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New Report on Federal Housing Administration Proposes Fixes to Repair a Two-Tiered System

Wednesday, May 2, 2018
Peter Smith
Melissa Stegman

50 years after the Fair Housing Act, racial mortgage disparities persist

Report coverWASHINGTON, D.C. –The Federal Housing Administration (FHA) is both a historic driver of the nation's persistent racial wealth gap and a necessary part of any solution for the nation's housing market, finds new research from the Center for Responsible Lending (CRL). Although FHA has been and remains central in creating homeownership opportunities for borrowers of color, low- to moderate-income borrowers, and lower-wealth borrowers, that was not the case in its early development. CRL's research report is being discussed in today’s symposium honoring the 50th year of the Fair Housing Act.

Beginning from its inception in the 1930s, FHA perpetuated racial discrimination in its facilitation of broad mortgage credit by favoring white borrowers and excluding African-Americans and other people of color. This discrimination is a key contributor to the differing rates of homeownership between whites and people of color today, as well as a contributor to the persistent racial wealth gap.

"These homeownership rate disparities did not occur by chance," argue Peter Smith and Melissa Stegman, authors of Repairing a two-tiered system: The critical but complex role of FHA. "The homeownership rate gap between whites and people of color is in large part due to historic federal housing policy choices that created decades-long impacts."

The report, however, credits FHA mortgage lending as an important aid to the nation's economic recovery following the Great Recession. FHA increased its purchase market share to 42 percent in 2009, as much of private mortgage lending retreated. Prior to the housing crisis, FHA's market share was only 8.8 percent of the market.

According to CRL's report that examined mortgage origination data and market participation among banks and non-depositories between the years of 2004 and 2016:

  • FHA market share for Black and Latino borrowers now approaches half of all purchase mortgage lending to these borrowers.
  • Tight and expensive credit in the conventional market has led to FHA becoming the only mortgage option for many borrowers of color, low-to-moderate income families, and lower-wealth families.
  • Of the top 10 FHA home purchase lenders in 2004, five were banks and five were non-depositories; by 2016, eight of the top 10 FHA lenders were non-depositories.

"Throughout its history, the Federal Housing Administration has served as a gateway for many Americans to reach a safe and stable middle class," said Hilary O. Shelton, Director of the NAACP Washington Bureau and its Senior Vice President for Policy and Advocacy. "Unfortunately, that history is soiled by its racially discriminatory housing policies that stripped many Americans of their opportunity to build wealth simply because of the color of their skin."

"The resulting uneven playing field must be undone," continued Shelton, "and FHA should be sustained and leveraged toward making the American dream available to all Americans regardless of race, ethnicity, gender, place of national origin, sexual orientation or other differences."

"Homeownership is key to the American dream, but for far too many people of color, that dream has remained deferred. Improving the quality and effectiveness of the Federal Housing Administration is critical to ensuring that marginalized communities have the resources they need to purchase and refinance their homes," said Marc Morial, President & CEO, The National Urban League.

"As a civil rights organization focused on the economic empowerment of African Americans," continued Morial, "the National Urban League looks forward to working with our partners in civil rights and the Center for Responsible Lending in protecting and improving FHA for years to come."

With limited evidence of conventional mortgage loans accessible to consumers of color, and the strong emergence of non-bank mortgage lenders, CRL views inclusive federal public policy reforms as the key to future of mortgage lending, particularly as the nation becomes increasingly diverse.

Other leading consumer and civil rights advocates agreed.

"We must commit to making every neighborhood a place of opportunity for its residents and to making all communities open to all people, regardless of race, national origin, disability, or other protected status," said Lisa Rice, President and CEO of the National Fair Housing Alliance. "We cannot build a thriving society as long as our nation is plagued by discrimination, segregation, and severe economic inequality."

"As our nation grows more diverse than ever, and the housing affordability crisis continues to grow worse than ever, the FHA's role in advancing homeownership and building stable communities remain critical," said Rob Randhara, Senior Counsel with the Leadership Conference for Civil and Human Rights. "We need the FHA to maximize the delivery of safe, sustainable mortgage credit."

"For low-income families looking to purchase in high-cost markets – particularly those with credit challenges – FHA is the safest way to enter home ownership," said Seema Agnani, Director of the National Coalition for Asian Pacific American Community Development. "Asian Americans and Pacific Islanders often live in multi-generational households and the FHA program enables many to purchase a home and begin to build assets for the family in the long run."

"In markets where there are limited mortgage options, such as the Native Hawaiian Homesteads," Agnani continued, "the FHA program becomes most critical in ensuring equitable access to tools that facilitate building wealth."

The report concludes with specific recommendations to ensure the long-term health of the FHA program. Included in these recommendations, CRL calls for:

  • Increased resources for staffing, technology, and operations to enable the FHA program to operate soundly and implement needed reforms;
  • The elimination of FHA's life of loan premium; and
  • Ensuring FHA remains available to a broad group of borrowers and the program is not restricted by income or first-time homebuyer status.

"In the year that marks a half century of the Fair Housing Act," noted Mike Calhoun, CRL President, "it is appropriate to acknowledge the journey traveled in five decades. But also, a look ahead to the hundreds of miles yet to travel before fair housing is a reality for all."

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Charlene Crowell at charlene.crowell@responsiblelending.org.