State and Local Programs to Advance Homeownership Opportunity to Narrow Racial Disparities

Racial Inequities in Housing Spur Multi-Faceted Response

By Stephen Kleege

Racial inequities in housing have persisted in the fifty-four years since enactment of the Fair Housing Act, spurring a raft of federal and local initiatives to close the gaps, panelists said at a series of webinars cohosted by the Federal Reserve Bank of Philadelphia, the Penn Institute for Urban Research, and the Urban Institute.

“These programs are long overdue, given our nation’s long history of discrimination,” said Lisa Rice, President and Chief Executive Officer of the National Fair Housing Alliance (NFHA). “Our civil rights laws are focused on stopping discrimination at the transactional level. They’re not fully designed to dismantle inequitable systems and then replace them with systems that are fair and equitable.”

The series, Advancing Homeownership Opportunity to Narrow Racial Disparities, started on May 17 with a panel discussion of federal programs, moderated by Laurie Goodman, Institute Fellow at the Urban Institute. Penn IUR Co-Director Susan Wachter moderated a second panel that day that focused on leveraging the federal programs. The series continued July 12 with a discussion of state and local programs, moderated by Janneke Ratcliffe, Vice President, Housing Finance Policy Center, Urban Institute. The final session, moderated by Lei Ding, Senior Community Development Economic Advisor at the Philadelphia Fed, focused on ways to keep families in their homes amid rising prices, gentrification, and periods of economic disruption like the COVID 19 pandemic.

According to data presented at the webinars, the racial homeownership gap has been widening. The Pennsylvania Housing Finance Agency (PHFA) found the black homeownership rate in the state was only 43 percent in 2021, while the white rate was 73 percent. Only 3.8 percent of well qualified white applicants for home loans in the state were being denied mortgages, compared with 10 percent of well-qualified black applicants. Such inequities add to the gap in overall wealth in a society where white families have about eight-times the net worth of black families on average.

“There’s not one reason for the disparities,” Goodman said. “Certainly, differences in wealth, income, and education play a role, but improvement in the mortgage process could move the needle substantially in closing these gaps.”

Melody Taylor, executive director of the Property Appraisal and Valuation Equity (PAVE) Task Force at the U.S. Department of Housing and Urban Development (HUD), kicked off the discussion with a report on the task force’s action plan, issued in March. The plan focuses on making the appraisal industry more accountable; empowering consumers on steps they can take if they receive an inaccurate valuation; preventing algorithmic bias; and cultivating an appraisal profession that’s well trained and looks like the communities it serves. The appraisal profession is about 97 percent white, Taylor said. The task force is considering alternatives to traditional appraisal methods, including increased use of range-of-value estimates and modifications to the sales-comparison approach, she said.

Special purpose credit programs give lenders an opportunity to serve communities that have been shut out or disadvantaged in securing loans, said Frank Vespa-Papaleo, Deputy Fair Lending Director, Consumer Financial Protection Bureau. While the Regulation B of the Equal Opportunity Credit Act prohibited lenders from collecting data on race that could be used to discriminate, it also allowed credit assistance programs authorized by federal or state law for the benefit of a disadvantaged class. Special credit programs have been authorized for 45 years but were underutilized before HUD guidance was issued last year.

James Wylie, Associate Director for Fair Lending at the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae, Freddie Mac and the Federal Home Loan banks, said one common sense way to expand credit to first-time homebuyers would be to consider rental payments as part of their credit histories. Stacey Shifman, Senior Director, Single-Family Analytics and Modeling at Fannie Mae, said fewer than 5 percent of renters currently have rent payments included on credit reports, but the agency’s desktop underwriter is now incorporating rental history as part of mortgage credit evaluation. Roughly 50 percent of applicants that have benefited from the program identify as minority buyers, she said.

Freddie Mac is offering loans to help finance renovations and environmental upgrades, said Simone Beaty, Senior Director, Affordable Lending. Most of the adoption so far has been on the Freddie Mac’s GreenChoice Mortgages, with about 30 percent of the $870 million in loan volume so far going to minority borrowers.

These federal programs “in and of themselves are not sufficient to address the gap that exists,” said Reza Aghamirzadeh, Executive Vice President and Head of Community Development, Citizens Bank. “There has to be a secondary market.”

NHFA’s Rice said special purpose credit programs giving down-payment assistance to first-generation homebuyers need to be funded at $100 billion, which would serve about five million consumers, 70 percent of them households of color. That would be enough to bring the black homeownership rate to about 50 percent, she said.

Robin Wiessmann, Executive Director and CEO of PHFA, said agency was working on a homeownership pilot project to increase minority homeownership in targeted areas of Pittsburgh and Allegheny County, and had just received a $500,000 philanthropic grant to kick off the program. The agency is committing $5 million, which will amount to about 190 loans.

“When you think about advancing home ownership within black and Hispanic communities, it is not national, … it’s local,” Cerita Battles, Managing Director, Head of Community and Affordable Lending at Chase, said at the July 12 webinar. The bank has national strategy that can be “that can be applied and executed locally,” including hiring a diverse staff; building a presence in local markets; making sure Chase’s correspondent bank is seeding liquidity back into markets to smaller lenders; and partnering with local realtors, builders, and non-profits. Among Chase’s products, she said, is a special purpose credit program that provides a $5,000 grant toward down payments and closing costs on qualifying properties in black and Hispanic communities.

Wendy Penn, Associate Vice President, Mortgage Bankers Association, outlined the group’s Convergence program, designed to close gaps in information in the black community and help boost housing supply. The MBA has Convergence programs in Memphis, Tennessee, and Columbus, Ohio, and plans third in Philadelphia in January. MBA is working to create a framework for lenders to develop special purpose lending programs, she said.

The Massachusetts Affordable Housing Alliance is providing down payment assistance to first-generation buyers through its Saving Towards Affordable Sustainable Homeownership (STASH) program. “First generational buyers … don’t have the bank of mom and dad,” said Symone Crawford, executive director of the Boston group. Enrollees are challenged to save $2,500 of their own funds, she said, while receiving HUD-approved homeowner training to qualify for $5,000 grants toward their home purchases. So far, the program, initiated in 2019, has 319 participants, of whom 94 percent are people of color, Crawford said.

Ryan Ambrose, Director, Neighborhood Preservation Initiative, Philadelphia Housing Development Corporation, said the quasi-public agency has $400 million bond program to help maintain homeownership and develop affordable rental units and homeless housing. The bond program is funding relaunch of Philly First Home, a homebuyer assistance program that grants $10,000 or 6 percent of the home’s purchase price, whichever is less, to assist first-time buyers with down payments and closing costs.

Panelists in the final session focused on programs to help families of color to stay in their homes amid soaring home prices, higher interest rates, gentrification, and increasing foreclosure rates following the COVID 19 pandemic.

“The same house that cost $411,000 in 2020 is now going for $557,000,” said Melanie R. Walter, Executive Director, New Jersey Housing and Mortgage Finance Agency. The New Jersey agency’s Emergency Rescue Mortgage Assistance program, funded with $326 million of federal money, helps homeowners catch up on back mortgage payments and on utility bills that can result in liens. The agency has also worked with the courts trying to prevent foreclosure on more than 4,000 mortgages, an effort that’s kept 65 percent of the participating families in their homes, Walter said.

Stephanie Moulton, Professor, Ohio State University, outlined Power of Home, an unsecured loan program that helps homeowners borrow up to $10,000 for home repair loans without putting their equity at risk. Instead of financing such expenses with an expensive credit card or personal loan, borrowers pay just 3.99 percent in interest, because the Ohio Housing Finance Agency program has set up a loan loss reserve to offset the risk to Huntington Bank of making the loans, she said.

To help keep families in their homes as property values rise in gentrifying neighborhoods, policy makers need to find ways to provide property tax relief while maintaining the flow of money for public services, said Adam H. Langley, Associate Director, Lincoln Institute of Land Policy. First, local governments can cut tax rates as property values rise. While home values have grown nearly 40 percent in the past two years, he said, property taxes have risen only 8 percent. He also recommended circuit breakers, which target relief to those paying the highest share of their income in property taxes.