The latest residential mortgage lending data from the Home Mortgage Disclosure Act (HMDA) shows that the housing market still has quite a way to go, despite signs of recovery.
According to Urban Institute, minority households were locked out of the recovery period following the recession partly due to tight lending standards as they tend to have lower income and weaker credit scores.
The data also showed that lending volume among different racial groups fluctuated during the boom and bust. African-American and Hispanic borrowers took out a large share of mortgages as housing prices neared their peak, and as prices declined and buying a home became easier, tighter credit standards left many unable to obtain or refinance a loan.
The share of loans among African-Americans and Hispanic households deceased from 23 percent to 12 percent from 2005 to 2012.
"Today’s tight credit environment has constrained mortgage lending and is disproportionately affecting African-American and Hispanic households," Urban Institue noted. "As a result, these communities have found it harder to take advantage of the low home prices and interest rates that followed the housing market crash, missing an important opportunity to build wealth through homeownership."
Urban Institute explained that the credit box needs to be expanded for a full mortgage market recovery.
"A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom," Urban Institute said. "A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today’s tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African-American and Hispanic families from building wealth and benefiting from the recovery."