Residential lending to low-income and minority families: evidence from the 1992 HMDA data - Home Mortgage Disclosure Act - includes related articles on access to the data, how data is collected and educational material on fair lending

Federal Reserve Bulletin, Feb, 1994 by Glenn B. Canner, Wayne Passmore, Dolores S. Smith

Homeowners infrequently use the FHA program, compared with conventional loans, to refinance an existing mortgage. In 1992, applications for FHA loans accounted for only 3.8 percent of the applications for refinancing loans. The small share of refinancings insured by the FHA is not surprising because households that refinance often have sufficient equity in their homes and have accumulated enough other assets to cover the larger downpayment typically required for a conventional mortgage.

In general, households with lower incomes are more likely than households with higher incomes to use government-sponsored home loan programs, particularly those of the FHA and the FmHA. In 1992, one-third of applicants for home purchase loans with incomes below the median family income for their metropolitan statistical area (MSA) applied for government-backed loans; in contrast, only 13 percent of applicants with incomes greater than 120 percent of the median family income for their MSA applied for such loans (table 4).

The greater reliance of lower-income households on government-backed loans reflects several factors. The limits on the amount of FHA loan insurance make these loans unavailable to households seeking to buy more expensive properties, and the low downpayment requirements make them particularly attractive to lower-income households and to first-time homebuyers, who are likely to have fewer financial resources for downpayments and closing costs.

Among racial groups, applicants who are black are more likely than other applicant groups to seek government-backed home purchase loans. In 1992, about 41 percent of the black applicants who applied for a home purchase loan sought a government-backed mortgage; the comparable figures for Hispanics, whites, and Asians were 31 percent, 21 percent, and 11 percent respectively.

As in previous years, the differences in the use of government-backed home purchase loan programs by various racial groups reflected more than differences in income. For instance, among low-income loan applicants, 53 percent of black applicants sought FHA or VA loans compared with 40 percent of Hispanic applicants, 31 percent of whim applicants, and 22 percent of Asian applicants. One possible explanation for this relatively greater reliance of black applicants on government-backed programs is that black households, on average, have smaller holdings of liquid assets compared with those of other low-income households.(7)

The patterns of applications for refinancings by the income and race or ethnic characteristics of the applicants differed from those for home purchase loans. Higher-income households accounted for 62 percent of all refinancing applications and for 47 percent (calculated from table 4) of all applications for home purchase loans. Also, white applicants accounted for a higher proportion of refinancing applications than of home purchase loan applications, reflecting the fact that, among homeowners with mortgages, most are white.

As noted earlier, lower-income and minority applicants were more likely to request government-backed mortgages. Consistent with this pattern, applicants who were seeking homes in low-or moderate-income neighborhoods requested government-backed mortgage programs more often than those seeking homes in upper-income neighborhoods. Requests for government-backed loans also accounted for a higher share of all home purchase loan applications in neighborhoods with higher proportions of minority residents.