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Wednesday, October 29, 2008

NYU Report Documents Credit Crunch's arrival in 2007

On Monday, the Furman Center at NYU released a report, Declining Credit & Growing Disparities: Key Findings from HMDA 2007. The report uses recently released Home Mortgage Disclosure Act (HMDA) data to analyze trends in home purchase and refinance lending activity between 2006 and 2007. The report highlights changes in the high cost (sub-prime) and prime markets, and demonstrates these effects on different racial groups. Here's a summary of the report findings from the authors:

Much of the media’s focus has been on signs of tightening credit over the past few months, but our report illustrates that the flow of credit has been slowing for the housing markets for well over a year. In New York City, we saw dramatic declines in home purchase and refinance activity from 2006 to 2007 (14% and 31% respectively)... Moreover, we see troubling signs that New York City's black and Hispanic borrowers are bearing the brunt of this decline in credit, and it is not simply evidence of the subprime market drying up. The number of prime loans awarded to black and Hispanic borrowers fell by 23% and 15% respectively between 2006 and 2007. By contrast, the number of prime loans issued to white borrowers rose by 4% while the number issued to Asians increased by 18%. If these trends continue, and black and Hispanic borrowers are disproportionately affected by the tightening credit market, it may mean less investment in communities of color, an undoing of recent progress in bringing homeownership opportunities to black and Hispanic New Yorkers, and a reshaping of who is buying homes in New York.

Based on the report, the Bronx had the largest drop in home purchase loan originations (-24.9%) of all five boroughs, including the largest drop in prime home purchase loans (-5.4%). It also tied Brooklyn for the largest drop in refinance loan originations (-33.2). In addition to these signs of credit drying up, the data on loans actually being issued isn't good either: for 2007, the Bronx had the highest percent of home purchase loans that would be considered high cost (17.4%), and when you think high-cost, think bad sub-prime products. Here's that chart from the report:

Keep in mind that this data is for 2007 and the changes from 2006. You could make an argument that 2006 was the peak bubble year, or at least late 2006 to early 2007. I suspect the drop-offs on lending in 2008 will be much more dramatic.

On a somewhat related note, the Local Initiatives Support Corporation (LISC) has completed a study showing the rate at which mortgage borrowers find themselves in default is not primarily related to whether they are poor or prosperous but rather is tied to the type of mortgage products they were sold.


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