Bank of America recently announced new pilot mortgage programA community-accessible lending solution that requires no down payment, mortgage insurance, or closing costs and allows for other ways to get a mortgage other than credit scores. While it is open to anyone who qualifies, regardless of race, the program is being launched predominantly with Black and Hispanic zip codes and can be seen as an attempt to narrow the racial gap in home ownership.
For now, it will be available in Charlotte, Dallas, Detroit, Los Angeles, and Miami.
This is not the first time that national lenders have announced such initiatives. And while the program will no doubt help some eligible borrowers, America won’t close its racial homeownership gap by changing mortgage product offerings. If it were that easy, we would have shut it down by now. Instead, homeownership gap The difference between black and white households is as big today as it was in 1968 when the Fair Housing Act became law.
Bank of America offers a useful option, but what good is a mortgage product if the home buying system is designed in such a way that it is difficult for people who need such a program to access it?
Bank of America offers a useful option, but what good is a mortgage product if the home buying system is designed in such a way that it is difficult for people who need such a program to access it?
We can close the racial gap in home ownership, but this will require systemic changes in our home buying process; don’t just fiddle around the edges. Understanding the home buying process holistically from start to finish and developing a more streamlined system that provides critical information about the process to people who want to buy a home is vital.
In fact, unless we fix the system, new mortgage products like Bank of America are likely to be underused. For example, requiring no down payment will not help a potential buyer if they are unable to qualify for a mortgage due to credit or debt problems. And while I commend Bank of America for expanding homebuyer credit assessment methods using factors such as paying rent, utilities, and phone bills on time, it’s important to know that it won’t be used as a way to compensate for bad credit. . . It is more of a method for borrowers who have been blocked from traditional forms of credit creation (i.e. getting credit cards or loans) to build up a sort of credit history.
Indeed, there is a difference between no credit and bad credit. And addressing the latter problem and making homeownership a reality—in a way that doesn’t lower credit standards to the point where it results in poor outcomes for families and neighbors (remember the 2008 housing crisis?)—means teaching potential buyers how to strategize for improvement. your housing. credit.
In 30 years of working with first-time homebuyers, I can’t count the number of people who were surprised to learn that yes, they can buy a house (even if they have a job to qualify for a mortgage). . Many of them were colored. There are several reasons for this surprise, but the main one is that none of their acquaintances has ever had a home. Misconceptions can also get in the way. It is common that you need a down payment of at least 20% when many programs require much less.
Between a lack of understanding of what is possible and false information, providing proper homebuyer education has become essential. And I’m not talking about the “tick” that lenders usually demand a week before a house closes. I’m talking about the kind of training that helps someone in Start Steps to Buying a Home Learn how to qualify for an affordable, secure mortgage. To Bank of America’s credit, it offers educational resources to help new buyers through the process. However, many of them seem to lack the kind of interaction and clarity that I have seen make first-time buyers more knowledgeable and confident.
Beyond the challenges potential homebuyers face, our system is not designed to ensure long-term homeowner success. Foreclosure rates for Black and Hispanic households are disproportionately higher than for white households. While this won’t eliminate all of the overt discrimination and microaggressions that cause families of color to lose their homes, part of the education process should prepare people to develop saving habits and properly manage household finances. This is incredibly important because new homeowners who used to be tenants are often unprepared for unexpected expenses, such as repairs that their landlord should have been responsible for. When the time comes, the homeowner will need sufficient savings or the ability to take out a loan for necessary repairs. We should teach people how to develop these habits when they are interested in buying a home, but such training is rarely integrated into the home buying process.
Beyond the challenges potential homebuyers face, our system is not designed to ensure long-term homeowner success.
But there are other flaws in the system that have nothing to do with the financial situation of the homebuyer. For example, the vast majority of loan officers and realtors receive commissions based on the price of the home and the size of the loan. Imagine that you are a buyer who qualifies for a good mortgage (with a fixed interest rate, affordable interest rate and reasonable fees), but you cannot hire a loan officer or realtor to help you because what you can afford, too little. to get their attention. It’s not uncommon, especially when the housing and refinance markets are really hot and realtors and loan officers are chasing big sales. We can solve this problem by ensuring that at least some homebuyers are paid salaries, not commissions. Households should not be penalized for staying within their means.
