Newly Released Rules Will Make Home Mortgage Data More Accessible

By Lindsay Daniels, Manager, Wealth-Building Initiative, NCLR

CFPB_LogoLast month the Consumer Financial Protection Bureau (CFPB) released updates to the Home Mortgage Disclosure Act (HMDA). HMDA was established in 1975 and has been in need of modernization for some time. In a new rule, the CFPB provided several commendable wins for consumers and the pursuit of greater transparency in the housing market.

HMDA was created to shed light on whether lenders were meeting the housing needs of the community, to guide public investment, and to detect patterns of discrimination. The data we glean from HMDA has been essential in discovering who is buying homes by race, ethnicity, and loan price. This critically important national data has been used by scholars, advocates, local governments, and lenders to highlight positive and negative lending activity. And yet, many gaps in mortgage data remain. Through this new rule, the CFPB has sharpened HMDA’s focus by adding new fields to the collection tool.

HousingDiscrimination_blogpic_newThe new rule distinguishes race and ethnicity more specifically than it previously had. Rather than recording borrowers as Latinos, for example, home purchasers can indicate whether they identify as Mexican or Cuban, or can fill in their nationality in a blank field. Several other important changes include greater detail on loan purpose and type, and whether or not the loan includes teaser rates or balloon payments, more information about underwriting—the process of assessing the credit and risk of a potential client—and details on reverse mortgage activity. Each of these has been a trouble area in the market, leading to abuses throughout the housing market and deeply affecting Latino families in particular.

The CFPB added these new data collection fields to ensure discriminatory patterns do not go unchecked, lenders can better serve their clients, and to ultimately see trouble on the horizon before it reaches a crisis level. These improvements are essential to advancing the CFPB’s mission to better inform lenders and consumers alike. Rather than opaque or proprietary information about market trends, the CFPB is attempting to raise the curtain and ensure that knowledge can be power for all.

For Latinos in Large Cities, High Rent and Stagnant Income Mean the American Dream is Slipping Away

While a majority of Latinos believe that homeownership is part of the American Dream, high housing costs and low incomes coupled with a lack of mortgage credit are locking them out of achieving it.

In the 10 cities in the nation with the highest median rents, households devote an average of 44 percent of their income to rent. NCLR overlaid the large Latino populations in these cities to show the high burden of rent on Latino households, who tend to earn below-median income, especially in places like Los Angeles, San Francisco, New York, and Miami.

While we’ve highlighted trends in the past indicating Latinos are being locked out of the American Dream of homeownership due to tightening mortgage credit standards, this analysis highlights the difficulty many Latinos have in simply affording rent, let alone being able to pay off debt to improve credit scores or saving for a mortgage down payment.

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Between 2009 and 2013, an estimated 1.3 million Latino families lost their homes to foreclosure and were made to downsize or switch to renting rather than paying a mortgage. As income has stagnated for much of the American middle class, rents have sharply risen, leaving Latino families with few options and forcing them to devote even larger portions of their paychecks to rent. A report by Reis, a real estate research firm, shows that rents today are 15.2 percent higher than they were at the end of the recession in 2009, with no sign of this trend slowing down anytime soon. Though Latino household income did rise slightly last year, it is still shockingly low, and long-term stagnation of wages is damaging to the American economy.

Across all 10 cities, families devote close to half of their incomes to rent, with the average rent-to-income ratio a staggering 45.4 percent.

In Los Angeles, the city with the nation’s largest Latino population, average monthly rent for a one-bedroom apartment now costs $1,740, while the city’s median monthly household income is just $4,145. This means a family making the median income living in a median-rent apartment devotes 42 percent of monthly income to rent.

In Miami, where Latinos make up 70 percent of the population, the rent-to-income ratio is even starker, with 61.9 percent of income going toward rent each month in families making the median income. Only in notoriously expensive New York City is this rate higher, with families devoting more than 68 percent of their income to rent.

Low wages and high rents trap many Latinos in a vicious cycle of poverty and debt, putting homeownership out of reach. With such high housing costs, Latino families may have little income left over to pay off outstanding debt, which leads them to take on further debt, which can lower their FICO credit scores. Low credit scores, in turn, make qualifying for a mortgage even more difficult. According to recently released data from the Home Mortgage Disclosure Act, the top three reasons Latinos were denied mortgages in 2013 were debt-to-income ratio, credit history, and down payment issues.

While a majority of Latinos believe that homeownership is an important part of the American Dream, high housing costs are locking them out of achieving it. Because Latinos are increasingly the face of America’s housing market, how Latinos fare in the housing recovery will have implications for the entire nation’s economy. Sensible policies like increasing the minimum wage can help ease the burden by improving stagnating incomes. Similarly, housing regulators can reduce barriers to homeownership by making sure lenders stop the overcorrection in credit standards that are shutting millions of creditworthy borrowers out of the housing market. We must ensure Latino families aren’t kept out of the home-buying process at a time when recovery is needed most.