Judging the past year's success of racial equality housing initiatives

“If you don't have a clear goal of what you're trying to do, I'm very suspicious.”

Black homeownership programs don’t go beyond lip service without actionable and measurable objectives, Dedrick Asante-Muhammad, the National Community Reinvestment Coalition’s chief of membership, policy and equity, explained in an interview.

In the wake of George Floyd’s murder, companies and corporations released statements and launched initiatives focused on the country’s need for racial justice and equality. For the mortgage industry, it meant promising better representation, more Black executives and bridging the historically stagnant homeownership gap.

“It’s appropriate to hold them accountable. They’re the ones that said they’re going to do this. Without those specifics, we're just going to continue the last 50 years of maintaining deep homeownership, wealth and economic inequality,” Asante-Muhammad said.

The results one year following those promises are...inconclusive. While it’s a relatively short amount of time to repair such a large problem, the void of forthcoming lenders showcasing their positive change likely means there’s little to report, Asante-Muhammad said.

Multiple steps are needed to shift the system that has a deeply entrenched bias against people of color. Black consumers face higher mortgage denial rates, routine undervaluations, taller affordability hurdles and the compounding effects from decades of discriminatory practices.

Assigning numeric goals, even modest ones, can help to remedy this. NCRC’s recent community benefits agreements include PNC’s $16.5 billion lending commitment to minority borrowers, First Citizens Bank raising its Black mortgage totals by 35% in the next five years, and First Merchants Bank shooting for a 44% increase over that same time frame.

Rocket Cos. similarly put a plan together, with chairman Dan Gilbert committing $500 million to the city of Detroit over the next 10 years to expand access to Black homeownership. The initial $15 million erased the property tax debt from 20,000 households. Rocket also set a mandate of hiring at least 10% of its interns from Historically Black Colleges and Universities.

The rate of Black homeownership rate climbed to a 16-year high of 47% in 2020’s second quarter, but it’s yet to break through the 50% threshold. Alongside all the other demographics, the Black homeownership rate drifted downward in the first quarter of 2021 to 45.1%, according to the Census Bureau’s latest data. The gap between races has generally stayed static over time since the inception of the Fair Housing Act in 1968.

The National Association of Realtors’ 2021 Trends Report showed a slight uptick in Black home buyers, accounting for 5% of buying activity from 4% the year prior. However, the data runs from the 12 months ending in July for each year so while the latest figures pointed in the right direction, they didn’t truly capture any impacts from equality initiatives.

But the rate of improvement varied quite a bit at the regional level. While higher than the national percentages, the share of Black home buyers regressed last year in Northern Virginia, according to the Northern Virginia Association of Realtors. In 2020, Black borrowers in the area made up 6% of all buyers, 9% of first-time buyers and 4% of repeat buyers. Those fell from 8%, 9% and 7%, respectively, in 2019.

California’s Black homeownership rate followed a similar pattern, falling to 34.8% in 2020 from 36.8% in 2019, according to the Urban Institute. The research center doesn’t project much future improvement for the state either, with its Black homeownership forecast only growing to 34.9% by 2030 and 35.4% by 2040.

In the past year especially, many lenders emphasized the importance of financial education for consumers and professionals alike, to learn the mortgage process, overcome any implicit biases and help clients with flexible lending options.

While building an increased knowledge base of financial literacy can be powerful, it’s hard to quantify success in that regard. Asante-Muhammad argues that education programs have been around for decades and haven’t moved the needle. Mortgage products designed specifically for the median-income Black household would do more to grow the number of Black homeowners, he said.

In 2020, NAR lobbied the Federal Housing Finance administration to consider alternate credit scoring systems. Nontraditional things like utility and rent payments could be included in the calculation, according to NAR’s VP of demographics and behavioral insights Jessica Lautz. Due to the lack of generational wealth and lower income, Black consumers are nearly four times as likely to have a FICO score below 620 compared to white consumers, according to the CFPB.

Some mortgage shops make their primary focus minority lending. The CBC Mortgage Agency engages underserved communities to ensure at least half of its clients are Black or Latino. CBC’s portfolio consists of 55% minorities, 26% of whom are Black borrowers.

The South Jordan, Utah-based lender provides no-cost pre- and post-purchase counseling for borrowers, mandatory for those with FICO scores below 640. It also provides down payment assistance through the Chenoa Fund, which by January 2020 had financed nearly 20,000 down payments since closing its first transaction in November 2014. While CBC may be an outlier today, rapidly changing demographics could lead to more lenders adjusting their business practices.

“I would really caution everyone to not take their foot off the gas when other things start to become more of a priority or when racial unrest isn’t in the news,” Tai Christensen, DEI officer and director of government affairs for CBC, said in an interview. “By 2045, we are going to be a majority minority country. Currently, 50% of all children under the age of 18 belong to a minority racial demographic.”

The civil unrest of 2020 also highlighted the need for a united front in the fight for housing equality. To that end, the Black Homeownership Collaborative will be launching its initiative at the end of June, after about a year and a half in the works.

The BHC — made up of representatives from the National Housing Conference, National Urban League, Mortgage Bankers Association, National Fair Housing Alliance, Urban Institute, NAACP, NAR and NAREB — looks to make tangible change and avoid unproductive duplication by leveraging each other's work. While the specifics around its metrics of success will be announced at launch, the group set a goal of three million net new Black homeowners by 2030.

“We believe strongly that the entire mortgage ecosystem needs to be held accountable,” David Dworkin, president and chief executive officer of the National Housing Conference, said in an interview. “We have to both work towards minimizing the number of people who lose their homes because of the pandemic while growing the number of new ones.”

Approximately 1.7 million Black millennials have both the sufficient credit and at least $100,000 in income to be defined as ‘mortgage ready’ by Freddie Mac. Meanwhile, an estimated 20% of Black homeowners fell behind on their loans because of coronavirus hardships, according to HUD.

Dworkin knows that the BHC isn’t a silver bullet, but it’s a step in the right direction to advancing the Black homeownership rate.

“It’s one thing to train for a marathon, it’s another to complete it,” he said. “We’re running a marathon and success needs to be measured by real progress.”