the article states.
And when it comes to racial discrimination, data collected under the federal Home Mortgage Disclosure Act shows African-Americans and Latinos are only half as likely as white people and Asians to get a loan at all.
“Older, wealthier, white borrowers will be able to get loans all day long,” Mortgage Bankers Association President David H. Stevens, a former FHA commissioner, told an industry conference this spring in Raleigh, N.C.
Additionally, African-American and Latino borrowers often receive less favorable loans compared to white borrowers with similar credit profiles, the LA Times writes.
However, officials at government-sponsored financing giants Fannie Mae and Freddie Mac — and the Federal Housing Finance Agency (FHFA), which regulates them — say they have tried to encourage lending to lower-income and minority borrowers by reducing certain fees, clarifying when lenders must repurchase soured mortgages, and beginning to accept down payments as low as 3%, the LA Times writes.
Still, FHFA Director Melvin L. Watt said it can’t stop lenders from imposing higher credit standards than required.
“No one wants to return to the excesses and abuses of the past, and FHFA is taking steps to ensure that this does not occur,” Watt told a realtors conference in November. “But the message we have tried to send is that we need to find a way back to responsible lending to creditworthy borrowers across all market segments.”
To read the full LA Times story, click here.
Written by Emily Study