Tight lending standards have made mortgage availability difficult for low and middle-income households, especially so for minorities like Blacks and Hispanics.
A feature by The Wall Street Journal states that mortgage availability among the minorities have been hit hard as more banks are refraining from lending to people hailing from these communities.
The Journal takes a logical stance on the lending divide. It explains that because the financial institutions have been embroiled in huge, expensive lawsuits for poor lending practices during the market crash of 2007-08, they have been largely cautious of lending to low-income borrowers.
Black and Hispanic people belonging to the low income strata have lower credit scores, which makes it tough for them to qualify for a mortgage.
"It's just simple math," David Stevens, CEO of the Mortgage Bankers Association told the Journal. "Tightening the credit [rules] has an unusually high impact on minority borrowers."
Lending also became scanty for the minorities because Black and Hispanic neighborhoods lost value during the financial crisis, Stan Humphries, chief economist at Zillow, explained to the publication.
According to Businessweek, lending to minorities hit a 14-year low in 2013. The share of lending to blacks fell to 4.8 percent from the 5.1 percent recorded in 2012. While lending to Hispanics fell to 7.7 percent from the 7.1 percent recorded a year ago.
Blacks make up 13 percent of the U.S. population, while Hispanics make up for 17 percent of the population.
A recent series of interactive maps released by the Urban Institutes also showed that while mortgage lending among the minorities picked up right before the financial crisis, these communities were hit the hardest after the crash, dropping 68 percent in the three following years.
"These numbers are a wake-up call that the housing market is a major driver of the economy and it can't be a vibrant market when so many new households are excluded from it," Jim Carr, a former Fannie Mae employee who currently works on racial equity issues with Opportunity Agenda, told the website.
Industry players are trying to take steps to alleviate lending hurdles to minorities. But mortgage availability has been a major problem across board. Experts believe the tight learning standards are holding back a full-fledged housing recovery.
But a recent survey showed that lending standards will be loosened in the coming future.
"Historically, as lenders face a more competitive market for loan volume, it's not uncommon to see some loosening in the lending standards; however, this time, the easing will likely be around the edges," Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement.
"Larger lenders are expecting to tap into the non-GSE-eligible and government loan market to maintain or grow their market share and offset their anticipated slowing mortgage demand as the peak spring/summer selling seasons are coming to an end," Duncan added.
