The Mortgage Bankers Association, one of the nation’s most influential financial lobbying groups, made a startling claim this week about the access of black borrowers to credit.
The association’s president, David H. Stevens, said that 56 percent of blacks who applied for a common type of mortgage were denied. When that figure was publicized, it set off a barrage of questions on social media. Since Stevens’ number was far higher than the mortgage denial rates for blacks that other analysts found, the association was pressed to provide a full accounting of its calculations.
The association has answered some questions, but its conclusions remain murky.
The discussion underscores one of the most pressing issues affecting the U.S. housing market. Since the financial crisis, the government has dominated the mortgage market. Banks lend borrowers money to buy homes, but they turn around and sell most of the mortgages to investors, attaching a government guarantee of repayment in the process. The government gets paid for that guarantee, but it also requires that the borrowers meet certain requirements that aim to ensure that they can repay the loans. The big debate right now is whether those requirements are overly demanding, excluding certain types of borrowers from certain types of mortgages.
And that debate has intensified as Congress has drafted legislation to replace the current government-dominated system.
The Mortgage Bankers Association favors scaling back government involvement in the mortgage market and replacing it with more private capital, which, in theory, would be provided in part by the association’s members. But some consumer advocates fear that dismantling the current system – including Fannie Mae and Freddie Mac, the huge government-sponsored enterprises, or GSEs, that guarantee mortgages – could restrict minorities’ access to credit.
In his speech, Stevens decided to address those concerns by making the point that the current system was hardly providing wide access to minorities.
“Some advocates in Washington fear changing the GSEs because they want to protect the underserved and minorities from being crowded out of the housing market,” he said. “However, data clearly shows that they are being left out now.”
Stevens then said that 56 percent of blacks who applied for a Fannie Mae or Freddie Mac loan to purchase a house were denied in 2012.
Those remarks, and the denial rate, were not included in the version of the speech posted on the association’s website May 19. John T. Mechem, a spokesman for the association, said they had been in an earlier version that was sent to reporters. He denied that the material was later removed because of concern about the analytical rigor.
“M.B.A. stands by its analysis of H.M.D.A. data, and frankly we are disappointed at the direction of the debate, which obscures the alarming trend for African-American borrowers,” Stevens said in statement Thursday.
He was referring to the Home Mortgage Disclosure Act, which requires banks to report data on their loans so regulators can look for signs of racial discrimination.
Joshua Rosner of Graham Fisher & Co., a research firm, did much to bring attention to Stevens’ comments on the denial rate. On Tuesday, Rosner posted this to Stevens on Twitter: “Challenge: show us H.M.D.A. numbers on denials you cite.” Much back and forth ensued, with Stevens later telling Rosner, “You are chasing dragons.” But Stevens did not post the data behind his denial rate.
One reason the association’s rate got attention was that it is much higher than the rate calculated by other entities. The real estate website Zillow says the denial rate for blacks was 25.4 percent in 2012. The Federal Reserve, using the Home Mortgage Disclosure Act data, calculated the denial rate at 32 percent for that year, the most recent available. The Fed said the denial rate for whites that year was 11.6 percent.
Some analysts question whether the MBA took some hard-to-justify steps to get much higher denial rate, which Stevens could then use to bolster his argument that minorities are being left out under Fannie Mae and Freddie Mac’s current credit standards.
“We believe there are serious flaws with how this HMDA data was analyzed and characterized,” said Andrew J. Wilson, a Fannie Mae spokesman. “We are committed to working with all stakeholders to ensure access to safe, affordable mortgage credit in every community.”
Mechem, the mortgage bankers’ spokesman, said that to get to its 56 percent denial rate, researchers at the association had counted 45,897 total loan denials in 2012 for blacks for conventional mortgages, or loans that have characteristics that typically qualify them for backing by Fannie Mae and Freddie Mac. That number is 56 percent of the 82,399 loans in the association’s overall loan sample.
The association declined to break out any of the numbers that make up the aggregated totals, even though it includes data others leave out.
The industry group, for instance, includes pre-approval denials on mortgages. Borrowers often go to a bank to get pre-approved for a mortgage before selecting an actual property. It is a step taken before a borrower makes a full application for a loan for a specific house, and analysts have traditionally excluded denials of pre-approvals. Another reason for excluding pre-approval denials is that it may result in an overcount of denials if, for example, a borrower goes to three different banks for a pre-approval and is denied by all three.