For all its problems, the financial crisis had one consistent bright spot in jumbo loans. But as the Wall Street Journal reported Wednesday, jumbo loan success and diversity lending do not necessarily go hand-in-hand.
Jumbo loans‒‒typically above $417,000‒‒were, before the crash, the also-ran of the lending market. They took significant upturn, however, as the recession deepened, given that their amounts by nature were only marketable to high rollers with great credit and plenty of financial security.
As the recession ebbed, banks turned increasingly towards jumbos because, well, they worked. But now, the Journal has found, banks are increasingly approving more jumbo loans while simultaneous approving fewer standard loans to African-American and Latino borrowers. And new federal regulations state that lenders should serve a more racially diverse set of customers.
Data from federally reported home sales between 2007 and 2014 showed that all of the top 10 U.S. banks have upped their share of jumbo loans, which predominantly go to white and Asian borrowers with huge down payments. In fact, according to the Journal’s numbers, Latinos received only 3 percent of the jumbos approved, while African-American borrowers got 1.3 percent of approval.
Overall, J.P. Morgan has been particularly bullish on jumbo packages‒‒jumbos made up about 9 percent of all loans at the bank in 2007 but 22.5 percent of mortgages approved in 2014.
In the same time period, the bank’s mortgages written for black borrowers dropped from 8.2 percent to 3.8 percent, while mortgages for Latino borrowers dropped from 15 percent to just under 9.
Over all 10 top banks, standard mortgage loans (averaging $150,000) to black and Latino borrowers went down by 2.5 percent each between 2007 and 2014.
Noteworthy, however, is that in non-bank lending, black and Latino borrowers were more frequently approved in 2014 than in 2007. In 2014, the combined approval rate for black and Hispanic borrowers was down by half among non-bank lenders, compared to 2007. Yet overall approval rates for these two groups were up (by an unspecified amount) compared in 2014.
Federal housing officials have no theories on whether the increasing love of jumbos among top banks directly plays into the downswing in diversity lending, but the Journal’s data do at least point towards a trend worth watching.
Editor's note: The inaugural Five Star Diversity Symposium will be June 16, 2016, at the Belo Mansion in Dallas, Texas. Click here to register. The Five Star Institute is the parent company of The MReport and theMReport.com.