Credit Unions See Strength in Minority Lending12.04.2017
African Americans, Hispanics and minorities have become a crucial part of the mortgage market for credit unions, and some credit unions are making it their mission to serve them.
A loan-level analysis of HMDA records by CU Times found Hispanics, African Americans, Asians and other minorities accounted for 16% of 703,809 first-lien real estate originations to owner-occupants purchasing a home in 2016, and 19% of their $51.3 billion value. That compares with 21% minority owner-occupants buying first-lien purchase mortgages among all lenders.
The data from the FFIEC consists of 1.3 million loan applications to 1,945 credit unions, including 749,883 that resulted in originations worth $129.2 billion in 2016 that were reported under the Home Mortgage Disclosure Act.
HMDA data shows total real estate originations among the reporting credit unions rose 16% to $119.8 billion in 2016. Because of exemptions given to small and rural credit unions, the HMDA data isn't complete.
NCUA data shows originations of all types of real estate loans rose 30% to $152.2 billion in 2015 and 13% to $172.5 billion in 2016. For January through June, originations were up 9%. Last year's originations came from 3,832 of the 5,909 federally insured credit unions in the NCUA database at the end of 2016. Of them, only 2,750 generated more than $1 million in originations last year.
HMDA data, however, gives snapshots of who is borrowing for what and how much.
For this analysis, the HMDA data was first narrowed to activity that resulted in an origination to an owner-occupant. Further race and ethnicity detail was pulled from data for first lien purchase mortgages.
Many credit unions have forged strategies to extend more loans to minorities and low-income residents, including mortgages.
One of them is Illiana Financial Credit Union based in Calumet City, Ill. ($231.2 million in assets, 23,596 members). It serves a community with a high proportion of Hispanics and other minorities in Cook County, just southeast of Chicago.
Illiana Financial's first-lien, owner-occupied real estate originations rose from 34 worth $1.3 million in 2015 to 54 worth $2.3 million last year.
Most of its loans are to Hispanics. Last year it lent $1.4 million to 34 Hispanic borrowers, including 13 for purchase loans.
The average Hispanic borrower had household income of $52,850, and borrowed $42,710. The average purchase loan was $56,690 in tracts with 74% minorities and income that was 66% of median income for the Chicago metro area.
Some of its mortgage loans are ITIN loans for immigrants who are not citizens.
“Word of mouth has worked well for us,” Anna Shaleva, Illiana Financial's chief lending officer, said.
However, this year the credit union launched some 30-second Spanish-language ads on cable television to reach out more aggressively.
Its portfolio of ITIN loans started the year at $11.1 million, including $6.9 million in real estate loans. As of September, the portfolio had swelled to $12.7 million, including $8.5 million in real estate loans.
Eben Sheaffer, the CFO and chief investment officer for the National Federation of Community Development Credit Unions, said there is a tremendous unmet need for responsible mortgage lending for minorities and low-income borrowers.
The New York-based non-profit is developing a program to help credit unions extend loans to minorities and low-income families who have a need to buy a home, the ability to afford one, but have too many flaws to qualify for most loans from responsible lenders.
The Federation is offering to forge deals with credit unions in which it guarantees it will buy loans at origination from credit unions that meet its looser criteria. The loans might not meet the guidelines of Fannie Mae, Freddie Mac or other government-sponsored enterprises. Loan-to-value ratios could be as high as 97%, and FICO scores might be too low. But the criteria remains strict for the borrower's debt-to-income ratio, and lending officers will need to scrutinize the applicants.
“One of the tenets of responsible lending is figuring out the borrower's ability to repay, and we do that on every loan,” Sheaffer said.
Smaller credit unions also might want to have a guaranteed buyer for 30-year, fixed-rate mortgages because of the interest rate risk they pose to their portfolio.
The Federation began buying loans last summer, and has forged agreements with about six credit unions. It now has 12 loans worth a total of about $2 million. In three or four years, it hopes to be buying $50 million a year in loans, Sheaffer said.
“It's a way for them to go deeper in their communities with mortgage lending,” he said.
On average among all credit unions reporting HMDA data, borrowers took out mortgages in areas with 28% minorities. Whites bought homes in areas with minority populations of 23%, while blacks bought homes in areas with 44% minorities.
The average credit union borrower bought a home in a census tract where median household income was 13% higher than median incomes for the metro area. Buying patterns ranged from blacks buying homes in neighborhoods that were 6% more affluent than the metro average to Asians buying in neighborhoods that were 22% more affluent.
Top 10 credit unions did better with 24% of value. They accounted for 31% of the value of purchase loan originations among credit unions, but 40% of the loans to minorities. Average household income among Top 10 applicants was $98,531 in 2016.
Average minority income among Top 10 borrowers was $97,905 among white non-Hispanic households and $94,898 among minority households. The minority averages were pushed up by the significantly higher earnings for Asian households, who accounted for one out of every four minority borrowers. Asian households earned $121,315, while African Americans earned $83,489 and Hispanics earned $91,426.
The Top 10 lent $16 billion for purchase mortgages in 2016, up from $15 billion in 2015. Minorities accounted for 24% of loan value in 2016, up from 23% in 2015.
Non-Hispanic whites accounted for 65% of loan value, compared with 9% for blacks, 5% for Hispanics, 7% for Asians, 1% for Native Americans and Pacific Islanders, and 13% with unknown race or ethnicity.
Reprinted with permission from Credit Union Times.