Executive Summary

Report

Recommendations

Appendix I

Press Release

In the 1990s, Texas finally recovered from the credit collapse of the savings and loan era. Buoyed by the expansion of technology industries, the state entered a long and steady expansion that has now resulted in government surpluses, declining unemployment and a new confidence among consumers. Rising home sales is both a sign and a result of renewed hope for a long-term stable future.(1)

Yet barriers to homeownership remain for many Texas families—particularly low income and minority families and families living in minority or low income census tracts in our major urban areas. This new analysis of data on Texas home mortgage loans for the years 1996 to 1998 (the most recent data available) suggests that many home mortgage lenders still do not serve borrowers in low income and minority areas to the same degree they serve borrowers in upper income and low minority area.

But this study also finds that selected prime lenders have learned to reach out to low income and minority areas, and effectively lend to these Texans—partly because of the Community Reinvestment Act (CRA).

Every day, this law helps make home ownership a reality for thousands of citizens from all walks of life. It recently helped Gloria Quevedo of Laredo move into a new three-bedroom home accessible to her disabled seven-year-old daughter. Because of this law, 75-year-old Eloise Ochoa of San Antonio has been able to relocate to a senior citizen complex right across the street from where she grew up. After living most of her life in public housing, Delores McGruder of Houston now resides in a new four-bedroom townhouse and participates in a savings program designed to prepare her family for future homeownership. And in a Brownsville-area colonia, Martin Camarillo has moved his disabled wife and three children from a dilapidated one-bedroom shack to a three-bedroom, one bathroom wood-framed house (see Success Stories, p. 29).

These kinds of success stories are the product of partnerships between the private and nonprofit sectors triggered in part by the CRA. While few Americans know much about the Community Reinvestment Act, the law has been critical to the revitalization of low-income neighborhoods across the country for the past 22 years.

This report will outline new findings on access to home mortgage loans based on three years of Texas home mortgage data reported by lenders to the federal govern ment under the Home Mortgage Disclosure Act (HMDA). Consumers Union and the Austin Tenant’s Council supplemented the raw data with information from bank Community Reinvestment Act (CRA) public files, lender surveys, and interviews with mortgage lenders or community groups in community development programs.

To understand the types of community reinvestment activities taking place outside the major cities, we also focused a portion of our research on two large rural areas in east and west Texas. This report highlights both the continued need for greater equity in the mainstream home loan marketplace, and the successful programs that present a model for a better future.

Previous Research

News organizations, government agencies and nonprofits regularly produce notable studies of inequities in the home loan market based on HMDA data. This study updates and expands upon the report, “Access to the Dream,” produced by Consumers Union (CU) and the Texas Community Reinvestment Coalition (TCRC) in February 1998 using 1996 HMDA data.(2)

At that time, CU/TCRC found that lenders often denied Black and Hispanic applicants at a far higher rate than they denied White applicants, even after taking income differences into account. CU/TCRC also found that mainstream prime lenders and lender affiliates of home builders issued loans in low income or high minority census tracts than elsewhere in a city, while manufactured home lenders made more loans in these areas.(3)

The 1998 CU/TCRC report recognized a fragmentation of the home loan market into specialties: the manufactured housing loan market; the new home loan market with its builder affiliated lenders; and the upper income home market. In underserved areas, the prevalence of manufactured housing loans--along with a lack of prime lending--may mean that people end up in a manufactured home even if they would prefer a site built house and a standard mortgage. This study updates and expands those findings, using three years of home mortgage data and more in-depth research into lenders’ practices and markets.

General Findings

While lenders continue to deny Black and Hispanic applicants at higher rates than they deny White applicants at the same income level, analysis of individual MSAs and individual lenders shows a growing market for home loans among minority applicants and in low income and minority census tracts.

Some prime lenders have developed a strong track record in minority markets. For example, certain depository institutions covered by CRA or their affiliates, like Nationsbanc Mortgage in Houston and Austin (affiliate of NationsBank, now part of Bank of America) now have a slightly higher market share in these neighborhoods than their market share in the MSA as a whole.

Among mortgage companies, where no statute mandates equitable investment in communities, Countrywide Home Loan is a leading lender to minorities in Texas, and a leading lender to minority applicants in minority and low income census tracts. But, it is also one of the top lenders to all applicants, so its performance in these areas can only be measured against its own marketshare. In three of the six MSAs studied, Countrywide made a comparable number of loans in low income and minority tracts to its MSA-wide lending levels (Austin, San Antonio and Ft. Worth), while in three others its lending balance could be improved (Houston, Dallas, and El Paso).

Most lenders continue to have a poor lending record in low income and minority areas in their own communities, and many continue to deny Black and Hispanic applicants at a much higher rate than White applicants.

Subprime lenders, like Mortgage Portfolio Services or Harbor, and lenders in the manufactured home market—like Green Tree Financial and Bank of America FSB—have a strong presence in low income areas and especially among minority borrowers in those areas. Unlike the prime banks, these lenders generally do not deny minority applicants at a substantially higher rate than White applicants. However, manufactured home loans and subprime loans cost more.

Statewide Market Growth and Structure

Over the three year period of this study, the Texas home loan market grew significantly. In 1998 lenders reported more than a million home loan applications (home purchase, improvement and refinance), and made more than 500,000 loans. Low interest rates and a growing Texas economy drove home purchase loan volume up 26% from 1996, and refinancings tripled from 1996 levels. High refinancing volume in 1998 can be attributed both to low interest rates, which traditionally spur homeowners to seek a lower cost mortgage, and to the implementation of Texas’ new home equity law on January 1, 1998. Home improvement loan volume remained flat between 1996 and 1997, then declined sharply in 1998 (down 20% from 1996 levels), potentially indicating a shift from traditional home improvement loans to cash-out refinancing under the new home equity lending laws.

While independent mortgage companies continue to dominate the home purchase loan market, banks made more than three quarters of home improvement loans and 44% of refinancing loans in 1998. Thrifts, once the nation’s traditional home lender, made only about 15% of the state’s owner occupied home purchase and refinance loans.

Home purchase loans in 1998 averaged $93,000, while refinancings averaged $96,000 and home improvement loans averaged $21,000—but these averages hide significant differences among the different types of lenders. Federal Reserve Banks made larger loans (serving a more affluent market) than mortgage companies or credit unions. Home purchase loans from Federal Reserve Banks averaged $109,000, while home purchase loans made by independent mortgage companies averaged only $89,000. Federal Reserve Banks and thrifts both averaged larger loan amounts for refinancing ($111,000 and $114,000 respectively), while credit unions served a market that borrowed only $66,000 on average.

_______

Notes:

1 According to Texas A&M Real Estate Center's "Residential Housing Activity" Report, home sales in this state rose from 121,823 in 1995 to 181,406 in 1999.

2 Campbell, Angelyque and Kathy Mitchell, "Access to the Dream: Home Mortgage Lending in Texas," Consumers Union on behalf of the Texas Community Reinvestment Coalition, February 1998. For a summary of the most important studies of HMDA data up until that time, see pages 1-3.

3 Ibid, p. 5.