WASHINGTON -- An analysis of the latest HMDA data indicates that while the credit crunch has lead to higher denial rates, CUs are still more likely to approve mortgage loans for minorities and low- to moderate-income borrowers.
Overall, blacks and Hispanics saw much higher denial rates than whites in 2007, and there was a noticeable increase in minority denial rates between 2006 and 2007. While all borrowers were subject to tighter credit standards, minorities and low-income borrowers felt more of it. According to the latest HMDA numbers, mortgages made to African-American borrowers dropped 34% between 2006 and 2007. The decline was even larger for Hispanics--41%. The decline in loans made to Caucasian borrowers was 15%, the new data reveals.
Denial rates for home borrowers based on race widened significantly from 2006 to 2007, according to an analysis performed by Sen. Christopher Dodd (D-Conn.), chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs. Dodd called that pattern "proof of a disturbing and continuing trend of unfair lending practices" faced by minority purchasers and said that the committee will continue to focus on how to end discriminatory lending practices.
CUNA Senior Economist Mike Schenk said this year's data reflects past trends in mortgage lending that credit unions are more likely to approve mortgage loan applications. He said higher approval rates are obvious across the board.
The NCUA said 2005 and 2006 HMDA data demonstrated that reporting credit unions approved an overwhelming majority of the applications processed during those reporting periods. Approximately 69% of all 2005 applications and 67% of 2006 applications resulted in a loan origination. Moreover, the reporting credit unions denied fewer than 13% of all applications in 2005 and 14% in 2006.
Schenk examined 2007 HMDA data on denial and approval rates by race and income, explaining that the data indicate higher approval rates by race at credit unions than at other institutions. The same is true for income categories.
"We find that African-Americans are 17% more likely to get a loan at a credit union than at some other institution," he said.
The approval rate for non-whites (a category that include blacks, Asians, American Indians and Pacific Islanders) was 57.6% at credit unions and 50.9% at other institutions. The denial rate for non-whites was 22.4% at credit unions and 34.6% at other institutions.
More specifically, the approval rate for African-Americans was 54% at credit unions, 46% at other institutions. Denial rate for blacks at credit unions was 26%, while the denial rate for African-Americans at other lenders was 38%.
The approval rate for whites seeking loans at credit unions is 75.8%, and the denial rate is 12%.
The approval rate at non-credit unions for whites is 62.9%, and the denial rate is 24.3%.
Schenk observed that the denial rate at credit unions for whites is one-half the denial rate for non-credit unions.
"No matter what minority group you are in--if you are in the market for a mortgage, it behooves you to check out a credit union first because you are much more likely to get approved by a credit union than at some other lender," Schenk said.
The same pattern holds true when you look at income, Schenk said. The "low- to moderate-income" denial rate at credit unions for 2007 was 20.1%, while at other institutions it was 32.6%. So, one in five was denied at credit unions, while one-third were denied at other institutions--a huge difference, Schenk observed.
The approval rate for low- to moderate-income borrowers was 66.7% at credit unions and 52.2% at other lenders. Low- to moderate-income is defined as borrowers earning less than 80% of the metropolitan statistical area's median income.
In the low- to moderate-income category, there is confirmation that credit unions are staying true to their mission of serving the underserved, he said. The percentage of loans approved out of that group was 25.2%--about one-quarter of all credit union approvals were to people with low- to moderate-income. So, he said, one in four in that group was approved by credit unions as opposed to one in five at other lenders.
Schenk said he is still analyzing the data on high-rate loans--at least 300 basis points above a comparable Treasury rate--but, historically, credit unions are much less likely to make high-rate loans than other lenders. He said he doesn't have any reason to think that the trend has changed on the part of credit unions; although, he said he wouldn't be surprised to see that other lenders come closer to credit unions in that area because so many of them have backed away from subprime lending.
Under HMDA, all significant lenders--8,751 companies in 2005--must record each mortgage loan they extend or purchase. Covered institutions include banks, savings associations, credit unions and independent mortgage companies.
The HMDA data covers lending activity--applications for loans, loan originations and denials, and purchases of loans--from 2007. The data include 21.4 million applications and originations and 4.8 million purchases for a total of 26.2 million actions reported by all covered institutions in 2007.
The records are submitted once a year to the federal government, which makes the data public.