Home Mortgage Trend Analysis

Why is this important?
Despite high home prices, high housing costs and anemic new construction on Long Island, homes continued to sell at record levels through  2006 and did not drop off until mid-2007.  In part the expansion of the real estate market was due to a national trend to make credit more easily available.  In some cases mortgages were made possible to prospective home buyers who did not meet the traditional credit thresholds by offering higher than usual interest rates, referred to as “subprime loans.”  Learning who received these loans and how many were made are critical facts to understanding which communities are most at risk of losing their homes through foreclosure.

How are we doing?
High-cost loans are defined as those which exceed the federal Treasury rate by three percentage points or more for a Treasury security of comparable maturity.  Subprime loans are those loans where the recipient is considered a higher risk of potential default due to a lower credit score.  While not all high-cost loans are subprime, the relationship is consistent enough that many housing researchers now use high-cost as a proxy for subprime.  Based on data collected under the federal Home Mortgage Disclosure Act (HMDA), high-cost loans on Long Island rose from 12% of all mortgages in 2004 (the first year for which data is available) to 35% of all mortgages just two years later.   In fact, during the four year period from 2004 to 2007, high-cost loans accounted for 24% of all mortgages on Long Island.

The subprime market did help to diversify Long Island’s housing market with an influx of non-White home buyers.  From 2004 to 2006 there was a steady and substantial increase in the number of Black and Latino homebuyers coupled with a decrease in White homebuyers.  However, the loans that the majority of Blacks and Latinos were obtaining fell into the high-cost category.  The percentages across race/ethnicity categories of prime loans were relatively consistent throughout this period.  But the proportion of high-cost loans purchased by Whites was relatively small to begin with (less than 40% in 2004) and fell to less than 30% in 2006.  The percent of high-cost loans to Blacks, Latinos, and Asians grew from 50% to almost 60% in the same time.

As the economy weakens and the terms of many of the high-cost loans are resetting, recent evidence from the Federal Reserve Bank of New York and the U.S. Department of Housing and Urban Development indicate that Long Island's communities of color are at greatest risk of foreclosures.  In an August 2008 study based on the Federal data, by Empire Justice Center on the impact of foreclosures on the Black community in particular, they found that in Nassau County, Black homeowners are four times more likely to live in the most impacted ZIP codes than White homeowners.  In Suffolk County, Black homeowners are three times more likely to live in the most impacted ZIP codes than White homeowners.  Similar statistics for Latino homeowners were not available.