The Federal Reserve Board and community development financial institutions (CDFIs) have a shared goal: to increase economic opportunity for low-income individuals. That was the message that Fed Chairman Ben Bernanke delivered to members of the Opportunity Finance Network's annual conference in Washington on November 1.
Through the Fed's active engagement in financial literacy programs, community outreach efforts, and via aspects of regulating banks and financial markets, and research in regional economics, the Fed, like CDFIs, supports local economic development, Bernanke said.
In the past decade, Bernanke said there have been notable gains for low-income Americans in terms of key indicators of economic opportunity--particularly in access to credit, homeownership rates, and small business development. Moreover, he noted, "As measured by these indicators, recent improvements in traditionally underserved markets appear to have been as great as or greater than those in middle- and upper-income households and communities. At the same time, however, the gaps between lower-income households and other households with respect to these measures of opportunity remain wide."
For instance, Bernanke pointed out that the growth of subprime mortgage lending is one indication of the extent to which access to credit has increased for all households, including those with lower incomes. In 1994, he said, fewer than 5% of mortgage originations were in the subprime market, but by 2005 about 20% of new mortgage loans were subprime. However, although subprime lending has grown, he questioned whether prime credit products are made available equally to all types of communities, and whether lower-income borrowers are matched with credit products and loan terms that fit their circumstances.
Also, Bernanke cited recent mortgage price data collected under the Home Mortgage Disclosure Act (HMDA), which shows that blacks and Hispanics are "considerably more likely" than other types of borrowers to receive higher-priced loans.
That said, expanded access to credit has fueled growth in homeownership, he said, with all major racial and ethic groups making gains in homeownership. Percentage wise, the largest increases have been among minority households. For instance, since 1995 the homeownership rate has increased 7% among white households, 11% among black households, and 19% among Hispanic households, he said.
As for small businesses, Bernanke said that "between 1997 and 2002, the number of businesses owned by Asians, blacks, Hispanics, and women grew more than 20% for each group--more than twice the national rate of increase for all businesses." Nevertheless, challenges still persist for small businesses. Each year, he said, about half a million firms close, in some cases because of difficulties obtaining credit.