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Affordable Housing: Tight access to home loans will factor in upcoming policy debate

affordable housing, West End Atlanta has established a $40 million fund to help low income homeowners pay to upgrade their homes. Now, it's common for folks to leave such homes and for developers to buy, renovate and flip them at prices higher than the former residents can afford. File/Credit: David Pendered

By David Pendered

Renewed efforts by Atlanta’s civic leaders to increase the supply of affordable housing, especially in areas around the Atlanta BeltLine and the Mercedes-Benz Stadium, could run into a brick wall established by housing lenders, according to research detailed in a new report by the Federal Reserve.

affordable housing, West End

Investors are back in business in the West End. After the homes are upgraded they typically are placed on the market at prices higher than the historic ranges for the neighborhood. Credit: David Pendered

Mortgage credit has been tightening since 2005, according to a FEDS Note released Sept. 29 by Federal Reserve. Back in 2005, a credit score of 590 was good enough to get a mortgage. Now, the minimum credit score is hovering around 640, according to the report.

The impact is obvious – folks with subprime credit ratings aren’t getting mortgages. The historic rate for subprime is below 640.

This market situation is likely to have profound effects on any efforts by Atlanta leaders to increase the supply of homes affordable to folks earning the salary of schoolteachers and shop clerks. Especially if they have experienced negative credit events.

Policy changes include an ordinance that took effect July 1, approved by the Atlanta City Council and endorsed by Mayor Kasim Reed. It requires residential developers who get construction funding from a local entity, such as a development authority, to provide a certain number of affordable homes. On the horizon for 2017 is a push by advocates of a proposed inclusionary zoning regulation in Atlanta to make it a central issue in the 2017 mayoral campaign, they said at the September meeting of the Atlanta Regional Housing Forum. The provision would require homes of all price ranges be built in a new multi-home development.

Meanwhile, ongoing efforts by various free market and non-profit housing developers are creating a supply of for-sale homes that generally are considered affordable. But even these homes will end up being available mainly to folks whose credit rating emerged relatively unscathed from the Great Recession, according to results of the report.

Affordable housing, credit scores

Individuals with subprime credit scores, historically rated below 640, have faced a credit market that has tightened considerably sine 2005 and the Fed reported that subprime credit access shrank even more in the second quarter of 2006. Credit: federalreserve.gov

Some lenders actually increased standards in the subprime market during the second quarter of this year, according to another report by the Fed, issued in July, “Senior Loan Officer Opinion Survey on Bank Lending Practices.” The banks are making access to credit even tighter for those in the subprime sector.

The purpose of the Fed report in September was to determine if banks are still providing access to credit blacks and Hispanics.

The report notes that there’s a, “disproportionate decline in lending to minorities since 2006.” The report did not provide data to support the statement.

Researchers determined that race and ethnicity did not factor into the decline in access to credit. The drop in lending was related to credit scores. The report notes that blacks and Hispanics tend to have lower credit scores than whites. The report offers a fact followed by an observation:

  • “For instance, while almost 45 percent of black borrowers in 2006 were in the bottom three credit score categories, just 15 percent of white borrowers were in these three tiers. As such, if lenders became more reluctant to lend to low-score individuals, it would disproportionately affect access to credit for minorities.”
Affordable housing, market share by race ethnicity and credit score

The Federal Reserve determined in a new report that lenders were tightening access to credit based on credit scores, not on race or ethnicity. Credit: federalreserve.gov

Of note, the report concludes with this statement:

  • “Tighter credit conditions since 2006 has therefore had a disproportionate effect on minorities’ credit access.”

According to the report:

  • “[T]he bulk of this decline reflects a general reduction in lending to borrowers with low credit scores, regardless of race and ethnicity. … As we document below, black and Hispanic mortgage borrowers tend to have much lower credit scores than white borrowers, and thus in recent years a tightening of credit for all groups appears to have had a relatively large effect on lending to minority groups.
  • “We find that while the market shares of minority borrowers with low credit scores declined sharply between 2006 and 2014, the market shares of minorities with mid to high credit scores remained nearly the same.”

One purpose of the report was to determine when banks are meeting obligations of the Community Reinvestment Act to help safely make credit available throughout their communities.

Incidentally, market shares for Asians, Native Americans and other minority groups were not tracked because of changes in data gathered since 2004, the report said.


David Pendered

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow.


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  1. Burroughston Broch October 10, 2016 6:51 pm

    The median annual compensation for a public school teacher in Atlanta City is $54,200 per year for a 191 day work year. That is considerably higher than for a shop clerk. The median household income in Atlanta City is slightly higher at $55,700 per year. If their credit score is subprime then shame on them and they should consider another line of work.
    A household with an income of $54,000 per year should be able to afford a $1,500 per month mortgage payment. At today’s low rates that can buy a nice home.Report

  2. guest October 11, 2016 9:49 am

    Burroughston Broch Perhaps, you should inform yourself a bit more before making such comments? Millions of households around the country were peddled subprime loans with predatory features such as teaser rates and prepayment penalties because mortgage brokers got yield spread premiums to push them into such loans – when they could have qualified for prime loans. There is a ton of literature out there showing this. Many of these folks ended up in loans where the payments reached over 50% of their monthly income. It is the LENDER’s responsibility to underwrite the loan wisely. not the borrowers. (Federal law has recently more clearly specified how lenders are required to demonstrate Ability To Repay.)  Many of these folks now have damaged credit. Moreover, many subprime lenders/brokers targeted minority borrowers. The evidence is strong that – other things equal – minority borrowers (even with good credit) were much more likely to receive subprime loans. But I guess you aren’t likely to read this before you offer your comments.Report


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