The River Runs Dry

June 23, 2010

Decreased Access to Mortgage Credit in Rochester's Underserved Neighborhoods. 

A report examining where mortgage lending is, and is not, happening in the Rocheser, NY area.

Executive Summary

Our nation’s financial crisis has reduced access to credit for all borrowers and communities. However, advocates from across the country report that neighborhoods of color and lower income communities, the very communities that have suffered the most from the foreclosure crisis, are finding it much harder to access credit.  This report examines where mortgage lending is, and is not, happening in the Rochester, New York area. It compares lending changes in communities of color and lower income communities to changes in majority white and middle and upper income neighborhoods between 2006, the beginning of the foreclosure crisis, and 2008, the most recent year for which mortgage lending data is publicly available. To do this, Empire Justice Center examines changes between 2006 and 2008 in the levels of first-lien, conventional, FHA, and higher-cost home purchase and refinance mortgage loans on owner-occupied, one-to-four family site built units

Key Findings

Empire Justice’s analysis finds that while access to mortgage credit tightened across the entire Rochester area between 2006 and 2008, low and moderate income neighborhoods and neighborhoods of color were hit much harder than middle and upper income and predominantly white communities. More specifically, between 2006 and 2008:

• Prime home purchase lending declined by 32 percent in neighborhoods with 80 percent or more residents of color, twice the rate of the 15 percent decline in neighborhoods with less than 10 percent residents of color.

• Prime refinance lending declined by 59 percent in neighborhoods with 80 percent or more residents of color and by 33 percent in neighborhoods with 50-79 percent residents of color while it declined by only 8 percent in neighborhoods with less than 10 percent residents of color.

• Prime home purchase lending declined by 38 percent in low income neighborhoods, twice the rate of the 17 percent decline in upper income areas.

• Prime refinance lending declined by 49 percent in low income neighborhoods, 20 times the 2.5 percent  decline in upper income communities.

In addition to their dramatically reduced access to prime home purchase and refinance credit in 2008, when compared to majority white and more affluent areas, neighborhoods of color and low income communities in the Rochester area:

Saw the largest declines in overall lending and in conventional home purchase and refinance lending. To illustrate, between 2006 and 2008, conventional home purchase lending declined by 36 percent in neighborhoods with less than 10 percent residents of color while declining by 67 percent in neighborhoods with 80 percent or more residents of color and by 53 percent in areas with 50 to 79 percent residents of color. In upper income neighborhoods, conventional home purchase lending declined by 30 percent while declining by 65 percent in low income areas.

Gained only a small proportion of the area’s increased FHA lending. Of the 662 additional FHA refinance loans originated in 2008 over 2006:

• 451 or 68 percent went to neighborhoods with less than 10 percent residents of color while only 19 or 3 percent went to neighborhoods with 50 percent or more residents of color.
• 581 or 88 percent went to middle and upper income neighborhoods while only 81 or 12 percent went to low and moderate income communities.
• Still had higher cost loans, particularly higher cost FHA loans, more often, despite the overall decline in higher cost lending. For example, 40 percent of the FHA refinance loans made in 2008 in neighborhoods with 80 percent or more residents of color were higher cost compared to only 18 percent in communities with less than 10 percent residents of color. Twenty-two percent of the FHA refinance loans made in low income neighborhoods in 2008 were higher cost compared to only 12 percent of those in upper income areas.

Recommendations

To improve the level and quality of lending in low and moderate income neighborhoods and communities of color while, at the same time, addressing the negative impacts of foreclosures and reverse redlining on these neighborhoods, we recommend the following:

• Expand and modernize the federal Community Reinvestment Act to better promote responsible lending and investment in today’s new financial services landscape.
• Update the federal Home Mortgage Disclosure Act (HMDA) to include additional data necessary to keep pace with changes in the financial services industry and to help identify discrimination in lending.
• Prioritize federal and state fair lending enforcement in lending and loan modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.
• Push banks to focus on repairing neighborhoods hit hard by foreclosures by working to keep families in their homes, mitigating the harmful effects of foreclosure, and significantly increasing investment in neighborhoods so that residents, small businesses and community institutions can thrive.

Suppoorting Documents

• Press Release: The River Runs Dry
• Report: The River Runs Dry