On Tuesday, HUD and the CFPB opened the door to special-purpose mortgage finance. Now, we expect FHFA to use this safe harbor to mandate express GSE equitable-finance programs and for banks to take much of what’s left in all their commitments after George Floyd’s murder and turn it into mortgage and other community-finance products.
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Two recent studies add fuel to the fire we first spotted late last year: demands for ARMs that only go down. Director Thompson’s latest scorecard combines with her equitable-finance mission to make this option a top political priority even if its market feasibility remains at best uncertain.
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Unsurprisingly, FHFA today raised the GSEs’ conforming loan limit to about $647,000 and the high-cost limit to nearly $1 million. More surprisingly, FHFA Director Thompson accompanied this politically-sensitive announcement with a statement that her agency is “actively evaluating the limit and its relationship to affordable housing across the U.S.”
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Getting a bit ahead of FHFA’s new equitable-finance mandate and its express demand for appraisal equity, Freddie Mac has released a detailed study of one of the most significant barriers to housing-finance equity: discriminatory appraisal practices that reduce the chances for wealth accumulation. The study finds demonstrable differences in appraisals for like-kind homes that correlate strongly with race and ethnicity, but provides no guide to either causation or cure.
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As noted yesterday, Treasury and the FHFA pulled the Trump PSPA’s plug, although importantly and widely overlooked is that this is true only when it comes to near-term asset-purchase considerations. Still, with this action atop all the others redefining Fannie and Freddie since Sandra Thompson took over, the GSEs are being reconfigured into agents of Administration policy in concert with being still more critical agencies for housing finance.
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A week ago Thursday, I was honored to participate in a Congressional Black Caucus Foundation forum assessing the extent to which the Fed exacerbates U.S. economic inequality. Views were mixed on that front, but several panelists stoutly condemned financial institutions for actively discriminating against people and communities of color and the Fed for allowing them to get away with it. That won’t be the last we hear of this.
As our recent assessment of the latest mortgage data make clear, these allegations are not without merit. That underlying factors are complex and sometimes include contradictory evidence does not belie the fact that data remain problematic, the industry is deeply distrusted, and the White House has made racial equity a top-priority Presidential action item. First to what the data do and don’t show and then to what will be done about them unless some of the things that can instead be done are quickly done.
The latest HMDA data show troubling denial disparity ratios (DDRs), interest-rate, and cost disparities when minorities are compared to whites. The DDR for Blacks was 2.6:1, rates were .125 percentage points higher, and the cost of a loan was 38% more. Black credit scores were the lowest among demographic groups (690) and loan amounts were the smallest, but these differences are still striking.
Little noticed but even more puzzling are the DDRs for Asians versus whites. Asian DDRs were 1.4:1 even though credit score and loan amounts were the highest of all demographic groups. …