Bankers and mortgage lenders who ignore minority markets are missing a major opportunity in Massachusetts, a Federal Reserve Bank of Boston representative told lenders today.
Prabal Chakrabarti, the Fed’s director of community affairs, spoke at a MassHousing event in Framingham this morning and pointed to simple population figures as reason enough to focus on minority populations.
While Massachusetts’ white population is slumping, black populations have grown by 33 percent, while Hispanics have grown by 87 percent from 1990 to 2008.
"If you’re going to lend in Massachusetts, this is the place to lend," Chakrabarti said.
With that kind of growth in the Hispanic population especially, bankers don’t have to worry much about an exact strategy for targeting this group, he said. Subprime lenders heavily targeted minorities at one time, but those lenders are largely out of business, leaving a relatively open playing field. And because minorities are not a highly targeted group right now, lenders can afford to let their marketing strategies evolve as they become more familiar with the population.
"When you see growth like this, my argument is that as lenders, you’re going to know how to tackle this market," Chakrabarti said.
Minority homeownership lags in Massachusetts compared to the rest of the country. The gap between whites’ and minorities’ homeownership levels nationwide in 2009 was about 26 percent. In Massachusetts, that number is 44 percent.
Chakrabarti said minority borrowers tend to have lower incomes than whites, but added that even so, homeownership levels are disproportionately low. While minorities were harder hit by the wave of defaults and foreclosures from the recent credit crisis, he said they were also about 30 percent more likely to be put in a higher-interest fixed-rate loan than their white counterparts.
But lenders who matched minority borrowers with the right products and additional credit counseling had much higher success rates. He cited a number of sources that showed the beneficial impacts of more responsible lending. A University of North Carolina study, for example, showed that minority borrowers who got loans through Community Reinvestment Act required lenders had default rates less than one-fourth the rate of subprime loans overall in the survey sample of about 50,000.
"Where it’s been done, and done right, it’s worked," Chakrabarti said.
MassHousing’s event, "Developing Business in a Diverse Marketplace," makes the case that minorities should be responsibly targeted for home loans, and that it made sound economic sense to do so now. Tom Gleason, executive director of MassHousing, said the organization has solid access to capital thanks to a sale of bonds to the U.S. Treasury and is able to promote such lending. He added that interest rates are still low, supply on the market is high, and the lending landscape is far less competitive thanks to the demise of subprime lenders who glutted the market in previous years.
"Let’s not just put people in homes, let’s do everything we can to keep them there," he said.
