MCBC releases new report on 2007 mortgage lending

REPORT SHOWS DRAMATIC DECLINE IN HIGHER-COST MORTGAGE LOANS 

Troubling Racial Disparities Remain 
 
 

BOSTON, MA – February 11, 2009.  In its fifteenth  annual report on mortgage lending patterns, the Massachusetts Community & Banking Council (MCBC) documents a dramatic decline in the percentage and number of higher-cost home-purchase and refinance loans and an increase in the market share of Massachusetts banks and credit unions.  Utilizing 2007 mortgage lending data, the report shows that while 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 XV: Mortgage Lending to Traditionally Underserved Borrowers & Neighborhoods in Boston, Greater Boston and Massachusetts, 2007, provides analyses of prime and subprime lending patterns in the city of Boston, Greater Boston, and Massachusetts in 2007, 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 XV was prepared for MCBC by Jim Campen, professor emeritus of economics and senior research associate at the Gaston Institute at UMass Boston.   

“The findings of this report validate the importance of education and outreach by public officials, lenders and community organizations to ensure that homebuyers and homeowners have the information they need to make informed decisions about mortgage products that are both affordable and appropriate,” said Susanne Cameron, state director, community relations, Citi and MCBC’s chairperson.  “While Massachusetts banks and credit unions have worked hard to reach out to traditionally underserved borrowers and neighborhoods, the report suggests that there is still much work to be done.” 

Responsible subprime lending can provide a useful service by making credit available to borrowers who might not otherwise be able to obtain it.  Subprime loans are offered at a higher cost to the borrower, ostensibly to cover the perceived or actual increased expenses and risks borne by the lender.  However, many subprime borrowers have paid much more than they would have if they had received the best loan for which they qualified.  In addition, many subprime loans were made so irresponsibly that it was almost inevitable that borrowers would lose their homes to foreclosure. 

“With the passage of the 2007 Mortgage Lending Community Investment law, and increased enforcement by federal and state regulators, our state is well-positioned to crack down on lenders who in the future may seek to bring back the type of unfair and deceptive lending practices that we have seen over the past several years,” said Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance and co-chairman of MCBC’s Mortgage Lending Committee. “Good lending is almost always a result of appropriate regulatory oversight, responsible lenders and good lender/community relationships.  Our state and federal laws need to encourage and enforce that for all types of lenders.” 

The report shows: 

Levels of Higher-Cost Mortgage Lending¹ 

• In 2007, there were over sixteen thousand high-APR loans (HALs) in Massachusetts, accounting for about eight percent of all home purchase loans and 14 percent of all refinance loans in the state.  HALs accounted for much higher shares of total loans in Springfield, Brockton, Lawrence and Lynn. In 2007, as in 2006, every city and town in Massachusetts received at least one HAL.

• Both the HAL shares of total lending and the numbers of HAL loans were dramatically lower in 2007 than they were in 2006.  The HAL shares of home-purchase loans fell by more than half, e.g. from 19.0 to 8.1 percent statewide, while the HAL shares of refinance loans fell by somewhat less than half, e.g., from 20.8 percent to 11.4 percent in Greater Boston.  The total number of HALs (home-purchase and refinance loans combined) fell from 3,361 to 1,280 in the city of Boston and from 40,173 to 16,290 statewide.

The Lenders² 

• The market shares of Massachusetts banks and credit unions increased dramatically in 2007, jumping from 22 percent to 37 percent in Boston and from 26 percent to 38 percent statewide.  Nevertheless, lenders whose Massachusetts lending is not covered by the federal and/or state Community Reinvestment Act (CRA) continued to account for nearly two-thirds of all home-purchase loans.

• Massachusetts banks and credit unions accounted for about one-third of all loans in 2007, but only a small share of HALs.  The two other major types of lenders – out-of-state banks and licensed mortgage lenders (mainly mortgage companies not affiliated with banks) – also accounted for about one-third of total loans each, but they had shares of HALs of between 45 and 50 percent.  About one-sixth of all loans by  licensed mortgage lenders (16 percent statewide) were HALs and a slightly lower percentage of all loans by out-of-state banks were HALs but the share of all loans by CRA-covered lenders (Massachusetts banks and credit unions) that were HALs was just two percent in Boston and three percent statewide.

• 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. 

• Countrywide, Bank of America and Wells Fargo were the three biggest overall lenders in 2007, both in Boston and statewide.  Countrywide and H&R Block/Option One were the two biggest HAL lenders.  HSBC, Merrill Lynch and IndyMac were the third to fifth biggest HAL lenders statewide, while JPMorgan Chase, IndyMac and Merrill Lynch ranked third to fifth in Boston.  The top five lenders accounted for 37 percent of the total HALs in Boston and for 33 percent of the total HALs statewide.

Lending by Borrower Race and Income 

• Black and Latino borrowers were much more likely to get HALs than were whites.  For home-purchase loans in Greater Boston, for example, the HAL loan shares were 22 percent for blacks and 20 percent for Latinos, but only five percent for whites.

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.  The report documents this finding for census tracts in Boston, Greater Boston and statewide.  In Boston, the HAL shares of home-purchase loans ranged from 29 percent in Mattapan and 25 percent in Roxbury to just two percent in the South End and 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 many others.  Just five cities accounted for over one-half (57 percent) of total loans to blacks in Massachusetts, and nine cities accounted for over one-half of loans to Latinos.  At the same time, blacks received no home purchase loans in 161 of the state’s 351 cities and towns, while there were 103 communities where Latinos received no loans.

The Cost to Borrowers 

• HALs involve very substantial costs to borrowers, as compared to prime loans.  A borrower in Greater Boston who received a thirty-year fixed-rate loan of $335,000 (which was the average size HAL loan in Greater Boston in 2007), and whose interest rate was 9.37 percent (the estimated median interest rate on HALs in Massachusetts in 2007), would face monthly payments of interest and principal totaling over $8,000 more per year than if he or she had received the same loan at an interest rate of 6.34 percent (a typical APR for prime loans in 2007).

This report and its supplementary tables, as well as earlier reports in the Changing Patterns series and other MCBC reports are available on MCBC’s website at www.mcbc.info.  

About the Massachusetts Community & Banking Council 

The Massachusetts Community & Banking Council (MCBC) was established in 1990 to bring together community organizations and financial institution 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 neighborhoods; promoting fair and equitable access to financial products and services for minority group members; 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 banks.  MCBC 2008 bank members include: Avidia Bank, Avon Co-operative Bank, Bank of America, Bank of Canton, Benjamin Franklin Bank, Boston Private Bank & Trust Company, Braintree Cooperative Bank, Central Bank, Chelsea-Provident Co-Operative Bank, Citi, Citizens Bank, Dedham Institution for Savings, Eagle

Bank, East Cambridge Savings Bank, Eastern Bank, Everett Co-Operative Bank, Fiduciary Trust company, Hyde Park Co-operative Bank, Hyde Park Savings Bank, Mt. Washington Bank, North Cambridge Co-operative Bank, Sovereign Bank, State Street Corporation, StonehamBank, TD Bank, The Bank of New York Mellon Corporation and Wainwright Bank.