The number of Long Islanders getting home loans has fallen by nearly two-thirds since 2005 -- when the housing market was heating up -- according to federal housing data.
Low-income and minority communities were especially affected, with fewer than a dozen home loans approved in some neighborhoods in 2011, compared with the hundreds each year that were originated just six years before.
Mortgage market experts attribute the lending downturn to far tougher loan standards, combined with higher unemployment rates, lower incomes and lower credit scores in pockets of the region, as well as home value declines. What's more, Long Islanders have become far less likely even to apply for loans, the data show.
The falloff in lending could make it even more difficult for many economically struggling Long Island communities to make a comeback.
Before the crash, many Long Islanders borrowed against their home equity to fuel spending on goods, services and day-to-day expenses. Those dollars then helped to grow a wide variety of industries from construction and interior design to retail and tourism.
That no longer appears to be possible on such a large scale.
"The housing market was largely responsible for the [economic] growth we saw just prior to the recession on Long Island, and it was phantom growth. It wasn't real growth," Long Island Association chief economist Pearl Kamer said.
Now, she said, "We're not going to get out of this housing crisis without pain, but hopefully we will learn from it."
Long Islanders borrowed just $12.1 billion to purchase, refinance or make improvements to homes in 2011, the latest year for which federal statistics are available, compared with $31.8 billion in 2005, according to a Newsday analysis. The federal data behind the analysis were provided through the Home Mortgage Disclosure Act, known as HMDA. Just over 40,000 loans were approved Islandwide in 2011, compared with almost 120,000 in 2005.
Newsday tracked lending trends from 2005 to 2011 in order to examine the years of rising prices and lax lending and the years of tightening that followed the housing crash.
The data showed that, for the most part, denial rates have not increased significantly. Instead, area residents are far less likely to apply for loans at all. The result: a lack of home buying and home lending, especially in minority and low-income areas, that then leads to less economic activity.
No lending in some areas
Lending is now virtually nonexistent in some Long Island neighborhoods. U.S. Census tracts in communities from Central Islip and Brentwood to Hempstead and Roosevelt had hundreds of loans originated in 2005, while in 2011, they had fewer than 30, the data showed. In one census tract in Wyandanch, for instance, 307 home loans were originated in 2005. In 2011, that number was just 13.
New loans to blacks and Hispanics across Long Island sank 86 percent from 2005 to 2011, compared with a 56 percent drop for whites during the same period, the data showed. Newsday's analysis found minorities were less likely to apply for those loans in the first place.
"It's devastating," said Elaine Gross, president of Erase Racism, a Syosset-based organization that promotes equity, of Newsday's analysis of the data. "It may be telling us a really horrible story about just how badly blacks and Latinos were hit with the economic downturn."
Gross said she worried that financial institutions have overreacted in response to the housing market's collapse.
Lenders, she said, should not "suddenly say that we shouldn't have mortgages available in those communities."
But Bethpage Federal Credit Union chief executive Kirk Kordeleski said lenders are handling the changing market appropriately, for the most part.
"The people that are in a more stretched position aren't getting loans regardless of what neighborhood they're in," said Kordeleski, whose credit union specifically advertises in underserved areas.
Prime loans drop off
The lending decline isn't limited to the higher-fee, higher-interest rate loans known as subprime, the data showed. While subprime lending has all but disappeared on Long Island, there was also a big drop-off in the number of standard, or prime, loans. The number of prime home loans fell by 52 percent since 2005, the data showed.
Overall, the decline in lending is "staggering," said Michael McHugh, president and chief executive of Continental Home Loans in Melville. "It also shows what a go-go time the 2005 and 2006 market was. . . . Every part of the business I would say was very aggressive back then, way overly aggressive."
Lenders used to be far too lenient in granting loans, but they may now have become overly strict, some in the industry said.
"The pendulum has swung from one side to the other," said McHugh, who chairs the Empire State Mortgage Bankers Association, a trade group. "Has it swung too far? Probably."
The effect on communities is severe if people aren't borrowing to improve their homes or aren't buying homes in the first place.
That's especially true for homeowners who haven't been able to refinance to lower interest rates, Kordeleski said.
"It does have a negative effect on the local economy," he said. "That's not putting money in people's hands to spend."
Requiring home buyer counseling as part of the purchase process might encourage both borrowers and lenders, said Carol Yopp, a foreclosure prevention counselor at the Long Island Housing Partnership.
But the drop-off in lending remains worrisome, Yopp said: "We don't want everybody to be living in a ghost town."