Changing Patterns XVI Abstract

In its sixteenth annual report on mortgage lending patterns, the Massachusetts Community & Banking Council (MCBC) documents a continued decline in the overall volume of mortgage lending and, in particular, in the percentage and number of higher-cost home-purchase and refinance loans.  Utilizing 2008 mortgage lending data, the report shows that while nearly every city and town in Massachusetts received at least one higher-cost mortgage loan, there is a continuing pattern of higher-cost mortgage loans concentrated among members of minority groups and the neighborhoods where they live.  

Changing Patterns XVI: Mortgage Lending to Traditionally Underserved Borrowers & Neighborhoods in Boston, Greater Boston and Massachusetts, 2008, provides analyses of prime and subprime lending patterns in the city of Boston, Greater Boston, and Massachusetts in 2008, as well as for each of the state’s fourteen counties and each of its thirty-three largest cities and towns.  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.  Changing Patterns XVI was prepared for MCBC by Jim Campen, professor emeritus of economics and senior research associate at the Gaston Institute at UMass Boston.   

In recent years, the major focus of MCBC’s reports had shifted from concern for fair access to credit for traditionally underserved borrowers and neighborhoods to concern for access to fair credit for these same borrowers and neighborhoods, reflecting the extent to which the problem of redlining had become overshadowed by the problem of reverse redlining, whereby areas that previously had difficulty getting any mortgage loans at all became specifically targeted for high-cost mortgage loans.  This year’s report offers information on patterns of mortgage lending during 2008, a year when there was very little subprime lending.  While the limited subprime lending that remains continues to show substantial racial and ethnic disparities, this recent pattern shifts attention back toward the original problem of fair access to good loans for traditionally underserved borrowers and neighborhoods. 

The report shows: 

Levels of Higher-Cost Mortgage Lending 

• Both High-APR (HAL) shares of total lending and the numbers of HALs were dramatically lower in 2008 than in previous years.  Statewide, the HAL share of all loans fell from 22.2 percent in 2006 to 4.2 percent in 2008.  In the city of Boston, the HAL share declined from 24.6 percent to 3.8 percent of all loans, while the number of HALs fell from 3,651 loans in 2006 to 339 loans in 2008.

• Even so, there were more than five thousand HALs in Massachusetts in 2008.  HAL loan shares were highest in Springfield, Chicopee and Brockton but almost every city and town in Massachusetts – all but fifteen – received at least one HAL.

The Lenders 

The home purchase loan shares of Massachusetts banks and credit unions increased in 2008, from 36.8 percent to 39.1 percent in Boston (their highest market share since 1998) and from 37.7 percent to 41.2 percent statewide.  Subprime lenders made just 0.5 percent of all loans in the state, down from a peak of 19.4 percent three years earlier.

• Massachusetts banks and credit unions (lenders whose local lending was covered by CRA) directed a substantially greater share of their total loans as prime loans – and a substantially smaller share of

their total loans as HALs – to every one of the categories of traditionally underserved borrowers and neighborhoods examined in the report that did lenders not covered by the CRA. 

• The Bank of America “lender family” (Bank of America and Countrywide) was by far the biggest lender both in Boston and statewide.  Mortgage Master ranked second in Boston and third statewide.  Wells Fargo was second statewide and third in Boston and JPMorgan Chase ranked fourth in both areas.  These top four lender families accounted to 36 percent of total loans in Boston and 25 percent in Massachusetts.

Lending by Borrower Race and Income 

• Black and Latino borrowers were much more likely to get HALs than were their white or Asian counterparts.  For home-purchase loans in Greater Boston, for example, the HAL loan shares were 10.0 percent for blacks and 8.1 percent for Latinos but only 3.2 percent for whites.

• HAL loan shares for blacks and Latinos were substantially higher than HAL shares for white borrowers in the same income categories.  For example, among homebuyers in Greater Boston with incomes of $170,000 or more, blacks were 5.0 times more likely to receive a HAL than their white counterparts, and Latinos were 2.8 times more likely than whites to receive a HAL.

Lending by Race and Neighborhood 

• Higher-cost mortgage loans accounted for disproportionate shares of total lending in neighborhoods with low income levels and high concentrations of minority households.  For home-purchase loans in Boston, HAL shares ranged from 12.7 percent in Roxbury to 1.1 percent in Fenway/Kenmore.  For home-purchase loans statewide, the HAL loan share in low-income census tracts was 4.6 times greater than that in upper-income tracts and the HAL loan share in predominantly minority tracts was 3.2 times greater than in predominantly white tracts.

• 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 many others.  Just four cities and towns accounted for over one-half of total loans to blacks in Massachusetts, and eight communities received over half of all lending to Latinos in the state.  At the same time, blacks received no home-purchase loans in 189 of the state’s 351 cities and towns and there were 132 communities where Latinos received no loans.

The Cost to Borrowers 

• HALs involve substantial costs to borrowers, as compared to prime loans.  A borrower in Greater Boston who received a thirty-year fixed-rate loan of $259,000 (which was the average size HAL loan in Greater Boston in 2008), and whose interest rate was 7.63 percent (the estimated median interest rate on HALs in Massachusetts in 2008), would face monthly payments of interest and principal totaling $3,264 more per year than if he or she had received the same loan at an interest rate of 6.03 percent (a typical APR for prime loans in 2008).