2022 Chicago-area Community Lending Observations

 

The below is our analysis of 2022 Chicago-area mortgage lending trends based on the data contained in our Community Lending Fact Book: 2022 Data Edition. The fact book contains neighborhood-level data showing top lenders, originations, foreclosure filings, and demographic breakdowns of mortgage lending throughout the Chicago metropolitan area.

 

2021 Recap

 In 2021, we observed a decline in lending among lenders subject to the CRA and an increase in lending among lenders not subject to the CRA. We noted that the increase in lending among lenders not subject to the CRA was more pronounced among Black, Latine, and lower-income borrowers, and that these loans generally came with higher costs and less local investment than loans from lenders subject to the CRA, given most lenders not subject to the CRA are mortgage companies that only offer mortgage loans.

 

2022 Summary

In 2022, lending declined significantly for both lenders subject to the CRA and lenders not subject to the CRA, and the decrease was greatest among those who receive a high share of overall loans already, that is White borrowers. At the same time, lending declined more for lenders not subject to the CRA, from whom Black, Latine, and lower-income groups borrowed more frequently. A higher percentage of loans from lenders not subject to the CRA had loan costs of over $5,000 and were more likely to be Federal Housing Administration (FHA) loans than loans from lenders subject to the CRA. Further, Black and Latine borrowers continue to receive far more FHA loans than White and Asian borrowers, even when they would appear to qualify for conventional loans.

 

Overall Lending Declined Less Among Black, Latine and Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

Compared to their shares of the population, declines in lending were concentrated among White households, especially in Chicago. In the City, both Black and White residents represent about the same percentage of the population, but White households accounted for more than eight times the overall decline in lending than Black households.

• • White residents represent 33% of the Chicago population, but accounted for 79% of the decline in loans, while Black residents represent 29% of the population, but accounted for just 9% of the decline in loans (Chicago).

 

Borrowing From Lenders Not Subject to the CRA Continues to be Highest Among Black, Latine, Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

[/vc_column_text][/vc_column][/vc_row]Overall lending declined less among groups that traditionally have received lower levels of loans, which is encouraging to see. Loans to Black and lower-income borrowers fell at just half and one-third the rate of White loans.

• • Loans to Black and Latine people fell 39% and 44% respectively, while loans to Whites and Asians fell 64% and 60%, respectively. Originations to LMI borrowers fell 32% (7 Counties).

Compared to their shares of the population, declines in lending were concentrated among White households, especially in Chicago. In the City, both Black and White residents represent about the same percentage of the population, but White households accounted for more than eight times the overall decline in lending than Black households.

• • White residents represent 33% of the Chicago population, but accounted for 79% of the decline in loans, while Black residents represent 29% of the population, but accounted for just 9% of the decline in loans (Chicago).

 

Borrowing From Lenders Not Subject to the CRA Continues to be Highest Among Black, Latine, Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

[/vc_column_text][/vc_column][/vc_row]

Overall lending declined less among groups that traditionally have received lower levels of loans, which is encouraging to see. Loans to Black and lower-income borrowers fell at just half and one-third the rate of White loans.

• • Loans to Black and Latine people fell 39% and 44% respectively, while loans to Whites and Asians fell 64% and 60%, respectively. Originations to LMI borrowers fell 32% (7 Counties).

Compared to their shares of the population, declines in lending were concentrated among White households, especially in Chicago. In the City, both Black and White residents represent about the same percentage of the population, but White households accounted for more than eight times the overall decline in lending than Black households.

• • White residents represent 33% of the Chicago population, but accounted for 79% of the decline in loans, while Black residents represent 29% of the population, but accounted for just 9% of the decline in loans (Chicago).

 

Borrowing From Lenders Not Subject to the CRA Continues to be Highest Among Black, Latine, Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

[/vc_column_text][/vc_column][/vc_row]In 2022, overall application and origination activity fell to roughly half the amount of activity in 2021. Post-pandemic mortgage activity had been abnormally high amidst a “hot” housing market and favorable interest rates, so this decline is a return to a more normal activity level.

While all lending fell significantly, the drop was greater among lenders not subject the CRA.

• • Lending activity among lenders not subject to the CRA fell 50%, while lending activity among lenders subject to the CRA declined 41% (7 Counties¹).

Overall lending declined less among groups that traditionally have received lower levels of loans, which is encouraging to see. Loans to Black and lower-income borrowers fell at just half and one-third the rate of White loans.

• • Loans to Black and Latine people fell 39% and 44% respectively, while loans to Whites and Asians fell 64% and 60%, respectively. Originations to LMI borrowers fell 32% (7 Counties).

Compared to their shares of the population, declines in lending were concentrated among White households, especially in Chicago. In the City, both Black and White residents represent about the same percentage of the population, but White households accounted for more than eight times the overall decline in lending than Black households.

• • White residents represent 33% of the Chicago population, but accounted for 79% of the decline in loans, while Black residents represent 29% of the population, but accounted for just 9% of the decline in loans (Chicago).

 

Borrowing From Lenders Not Subject to the CRA Continues to be Highest Among Black, Latine, Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

[/vc_column_text][/vc_column][/vc_row]

In 2022, overall application and origination activity fell to roughly half the amount of activity in 2021. Post-pandemic mortgage activity had been abnormally high amidst a “hot” housing market and favorable interest rates, so this decline is a return to a more normal activity level.

While all lending fell significantly, the drop was greater among lenders not subject the CRA.

• • Lending activity among lenders not subject to the CRA fell 50%, while lending activity among lenders subject to the CRA declined 41% (7 Counties¹).

Overall lending declined less among groups that traditionally have received lower levels of loans, which is encouraging to see. Loans to Black and lower-income borrowers fell at just half and one-third the rate of White loans.

• • Loans to Black and Latine people fell 39% and 44% respectively, while loans to Whites and Asians fell 64% and 60%, respectively. Originations to LMI borrowers fell 32% (7 Counties).

Compared to their shares of the population, declines in lending were concentrated among White households, especially in Chicago. In the City, both Black and White residents represent about the same percentage of the population, but White households accounted for more than eight times the overall decline in lending than Black households.

• • White residents represent 33% of the Chicago population, but accounted for 79% of the decline in loans, while Black residents represent 29% of the population, but accounted for just 9% of the decline in loans (Chicago).

 

Borrowing From Lenders Not Subject to the CRA Continues to be Highest Among Black, Latine, Lower-Income Households

As in years past, the highest rates of borrowing from lenders not subject to the CRA were among Black, Latine, and lower-income households.

• • 72% of loans to Black borrowers were from lenders not subject to the CRA, compared to 57% and 62% of loans to White and Asian borrowers, respectively. Sixty-six percent and 67% of loans to Latine and lower-income borrowers, respectively, were from lenders not subject to the CRA (7 Counties).

In 2022, loans from lenders subject to the CRA constituted a larger percentage of all loans and increased more for White and Asian households than Black and lower-income households. For Black households, the percentage of all loans from lenders subject to the CRA increased 3 percentage points (from 25% to 28%), compared to increases of 6 percentage points for White and Asian households (from 37% to 43% and from 32% to 38%, respectively) (7 Counties).

For lower-income groups, the percentage of all loans coming from lenders subject to the CRA increased just 1 percentage point (from 32% to 33%) (7 Counties).

 

High Cost and FHA Loans

In 2021, we focused on high cost loans, and the data showed higher rates of high cost² and FHA lending among lenders not subject to the CRA. Why this focus? First, Black, Latine, and lower-income groups borrow more frequently from lenders not subject to the CRA, so it’s important to pay attention to how reliance on lenders not subject to the CRA might affect these more vulnerable populations. Second, while FHA loans do make homeownership more accessible to borrowers with lower incomes, down payments, and credit scores, decades of testing from fair housing groups and anecdotal evidence show that borrowers of color tend to be “steered” toward FHA loans, even when they might qualify for conventional loans that don’t require the extra expenses and additional hoops of FHA mortgages.

 

High Cost Loans More Prevalent Among Lenders Not Subject to the CRA

Fifty-five percent of all loans made by lenders not subject to the CRA had loan costs greater than $5,000, compared to 45% of all loans originated by lenders subject to the CRA (7 Counties).

 

FHA Loans More Prevalent Among Black Borrowers, Even for Well-Qualified Applicants

In 2022, the share of FHA loans as a percentage of all loans increased slightly from 9% to 12%, but grew more among all loans originated by lenders not subject to the CRA, from 12% to 17%. Among loans originated by lenders subject to the CRA, FHA loans increased from just 2% to 4% of all loans made (7 Counties).

Across all originations, Black and Latine borrowers received a far higher percentage of FHA loans than Whites and Asians.

• • In 2022, Black borrowers were over 8 and 5 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were nearly 6 and 4 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 23% of Black and Latine borrowers received FHA loans, compared to just 4% and 6% of Asian and White borrowers, respectively) (7 Counties).
  • Differences between groups in Chicago were even greater, where Black borrowers were over 17 and 11 times as likely as Asian and White borrowers to receive an FHA loan, and Latine borrowers were over 10 and 6 times as likely as Asian and White borrowers to receive an FHA loan: 35% and 21% of Black and Latine borrowers, respectively received FHA loans, compared to just 2% and 3% of Asian and White borrowers, respectively (Chicago).

 Since FHA loans were created as products for low-income borrowers, we might ascribe differences in FHA rates to differences in race, since we know that Black and Latine households tend to have lower wealth and less income than White households. But even accounting for wealth and income differences by equalizing a few basic underwriting measures (Loan-to-Value ratio < 80% and Debt-to-Income ratio < 43%) that define a “financially well-qualified” borrower, Black and Latine borrowers still took out far more FHA loans than conventional loans: 23% and 13% of financially well-qualified Black and Latine borrowers, respectively, took out FHA loans in 2022, compared to just 4% and 2% of financially well-qualified White and Asian borrowers, respectively (7 Counties).

This 19 percentage point difference in FHA rates between similarly-situated Black and White borrowers in 2022 is larger than the difference in 2021 (15 percentage points) (7 Counties).

Once again, racial disparities were even greater across lenders not subject to the CRA, where well-qualified Black borrowers received FHA loans nearly 5 times as often as well-qualified White borrowers (29% of Black borrowers versus 6% of White borrowers). The 23 percentage point difference between FHA loan rates for well-qualified Black and White applicants in 2022 is also wider than the difference in 2021 (18 percentage points) (7 Counties).

While HMDA does not provide credit score information, (an important piece of the financial puzzle), research shows that among homebuyers, people of color tend to have the lowest credit scores.³ Even with similar incomes and down payment percentages, meaningful racial disparities within the credit scoring system make it difficult to understand how to effectively address the unequal distribution of costlier FHA loans identified here.

 

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