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Page 1

www.responsiblelending.org

Lost Ground, 2011:
Disparities in Mortgage Lending

and Foreclosures

Debbie Gruenstein Bocian,
Wei Li, Carolina Reid

Center for Responsible Lending

Roberto G. Quercia
Center for Community Capital,

University of North Carolina Chapel Hill

November 2011

Page 2

Center for Responsible Lending 1

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Background and Literature Review . . . . . . . . . . . . . . . . . . . . . . . . .8

Data/Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Analysis and Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43



Table of ConTenTs

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Center for Responsible Lending 23

Table 4: Incidence and Disparities of High-Risk Loan Products, by Borrower FICO and Mortgage Broker Channel
(2004-2008 Originations)

Incidence of Loans with One or More
High-Risk Loan Feature

Disparity Ratio
(Ratio: Broker vs Non-Broker)

Note: The following loan features are defined as high-risk: hybrid and option ARMs, prepayment penalties, or higher interest rates.

Broker Non-Broker

Non-Hispanic Whites 50.0 48.4 1.03


FICO < 580

African American 54.3 48.1 1.13

Latino 53.0 45.1 1.18

Asian 64.1 53.2 1.20

Non-Hispanic Whites 29.1 28.9 1.01


580 <= FICO < 660

African American 41.2 35.6 1.16

Latino 47.9 34.7 1.38

Asian 45.1 35.6 1.27

Non-Hispanic Whites 22.5 21.3 1.06


FICO >= 660

African American 37.9 30.2 1.25

Latino 43.0 30.3 1.42

Asian 34.5 27.8 1.24

While a full regression analysis of all underwriting and pricing features is beyond the scope of this
paper, these figures do provide further evidence that minority borrowers were disproportionately
targeted for mortgage products that were inherently more difficult to sustain, which has resulted in
higher foreclosure and serious delinquency rates in communities of color.

Finding #6. The foreclosure crisis has hit low- and moderate-income borrowers hardest in
weak and stable housing markets, while higher-income borrowers have been most affected in
the “boom and bust” housing markets.

While racial and ethnic disparities in foreclosure rates are particularly distinct, low-income
homeowners also have been disproportionately affected by the foreclosure crisis, although in the
aggregate the differences are smaller than the differences by race and ethnicity. Approximately
7.3 percent of low-income and 6.6 percent of moderate-income borrowers have already lost their
home to foreclosure, compared with 6.2 percent of middle-income borrowers and 6.4 percent of
higher-income borrowers. (See Figure 6.)

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Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures24

Figure 6. Rates of Completed Foreclosures and Serious Delinquencies by Borrower Income
(2004 – 2008 Originations)

8.6 8.7 8.5 8.2

7.3
6.6 6.2 6.4

18.0

16.0

14.0
12.0

10.0

8.0

6.0

4.0

2.0

0.0

Low-Income Moderate-Income

Borrower Income

Middle- Income Higher-Income

Pe
rc

en
t

o
f L

o
an

s

Note: Low-income refers to borrowers at 50% below area median income (AMI), moderate-income refers to borrowers at 50-80% of
AMI, middle-income refers to borrowers at 80-120% of AMI, and higher-income refers to borrowers at 120% or above AMI. For a listing
of states within each housing market type, please see Table 1.3 in Appendix 1.

Figure 7: Rates of Completed Foreclosures by Borrower Income and Housing Market Type, 2004-2008 Originations

12.0

10.0

8.0

6.0

4.0

2.0

0.0

n Low-Income

n Moderate-Income

n Middle-Income

n Higher- Income

Housing Market Type

Pe
rc

en
t

o
f L

o
an

s

Weak Stable Moderate Growth Boom

Borrower Income

n Completed Foreclosure n Seriously Delinquent (60+ or in Foreclosure)

Note: Low-income refers to borrowers at 50% below area median income (AMI), moderate-income refers to borrowers at 50-80% of
AMI, middle-income refers to borrowers at 80-120% of AMI, and higher-income refers to borrowers at 120% or above AMI.

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Center for Responsible Lending 47

58 R. Kochhar, R. Fry, and P. Taylor (2011). “Wealth gaps rise to record highs between whites, blacks, Hispanics:
Twenty-to-one,” Pew Research Center Report, July 26, 2011.

59 D. Abromowitz and J. Ratcliffe (2010). Homeownership Done Right What Experience and Research Teaches Us.
Washington, DC: Center for American Progress.

60 R. Quercia, A. Freeman; and J. Ratcliff. (2011). Regaining the Dream: How to Renew the Promise of Homeownership
for America’s Working Families. Washington, DC: Brookings Institution Press.

61 Enacted by Congress in 1975, the Home Mortgage Disclosure Act (HMDA) requires banks, savings and loan
associations, and other financial institutions to publicly report detailed data on their mortgage lending activity. A deposito-
ry institution (bank, savings and loan, thrift, and credit union) must report HMDA data if it has a home office or branch
in a metropolitan statistical area (MSA) and has assets above a threshold level that is adjusted upward every year by the
rate of inflation. For the year 2006, the asset level for exemption was $35 million. A non-depository institution must report
HMDA data if it has more than $10 million in assets and it originated 100 or more home purchase loans (including
refinances of home purchase loans) during the previous calendar year.

62 For more information on the BlackBox data, visit the provider’s website at http://www.bbxlogic.com/data.htm.

63 Loan purpose refers to purchase, home equity or refinance loans. Loan type refers to conventional or FHA/VA.

64 For example, if one HMDA loan was matched to two loans in LPS and one loan in BlackBox, each match would be
given a weight of 1/3.

65 We also considered whether or not we would be introducing bias when a single LPS (or BlackBox) loan matched to
multiple HMDA loans, thereby giving it undue influence in the sample. The implicit assumption with such matches is
that HMDA loans with identical matching variables performed identically. Approximately 4.3 percent of the loans in our
sample had this issue. As it turns out, the presence of these loans slightly lowers our estimates of completed foreclosures
and serious delinquencies and does not alter the racial or ethnic disparities.

Page 49

about the Center for Responsible lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy
organization dedicated to protecting homeownership and family wealth by working to
eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s
largest community development financial institutions.

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