BOSTON, MA – (December 28, 2012). In its nineteenth annual report on mortgage lending patterns, the Massachusetts Community & Banking Council (MCBC) confirms a major shift in the mortgages provided to Massachusetts homebuyers. In the wake of the implosion of the subprime mortgage industry, high-cost subprime lending has almost disappeared, while government-backed lending has grown dramatically.
Changing Patterns XIX: Mortgage Lending to Traditionally Underserved Borrowers & Neighborhoods in Boston, Greater Boston and Massachusetts, 2011, provides analyses of lending patterns in the city of Boston, Greater Boston and Massachusetts in 2011, as well as for each of the state’s thirty-three largest cities and towns. The report was prepared for MCBC by Jim Campen, professor emeritus of economics at UMass Boston. In addition to the data in the report, MCBC is also providing data on all Massachusetts cities and towns in a set of on-line tables. Both the report and the on-line tables are available on MCBC’s website at www.mcbc.info.
Government-backed loans (GBLs), while somewhat more expensive than convention prime loans, are generally responsible and sustainable loans. They are issued by private lenders and guaranteed by three federal agencies, the Federal Housing Administration, the Veterans Administration and the Department of Agriculture. They are not a problem in themselves, but are a symptom of – and a constructive response to – a deeper problem: the limited availability of conventional prime loans to lower-income and minority borrowers and neighborhoods. The GBL market share plunged in the early 2000s with the growth of subprime lenders who offered potential GBL borrowers loans products that required less documentation, allowed higher loans amounts, required no down payments, and promised relatively low initial monthly payments.
With the fading of predatory subprime lending, the emergence of current housing market ills, and the persistence of the foreclosure epidemic, the original problem that led to the inception of this series of reports in the mid-1990s has again assumed center stage: the problem of fair access to good loans for traditionally underserved borrowers and neighborhoods.
The report shows:
- The overall level of lending was substantially lower in 2011 than during the previous year. Home purchase loans fell 8% statewide, continuing a multi-year downward trend, while refinance loans were down 20% from 2010, but still far above the low point reached in 2008.
Continued Low Level of High-Cost Subprime Lending
- The level of high-APR loans (HALs) remained very low in 2011, accounting for just 0.7% of all loans (home purchase and refinance combined) statewide – far below their peak level of 22.2% in 2006. Between 2006 and 2011, the number of HALs in Boston fell from 3,361 to 34, while the number statewide fell from 40,143 to 1,131.
Continued High Levels of Government-Backed Loans
- GBLs continued to account for historically high shares of total lending in 2011. Statewide, GBLs accounted for 29% of all home-purchase loans and for 6% of the much larger number of refinance loans. These BGL shares are slightly lower than 2010, but still far above those in 205, when GBLs accounted for just 2% of home-purchase loans and 0.6% of refinance loans statewide.
- Among the state’s thirty-three largest cities, GBL loan shares were highest in Lawrence (where they accounted for 64% of all home-purchase loans and 25% of all refinance loans), Brockton (71% and 17%) and Springfield (60% and 20%). GBLs also made up more than half of all home-purchase loans in Lynn, Revere, Fall River, New Bedford, Metheun, Taunton, Attleboro and Worcester.
- Government-backed loans accounted for a substantially smaller percentage of loans in Massachusetts than they did nationwide. In Massachusetts, the GBL loan shares in 2011 were 29% for home-purchase loans, 6% for refinance loans and 12% overall. Nationwide, GBL shares were 50% for home purchase loans, 13% for refinance loans and 26% overall.
Lending by Borrower Race/Ethnicity and Income
- Black borrowers in Boston, Greater Boston and statewide received shares of total conventional loans in 2011 that were far below their shares of total households. Statewide, for example, blacks made up 6% of households but received only 2% of conventional home-purchase loans and just 1% of conventional refinance loans. In Boston, Latinos made up 14% of households but received only 4% of conventional home purchase loans and just 3% of conventional refinance loans.
- Black and Latino borrowers in Boston, Greater Boston and statewide were much more likely to receive GBLs than were their white or Asian counterparts. For home-purchase loans in Greater Boston, for example, the GBL loans shares in 2011 were 52% for blacks and 51% for Latinos but only 19% for whites. For refinance loans, the BGL loan shares were 15% for blacks, 11% for Latinos and 4% for whites. GBL loan shares were consistently much lower for Asian borrowers than for whites.
- When borrowers in Boston, Greater Boston and Massachusetts are grouped into five income categories, GBL shares of both home-purchase and refinance loans in 2011 tended to decline steadily as the level of borrower income increased. For home-purchase lending statewide, for example, GBL loans shares fell steadily from 42% of moderate-income borrowers to just 6% for the highest income borrowers.
- When borrowers are grouped by both race/ethnicity and income level, the GBL loans shares for blacks and Latinos are usually substantially higher that the GBL shores for white borrowers in the same income category. For example, in Greater Boston, the GBL loans shares for high-income homebuyers were 38% for blacks, 29% for Latinos and 17% for whites.
Lending by Neighborhood Race/Ethnicity and Income
- For home-purchase loans in the city of Boston in 2011, the GBL share in low-income census tracts was more than five times greater than that in upper-income census tracts 20% vs. 4%) and the GBL share in predominantly minority census tracts was more than three times greater than that in predominantly white census tracts (44% vs. 13%).
- Government-backed lending varied dramatically among Boston’s major neighborhoods. For home-purchase loans, GBL shares ranged from 61% in Mattapan to just 1% in back Bay/Beacon Hill. For refinance loans, GBLs accounted for 21% of the total loans in Mattapan but for only 0.4% of loans in Back Bay/Beacon Hill.
- Total home-purchase lending to blacks and Latinos was highly concentrated in a small number of the state’s cities and towns, and entirely absent in others. Just five cities (Boston, Brockton, Randolph, Springfield and Worcester) accounted for over one-half of total home-purchase loans to blacks in Massachusetts in 2011, but for only 10% of the state’s total loans to whites. Eight communities (Lawrence, Boston, Springfield, Lynn, Revere, Worcester, Everett and Metheun) accounted for one-half of all lending to Latinos in the state, but for just 11% of total lending to whites. Meanwhile, in 102 of the state’s 351 cities and towns there was not a single loan to either a black or a Latino homebuyer.
The Lenders
- Whether one looks at home-purchase or refinance lending – in Boston, Greater Boston or statewide – Massachusetts banks and credit unions made about 40% of all loans in 2011, Licensed Mortgage Lenders (mainly independent mortgage companies) made about one-third and Other Lenders (mainly out-of-state banks) made about one-quarter of the total. These loan shares are little changed from the preceding year, but dramatically changed from 2005 and 2006, when Licensed Mortgage Lenders accounted for approximately half of all loans and Massachusetts banks and credit unions accounted for less than one-quarter of the total.
- Massachusetts banks and credit unions directed a substantially greater share of their total home-purchase loans as conventional loans – and a substantially smaller share of their total home-purchase loans as GBLs – to every one of the categories of traditionally underserved borrowers and neighborhoods than did Licensed Mortgage Lenders and Other Lenders.
- Bank of America was the biggest lender statewide and ranked second in Boston in 2011. Mortgage Master was the biggest lender in Boston and ranked third statewide.
About the Massachusetts Community & Banking Council
The Massachusetts Community & Banking Council (MCBC) was established in 1990 to bring together community organizations and financial institutions to affect positive change in the availability of credit and financial services across Massachusetts by encouraging community investment in low- and moderate-income and minority group neighborhoods and providing research, other information, assistance and direction in understanding and addressing the credit and financial needs of low- and moderate-income individuals and neighborhoods.
MCBC is funded through the financial support of member financial institutions. MCBC 2012 members include: Abington Bank, Avon Co-operative Bank, Bank of America, Bank of Canton, Blue Hills Bank, Boston Private Bank & Trust Company, Braintree Cooperative Bank, Cambridge Savings Bank, Central Bank, Chelsea Bank, Citi, Colonial Federal Savings Bank, Dedham Savings, Eagle Bank, East Cambridge Savings Bank, Eastern Bank, Everett Co-operative Bank, Fiduciary Trust Company, Industrial Credit Union, Leader Bank, N.A., Mass Bay Credit Union, North Cambridge Co-operative Bank, People’s United Bank, RBS Citizens, RTN Federal Credit Union, Sovereign Bank/Santander, State Street Corporation, Stoneham Bank – A Cooperative Bank, TD Bank, Winchester Co-operative Bank and Winchester Savings Bank.
MCBC’s 2012 Community Partners include: Chelsea Neighborhood Developers, Community Teamwork, Inc., DotWell, Dudley Square Main Streets, ESAC, the Fair Housing Center of Greater Boston, Interise, the Massachusetts Affordable Housing Alliance, the Massachusetts Association of CDCs, the Metropolitan Boston Housing Partnership, and the Somerville Community Corporation.
Further information on MCBC is available on MCBC website at www.mcbc.info.