Access to Capital: Promoting a More Equitable Future

On March 30, 2023, Penn IUR and Reinvestment Fund co-hosted the 5th Annual Jeremy Nowak Memorial Lecture online. The event, Access to Capital: Promoting a More Equitable Future, explored the financial structures that further inequity in cities and also proposed solutions to address them. Moderated by Wendell Pritchett, James S. Riepe Presidential Professor of Law and Education, University of Pennsylvania, the panel included George “Mac” McCarthy, President and CEO, Lincoln Institute of Land Policy; Kerry Smith, Senior Staff Attorney, Community Legal Services; Jillian White, CEO & Founder, Appraisal Insights, and featured opening remarks by Donald Hinkle-Brown, President and CEO of the Reinvestment Fund and Eugenie L. Birch, Co-Director, Penn IUR. 

The conversation began with an overview of the American mortgage appraisal system. Jillian White is a young, BIPOC female appraiser in an industry that is 97 percent white, 70 percent male, and 66 percent at or near retirement age. White realized how much identity mattered, both as an appraiser and as a homeowner when she “whitewashed” her parents’ home to sell it. The experience illustrated how the appraisal industry was biased against people of color, thereby reducing the wealth that Black and brown communities build. 

“Imagine for a moment your own home. Your home for most people is the largest wealth vehicle. And so think of the wealth being locked up in the home, and there needs to be a key to unlock it.That appraisal is the key,” White said.  “There's certain neighborhoods where, consistently the homeowners are able to get appraisals that unlock their wealth, and they have access to this capital which they can reinvest in their communities. But on the flip side there are communities that consistently are unable to access capital, and so the home owners do not have access to wealth, and and are not able to reinvest in their communities in the same way. And so over the generations what will happen is the communities that have access to this unlocking of wealth tend to increase or appreciate over time, whereas the communities that don't have access to this unlock tend to either stagnate or depreciate over time.” 

But White notes that things are changing. By reducing the amount of discretion in the appraisal process, there is less room for bias. By diversifying the appraisal industry, communities that have been undervalued now have a chance to access more capital. 

Next George McCarthy asked how to move beyond just identifying the flaws of our system to actually introducing successful remedies. “Who is in a position to shepherd that process of detecting the market failures and then getting to those remedies?...How do we get from systemic failure to systemic solutions?” McCarthy asked. He noted that simply offering communities capital after they have been long denied sufficient support isn’t enough. McCarthy noted Reinvestment Fund as a sustainable solution in that it provides not just capital, but solutions, data, and other resources that help communities thrive. 

Kerry Smith addressed inequitable communities from the perspective of a lawyer who is pursuing a particular predatory scheme by the company, MV Realty, that preys on communities of color in Philadelphia and other cities in the United States. 

Smith said it was important to not only increase access to capital, but also ensure that “predatory practices don't erode any of the gains that we've made, and that that second component is so critical because financial predators are so creative at developing new schemes designed to extract the wealth and equity that people have worked so hard to build.” 

Smith explained that MV Realty “was operating a predatory home-equity-stripping scheme, tricking homeowners into giving up thousands of dollars of their most valuable asset, their home. The company essentially promises homeowners, just a few hundred dollars of quick and easy cash, but then traps them into a mortgage through which they'll be paying thousands for any transfer of their home over the next 40 years.” The scheme is operating in 33 states, and was flourishing here in Philadelphia, where the company recorded over 500 mortgages in the last two years, the vast majority of which are in Black and brown neighborhoods. 

McCarthy added that not only are predatory schemes a problem, but so are institutional buyers. An estimated 15 to 20 percent of single-family home transactions are executed by institutional investors buying owner-occupied housing and converting those homes to rental housing.

“The reason they're doing is because rental markets have gotten so tight that rents are going up… and then what they're trying to do is find ways to to extract rent and raise the asset value of the neighborhood, but for the investors, not for the residents.” 

McCarthy called on the public sector to start to acquire or require the city get "first refusal" on properties to make sure they don't slip into institutional investors’ hands. He gave the example of Cincinnati’s redevelopment authority which has purchased properties from investors, fixed them up, and resold them to moderate income families.

Smith added that the most affordable home for many people is the one they are in. She cited the Whole-Home Repairs program in Pennsylvania as an example of a way to help homeowners improve their homes, build wealth, and contribute to that goal of more equitable communities.