Many African-American and Hispanic borrowers have been kept out of the conventional mortgage market, according to Zillow and the National Urban League. Their report is based on 2012 loan data reported under the Home Mortgage Disclosure Act and results from a Zillow survey of 700 mortgage applicants in December. Caucasians accounted for about 69 percent of all conventional mortgage applications, while African Americans accounted for fewer than 3 percent and Hispanics represented only 5 percent.
Many minority applicants need financing that requires as little as 3.5 percent down, as they typically have lower incomes and credit scores than white applicants, said Zillow chief economist Stan Humphries. Minorities also tend to have lower rates of homeownership, making it more difficult build wealth over time, and their conventional mortgage applications are denied more often.
The tightening of conventional lending standards has made loans insured by the Federal Housing Administration (FHA) vital for maintaining credit access in minority communities. Humphries noted, however, that this indicates a problematic trend: “a different path to financing based on your race and ethnic group.” And while FHA-backed loans offer smaller down payments, their mortgage insurance premiums are higher compared to conventional loans.
Julia Gordon, director of housing finance and policy at the Center for American Progress, has suggested that discussions in Washington about how to wind down Fannie Mae and Freddie Mac should include a commitment to ensure equally available credit. She is critical of what she says is a "dual housing market," whereby "we are seeing creditworthy people who should be able to get loans in the conventional market but can't." Gordon also suggests ways to make it easier for first-time buyers to accumulate a larger down payment, such as reform of the mortgage interest tax deduction.