QM patch's end, recession could set black homeownership back further

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With the qualified mortgage patch expiring and a recession likely, wealth inequities that have hurt black and millennial homeownership could worsen, according to a National Association of Real Estate Brokers report.

"A recession will likely push the rate of black homeownership below 40%, approaching levels not experienced since the 1950s," NAREB said in a press release summarizing on the latest annual report it commissioned on the topic.

The authors of the NAREB report also are concerned that the QM patch's removal could add barriers to wealth creation that inhibit lending and homeownership because the patch helps maintain a relatively low level of pricing for many loans made to borrowers with higher debt-to-income levels.

The patch's planned expiration in 2021 is "a looming threat to credit availability, particularly for minority and lower-income borrowers," according to the report.

The patch is an exemption that government-sponsored enterprises Fannie Mae and Freddie Mac currently have from the QM rule. Without the patch, GSE loans would need to have conservative characteristics like maximum DTIs of 43% or lower to be considered qualified mortgages that get a safe harbor from ability-to-repay liability. If the temporary QM exemption expires as planned, the GSEs and lenders might charge more for higher DTI loans to price for the relative increase in risk involved.

The ratio of high DTI loans to low DTI loans based on the QM standard is higher for minority groups, according to a recent analysis of Recursion Co. data by the Urban Institute's Housing Finance Policy Center. That ratio is 1.29% for blacks, 1.34% for Asians and 1.38% for Latino borrowers. The equivalent for white borrowers is 0.93%.

Potential constraints on lending to minorities due to higher DTIs or a recession have ramifications for mortgage companies' ability to serve millennials and other upcoming generations where the share of black and Latino borrowers is higher than in the past.

Among millennials and post-millennials, this share is 14%, up from 13% for Generation X, 11% for the baby boomers, and 8% for the Silent Generation, according to an analysis of Census data in the report.

The authors of the report are James Carr, a Wayne State University professor and an executive at Turquoise Bay Investment Partners; Michela Zonta, a senior policy analyst at the Center for American Policy; Steven Hornburg, a principal at Emerging Community Markets; and William Spriggs, chief economist for the AFL-CIO and a professor and former chair of economics at Howard University.

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