Echoes of the Great Recession

Mortgage lending in the Fourth Federal Reserve District still remains affected by the Great Recession, according to a report published by the Federal Reserve Bank of Cleveland on Monday.

The Fourth Federal Reserve district consists of Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia. The report summarized home lending conditions across seven counties in this region. They included Allegheny, Pennsylvania (Pittsburgh); Cuyahoga, Ohio (Cleveland); Fayette, Kentucky (Lexington); Franklin, Ohio (Columbus); Hamilton, Ohio (Cincinnati); Lucas, Ohio (Toledo); and Montgomery, Ohio (Dayton).

While application rates in the low- and middle-income (LMI) neighborhoods across these seven counties decreased sharply during the Great Recession, the report found that mortgage applications remained well below the pre-recession rates even today. However, the rate of loans moving from application to origination in LMI neighborhoods had broadly increased and exceeded pre-recession rates.

Of the counties that were examined for this report, Fayette and Hamilton counties fared the best during the recession, often outperforming the national average. In Lucas County's LMI neighborhoods though, the application rate fell by more than 80 percent between 2004 and 2010. Looking at their more recent performance, the report indicated that county performance diverged with Fayette and Hamilton counties following the national uptick, whereas Lucas, Montgomery, and Allegheny counties remained relatively low-key in terms of application rates.

Breaking down the origination rates across these counties the report revealed that in the three years preceding the Great Recession, origination rates in LMI neighborhoods declined across most counties before increasing throughout the recession. "With the exception of rates in 2011, origination rates steadily rose from 2008 through 2016 and exceeded pre-recession levels in most of the counties we examined," the Fed researchers indicated in their report.

The report found that the jumps in origination between 2009 and 2010 were driven by refinancing activity due to the low interest rates during that period.

The report also looked at home lending by income and race and found that in every county, black borrowers experienced larger declines in home purchase rates than white borrowers between 2005 and 2010. "Although home purchase rates increased between 2010 and 2016 for both races, the gains were lower among black borrowers when compared to their white counterparts," the report stated.

The report found that although the home purchase rates decreased for both races during the Great Recession, the home purchase rate for black LMI borrowers fell by 65 percent from 2005 to 2010, while it fell by 44 percent for white LMI borrowers. Both races experienced increases in home purchase rates from 2010 to 2016, but the gains were greater for white LMI borrowers (38 percent) than they were for black LMI borrowers (33 percent).