Most Loans in Low-Income Tracts Don’t Go to Low-Income Buyers; Non-Bank Lenders Soar
OAKLAND, CALIFORNIA – A new analysis of California home mortgage data by The Greenlining Institute and the National Community Reinvestment Coalition, to be released Dec. 12, documents what the authors call “a statistical portrait of gentrification.” The analysis, based on data collected by federal regulators for mortgages issued in 2015, shows a number of other concerning patterns, including continuing racial disparities and a startling rise in the role of non-bank lenders. Researchers reviewed statewide data as well as local statistics for Long Beach, Oakland and Fresno.
“African American and Latino borrowers continue to receive a disproportionately low share of home purchase and refinance loans, but that’s just the tip of the iceberg,” said report co-author Vedika Ahuja, Greenlining’s Economic Equity Senior Program Manager. “We see a lot of home purchase loans in low- and moderate-income neighborhoods, but few of them going to low- and moderate-income borrowers.”
Journalists can follow this link to preview the report, State of Gentrification: Home Lending to Communities of Color in California, which isembargoed until 12:01 a.m. PST on Tuesday, Dec. 12.
Key findings include:
- Latinos and Blacks remain severely underrepresented in home purchase and refinance loan originations. Combined, they make up 43.8 percent of California’s population but only receive 24.2 percent of home purchase loans in the state.
- Home purchase loans in low- to moderate-income census tracts across California vastly exceeded loans to low- to moderate-income borrowers – creating a statistical portrait of gentrification. This discrepancy is more pronounced in Long Beach and Oakland, both experiencing notable gentrification, than in Fresno. In Long Beach, loans in LMI census tracts from the top 10 lenders exceeded loans to LMI borrowers by four to one, suggesting that middle and upper income borrowers are displacing lower income buyers in these neighborhoods. In Oakland the ratio was roughly three to one.
- The Community Reinvestment Act, which has led to over $1 trillion in investments, loans, and services to low-income neighborhoods over the past 40 years, may be inadvertently impacted by rampant gentrification pressures. Currently, regulators award financial institutions Community Reinvestment Act credit for extending loans in low- to moderate-income census tracts even if the borrower is wealthy. CRA examiners should thoroughly consider gentrification issues in CRA exams going forward. Further research should explore whether the CRA may inadvertently incentivize banks to lend to upper-income borrowers purchasing in LMI neighborhoods, potentially accelerating displacement
- Non-bank lenders play an ever-larger role. Statewide, five of the top 10 home purchase lenders were non-banks. These lenders are not subject to the CRA and may be under-capitalized. In addition, non-bank lenders have effectively marketed to low-income and immigrant communities, who may be more vulnerable to predatory lending.