Changing Patterns XVIII Abstract

In its eighteenth annual report on mortgage lending patterns, the Massachusetts Community & Banking Council (MCBC) confirms another 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. 

Government-backed loans (GBLs), while somewhat more expensive than conventional 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 loan products that required less documentation, allowed higher loan 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. 

Changing Patterns XVIII provides analyses of lending patterns in the city of Boston, Greater Boston and Massachusetts in 2010, as well as for each of the state’s 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 XVII was prepared for MCBC by Jim Campen, professor emeritus of economics at UMass Boston. 

 The report shows: 

The Continued Decline of High-Cost Subprime Lending 

• High-APR loans almost disappeared in 2010, accounting for just 0.5% of all home purchase and refinance loans statewide – down from 1.7% of all loans in 2009 and far below their peak level of 22% in 2006. Over four years, the number of high-APR loans fell from 3,361 to 42 in Boston, from 14,849 to 332 in Greater Boston and from 40,143 to 1,066 statewide. 

The Growth of Government-Backed Loans 

• GBLs continued to account for historically high shares of total lending in 2010. Statewide, GBLs made up nearly one-third of all home-purchase lending and one-twelfth of the much larger volume of refinance lending. These GBL loan shares are slightly lower that in 2009 but far above those in 2005, 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 79% of all home-purchase loans and 31% of all refinance loans), Brockton (73% and 25%) and Springfield (67% and 25%). 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 share in Massachusetts for home-purchase loans was 32%, while nationwide the GBL loan share was 53%. 

The Lenders 

• Following four years of substantial increases, the home-purchase loan share of Massachusetts banks and credit union fell slightly in 2010, to 46% in Boston (down from 48% the year before but still more than double the low point of 20% in 2005) and to 44% statewide (down from 45% the year before but far above their 24% loan share in 2005). 

• Massachusetts banks and credit unions directed a substantially greater share of their total loans as conventional loans – and a substantially smaller share of their total loans as GBLs – to every one of the categories of traditionally underserved borrowers and neighborhoods examined in the report that did Licensed Mortgage Lenders and Other Lenders. 

• Both in Boston and statewide in 2010, Bank of America was by far the biggest lender, with Wells Fargo ranking second and Mortgage Master in third position. 

Lending by Borrower Race/Ethnicity and Income 

• Black borrowers in Boston, Greater Boston and statewide received shares of total conventional loans in 2010 that were far below their shares of total households. In Boston, blacks made up 21% of households but received only 5% of conventional home-purchase loans and 3% of conventional refinance loans. Statewide, Latinos made up 7% of households but received only 3% of conventional home-purchase loans and just 1% 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, the GBL loans shares in 2010 were 54% for blacks and 55% for Latinos but only 24% for white. GBL loan shares were consistently much lower for Asian borrowers than for whites. 

• The GBL loan shares for black and Latinos were substantially higher than the GBL shares for whites in the same income category. In the city of Boston, the GBL Loan shares for homebuyers with incomes between $72,000 and $107,000 were 62% for blacks, 69% for Latinos and 23% for whites. 

Lending by Neighborhood Race/Ethnicity and Income 

• For home-purchase loans in the city of Boston in 2010, the GBL share in low-income census tracts was more than four times greater than that in upper-income census tracts and the GBL share in predominantly minority census tracts was almost three times greater than that in predominantly white census 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 others. Just four cities (Boston, Brockton, Springfield and Worcester) accounted for over one-half of total loans to blacks in Massachusetts, but for only 11% of the state’s total loans to whites. Eight communities (Lawrence, Boston, Springfield, Lynn, Revere, Worcester, Chelsea and Metheun) accounted for over one-half of all lending to Latinos in the state, but for just 12% of total lending to whites. In 123 communities – over one-third of the state’s 351 cities and towns – there was not a single loan to either a black or a Latino homebuyer.