A sharp decline in the share of home purchase loans going to African-American borrowers has been among the most significant and lasting effects of mortgage market crisis in Tennessee, according to a new study from THDA.
The Research & Planning division at THDA studied 10 years' worth of data from before, during, and after the housing market crisis. The new report provides an in-depth look at how the mortgage market has been transformed in Tennessee, including major shifts in home purchasing versus refinancing, conventional versus government-backed loans, and ethnic and racial demographics.
Findings include:
Total Mortgages for Home Purchase
The impact of the crisis on homebuying continues to be significant.
Looking only at mortgages for owner-occupied residential home purchases, the market peaked in 2005 at just over 98,000 loans and dropped sharply to just over 56,000 during the first year of the recession in 2008. Home purchase mortgages hit a low of just under 43,000 in 2011 and rose only modestly to 58,613 by the end of 2013.
Government-backed Home Purchase Mortgages
Another dramatic change brought on by the crisis is the percentage of home purchase mortgages that are backed by the federal government through the FHA, VA, or USDA. Pre-crisis, more than 80 percent of home purchase mortgages were conventional, i.e., not backed by the government. This number dropped to 58.3 percent in 2008 and hit bottom at 41.0 percent in 2009. In those two years, FHA loans alone exceeded conventional mortgages in market share.
Conventional mortgages have slowly regained share and represented 54.7 percent of the market by the end of 2013. FHA loans, which represented just under 10 percent of the market pre-crisis, fell to 24.3 percent in 2013. However, USDA-backed loans and VA loans remained near all-time highs in terms of market share in 2013; the former held at more than nine percent (from around one percent), and the latter at around 12 percent (from around five percent).
Percentage of Home Purchase Mortgages by Minorities
By the end of 2013, African-American borrowers made up a significantly smaller percentage of total borrowers, falling from 11.4 percent at the beginning of the study to 6.1 percent at the end. The decline in share by African-American borrowers closely mirrors the growing percentage of white borrowers, which climbed from 76.9 percent to 84.7 percent. The market share of Asian and Hispanic/Latino borrowers varied only small amounts year to year and did not significantly change overall between 2004 and 2013.
Mortgage Denial by Race & Ethnicity
The housing market crisis had very little effect on the overall percentage of home purchase mortgages that were denied by the lender. This remains true even when looking only at numbers for African-American, Asian, Hispanic/Latino, or white borrowers. However, denial rates for minorities are significantly higher than for white borrowers whether before or after the crisis.
As of 2013, only the denial rate for white borrowers, 13.3 percent, is below the state average of 14.6 percent for all borrowers. Meanwhile, 24.6 percent of applications by African-Americans, 19.6 percent by Hispanics/Latinos, and 16.3 percent by Asians were denied.
The 34-page THDA report uses Tennessee mortgage market data that lenders are required to share with the government under the Home Mortgage Disclosure Act (HMDA). Ranging from 2004 to 2013, the data includes the period before, during, and after the housing market crisis, which officially began in December 2007.
Download or view the full report online here.