Low-to-moderate income borrowers can add $300 billion in originations

Scores of low-to-moderate income consumers represent an untapped client base for the mortgage industry, but a lack of clear strategies to reach them is leading both sides to miss out on benefits.

In a market where the next cohort of new first-time home buyers is forecasted to be 44% minority — as well as 70% of net new households over the next decade — outreach to these communities should be front and center, according to Anthony Weekly, chief community reinvestment act officer at Truist. The mean net worth of white households is almost five times higher than of Black and Hispanic families, according to the Federal Reserve's 2019 Survey of Consumer Finances.

“You all have to know and understand that this is a business imperative,” he said at the Mortgage Bankers Association convention. "If you don't get it right, at a minimum, you're going to lose market share, and you may be out of business.”

While numerous programs exist to assist potential LMI buyers, many do not realize they may already qualify for a mortgage or down payment assistance. Approximately 32 million renters under the age of 45 are mortgage ready but think that a home purchase is beyond what they can afford.

“There's also a population of people that are potentially mortgage ready, or could be mortgage ready with a little bit of help, and they're not aspiring to homeownership, because it's just not been on their radar,” said Robert Chrane, CEO of Down Payment Resource.

Changing the mindset of this consumer segment is a key first step toward achieving homeownership and helping close current wealth disparities, according to the MBA conference panel. Getting them to view it as a viable financial goal is a substantial first hurdle to overcome.

Results of TransUnion’s Consumer Pulse Survey released this week showed that almost half of consumers with credit scores in the 601-660 range incorrectly assumed their scores were too low to qualify for a mortgage. Many would likely be eligible for a loan sponsored by the Federal Housing Authority or backed by government-sponsored enterprises. And 50 million LMI consumers have credit scores above 680, while 25 million fall between 620 and 679.

Roughly 120 million consumers — equivalent to approximately 50% of the country’s credit-active population — are considered low-to-moderate income consumers. Three out of the four states with the most population, California, Texas and New York, are also majority low-to-moderate income.

But some presume low income levels are an automatic dealbreaker. “It's amazing how an individual's circumstances, especially through poverty, can be traumatic, to the point where things that we think of as just general financial goals just seemed too large to conceive.” said Sonja Nelson, vice president, resident initiatives, Columbus Metropolitan Housing Authority. The organization assists home buyers with the Department of Housing and Urban Development’s voucher homeownership program.

“And so we start having that base conversation of, ‘Well, what is your goal?’ Normally when we have the goal-type conversation, they start feeling comfortable about eventually sharing homeownership, but it seems so big that they are almost embarrassed to even say that is an option.”

Reaching these potential new clients also requires willingness among lenders and businesses to adjust their mindset and maybe even some parts of their business model as well to come up with solutions-oriented approaches.

“There's a trend towards speed,” said Chrane.” It's driven by consumer demand. It's driven by economics of cost efficiencies, and it's enabled by technology. But that speeding and scaling and standardizing things doesn't necessarily work for some of these new populations that we're talking about.”

While the positive financial outcomes of serving LMI borrowers may take more time to develop for lenders, the relationships bear fruit in the longer term, especially for those businesses who offer products beyond mortgages, Nelson said.

“While homeownership to those groups, primarily might not feel like it's enough skin in the game for some lenders to actually participate, but that relationship of that borrower — at that time — is a long-lasting one,” said Nelson, drawing from her own experience.

“They're going to continue to grow, and their incomes are going to increase. And they're going to be able with their higher incomes make financial decisions, and they're going to look back to say who supported me at that time,” she said.

The economic effects of higher homeownership rates across all income levels would also be felt far beyond the housing industry as well, according to Weekly. The latest homeownership rates from the U.S. Census Bureau shows the white population at 74%, with Hispanics at 49% and Blacks at approximately 45%.

“We need a marketing campaign that goes across this country talking about homeownership, because when minorities get to the same rate as Caucasians homeownership, we're a better country,” Weekly said. “They would have money to finance their small business, put their kids to college, and provide for their education.”