It's hard to get a mortgage right now – not just relative to the free-for-all days at the height of the housing boom, but compared even to what now feels like the housing market's last moment of "normal." Let's call that, say, 2001. Back then, lenders weren't doling out loans with the gleeful abandon of the housing bubble. But they were considerably more welcoming than they are today of would-be homeowners without pristine credit.
If we compare the housing market today to this pre-bubble moment, many people who might have qualified for mortgages by 2001 credit standards are walking away empty-handed. In some sense, their loans have gone "missing," a casualty of today's abnormally tight credit.
Exactly how many loans are we talking about? Using the most recent data from 2012, Laurie Goodman, Jun Zhu and Taz George at the Urban Institute's Housing Finance Policy Center peg the number at about 1.2 million. That figure represents would-be borrowers who would have met the credit standards for a mortgage before the bubble ever inflated. These are not your 25-year-old baristas buying a first condo on $30,000 a year circa 2005. These are individuals and families whose credit would have qualified them for a home loan at just about any other moment in recent history.
Look even closer at who's contained within this group, and another cruelty of the housing market emerges: Minorities who disproportionately lost wealth during the housing bust are now disproportionately left out of the recovery, too.
Minority borrowers tend to be over-represented among lower FICO scores. That means that as credit expands (as it did during the boom), the housing market opens up to more minorities; as it contracts, it drops them. "When credit was very, very loose at exactly the wrong time, they were able to get into the market," Goodman says. "Now this is a very good time to get into the housing market, and it’s exactly a time when credit is unusually tight."
This chart, from Goodman's latest analysis with Zhu and George, illustrates how the minority share of new home purchase loans has shifted over the last decade (using data from the Home Mortgage Disclosure Act):
Between 2001 and 2005, the total number of such mortgages that went to black homebuyers jumped by 102 percent. For Hispanics, it jumped by 129 percent (the comparable number for non-Hispanic whites over the same time period was 41 percent). Then, just as dramatically as the number of mortgages to minority homebuyers swelled during the boom, it has tumbled since then.
In 2001, black borrowers represented 6 percent of all these loans. By 2005, their share was up to 8 percent. Now it's down to 5 percent. For Hispanics, the proportion shifted from 9 up to 13 percent, back down to 9 percent again. That means their share of new home purchase loans has declined even as the Hispanic share of the U.S. population has risen.
No doubt some minorities who were targeted with predatory loans during the mid-2000s saw their credit ruined as a result. But the above chart reflects a larger trend: tight credit disproportionately excludes minorities. At the beginning of a recovery – as housing prices are relatively affordable – that also means that minorities in particular are losing out on a chance to build up wealth when the breakdown of who's getting loans looks dauntingly like this: