Rowhouses are pictured in the 700 block of South Chadwick Street in September 2020. Reinvestment Fund, a Philadelphia-based community investment nonprofit, analyzed federal mortgage data for 2022.
In the current high-cost housing environment, financial institutions need to make sure Philadelphia home buyers and owners at the lower end of the economic scale can continue to access mortgages, a city-based community investment nonprofit said in its analysis of 2022 loan data published this month.
“After a decade of steady growth coming out of the previous housing recession, 2022 potentially signals a new phase in the local housing market — one that will be defined fiscally by higher borrowing costs and higher home prices,” according to Reinvestment Fund’s report.
Each year, Reinvestment Fund analyzes the most recent Home Mortgage Disclosure Act data, the most comprehensive publicly available information about the U.S. mortgage market. The act requires many lenders to disclose information about the mortgages they make.
This information is used to inform public policy, identify lending patterns that could be discriminatory, and measure how well lenders are serving their communities’ housing needs.
Here are some takeaways from Reinvestment Fund’s latest analysis of Philadelphia data.
The number of mortgage applications dropped
“2022 was a period during which there was a pretty substantial rise in interest rates,” said Ira Goldstein, president of policy solutions at Reinvestment Fund. “And you really do see the reflection of that in the data.”
For the first time in a decade, mortgage applications for both home purchases and refinances declined last year.
Lenders reported making 13,069 loans in 2022. That’s a 17% drop from 2021.
Refinance activity also dropped last year as mortgage rates climbed past 7%. Trading in an existing home loan for a new one no longer made sense for homeowners who snagged loans with low interest rates years ago.
Refinances fell to levels last seen in 2018, when the average interest rate for a 30-year fixed mortgage ranged from just under 4% to just under 5%.
A mixed bag on FHA loans
The percentage of new mortgages backed by the Federal Housing Administration continued to decline, as it has since the 2008 housing crisis. But the combined share of FHA and U.S. Department of Veterans Affairs purchase loans rose a bit last year for borrowers making below 80% of the city’s family median income.
“That’s probably something to pay attention to,” Goldstein said. “The FHA market is an important market for us because that is a set of products that can be made available to people of more modest means or less perfect credit.”
Almost 22% of home purchase loans that were made in Philadelphia in 2022 were FHA loans, compared to about 16% nationally.
While these government-backed loans have less strict financial standards, they also come with fees that might make borrowing cost more.
“FHA fills a role for people who need it, so it’s great it exists,” Goldstein said. ”But if you don’t need it, you shouldn’t pay for it.”
Black and Hispanic borrowers use FHA loans much more often than white borrowers. Goldstein said the FHA market deserves further study to look into reasons behind that.
Mortgage access depends on race and location
Lenders were more likely to deny home loans to Black and Hispanic borrowers than to white borrowers regardless of their financial qualifications. That tracks with Reinvestment Fund’s analyses of previous years’ mortgage data. (The report looked at only three demographics: Black, Hispanic, and white.)
About one in seven well-qualified Black borrowers with incomes above the citywide median family income of $68,701 were denied loans. Fewer white borrowers — one in 10 — who made less money and were less well-qualified were denied loans.
In 2022, mortgage denial rates for Black applicants increased for the first time since 2012. They were up just over 13%. Denial rates for white applicants — almost 5% — and Hispanic applicants — 8.5% — were relatively flat.
Applicants in neighborhoods with large percentages of people of color and neighborhoods with lower incomes also were more likely to be denied mortgages.
In 2022, loan denial rates increased for applicants in middle- and lower-income neighborhoods and were relatively flat in higher-income neighborhoods.
All together, this means gaps in access to mortgage credit are growing between borrowers of different races and ethnicities and between borrowers in neighborhoods with more or fewer wealthy residents.
Shifting demographic boundaries
Reinvestment Fund was able to use mortgage data to track patterns of where residents are moving to and from over the last decade and found evidence that the city is becoming a bit less segregated.
Historically, Northeast Philadelphia didn’t have many Black residents, but the population there has been growing. Black borrowers have been purchasing in the Lower Northeast and, to a lesser degree, Far Northeast. These borrowers also are concentrated in narrow parts of West Philadelphia and parts of Northwest Philadelphia, such as Germantown and Mount Airy.
Hispanic borrowers have the lowest incomes among home buyers in the city. Their home purchases tend to be concentrated in the Lower Northeast and neighborhoods just south of the Lower Northeast. Small percentages of higher-income Hispanic borrowers are buying homes in South Philadelphia and the Far Northeast.
Few white mortgage borrowers are buying homes in areas where most Black and Hispanic borrowers are purchasing homes. One exception is the Far Northeast.
More and more, white borrowers are concentrating on neighborhoods north of Center City along the Schuylkill and the Delaware River, in South Philadelphia, and parts of West Philadelphia beyond University City.
mbond@inquirer.com
MichaelleBond
215-854-4546