Bank of America Tests No-Down-Payment Mortgages in Black and Hispanic Neighborhoods
Jenny Gross - NYT
Bank of America is offering mortgages for first-time homeowners that do not require down payments, minimum credit scores or closing costs in a program that aims to boost homeownership rates among first-time Black and Latino buyers.
Under the trial program, which was announced on Tuesday, Bank of America will offer loans to people in certain predominantly Black and Hispanic neighborhoods in Charlotte, N.C.; Dallas; Detroit; Los Angeles and Miami. Eligibility for the program, which is called the Community Affordable Loan Solution, is based on income and location, and requires no mortgage insurance.
AJ Barkley, the head of neighborhood and community lending for Bank of America, said the goal of the program was to help individuals and families, particularly Black and Hispanic people, build wealth over time.
“It allows us to revitalize minority communities,” she said in an interview, noting that anyone looking to buy a home in one of the designated neighborhoods could apply for a loan under the program. She said that the bank aimed to expand the program to other cities in the future, and that it was also offering educational resources to help buyers navigate the process.
Black and Hispanic homeowners face a number of additional obstacles when buying homes compared with white homeowners. According to U.S. Census Bureau data for the second quarter of this year, the national Black homeownership rate was at 45 percent, while the rate of white
Rashawn Ray, a senior fellow at the Brookings Institution, said Bank of America was taking a big step in the right direction.
“This is forward thinking, and something that’s important to do,” he said. The bank’s decision to not require a minimum credit score was also key, Dr. Ray said, since Black people have been excluded from some credit-building opportunities. It was also critical that
Bank of America was not requiring down payments, which can be a major barrier for Black buyers, who are less likely to have help from their families or other means, such as proceeds from the sale of another property.
Banks have contributed to racial gaps in homeownership rates by approving fewer loans with less favorable terms for Black applicants than for white borrowers with similar credit profiles, Dr. Ray said. It’s important, he added, that more financial institutions take steps like the one Bank of America has announced to correct the inequalities of the past and to be part of the solution.
“When we have the same income, the same amount of money to put down and similar credit scores, we’re less likely to not only receive a loan, but also less likely to receive a better interest rate,” he said. In 2011, Bank of America agreed to pay $335 million to settle the Justice Department’s allegations that its Countrywide Financial unit charged higher rates and fees to around 200,000 qualified Black and Hispanic borrowers “solely because of their race or national origin.”
A Bloomberg News analysis in March of federal mortgage data found that Wells Fargo approved only 47 percent of refinancing applications filed by Black homeowners in 2020, compared with 72 percent of applications submitted by white homeowners.
The term “redlining,” which refers to the practice of denying mortgages in predominantly Black neighborhoods, comes from government homeownership programs created under the 1930s-era New Deal that offered government-insured mortgages as a form of federal aid. As the programs evolved, the government used color-coded maps and an alphabetical ranking system to identify the riskiest investments. Most of the neighborhoods given a “D” rating, indicating the most risky investments, were marked in red, and the Black residents who lived in those areas had a harder time getting government-backed loans. In 1968, the Fair Housing Act banned racial discrimination in the sale and rental of housing for both government and private companies. But disparities in access to mortgages have persisted for decades, according to researchers.
According to the National Association of Realtors, a trade association for real estate professionals, the pandemic exacerbated the racial homeownership gap, with rising housing prices and low supply affecting Black households more than any other racial group. In a report published in January, the National Community Reinvestment Coalition, a fair-lending advocacy group, found that the private mortgage market was providing loans in only 13.7 percent of low- and moderate-income neighborhoods, even though they represented 30 percent of neighborhoods.
Chris Herbert, the managing director of the Joint Center for Housing Studies at Harvard University, said that the Bank of America program could go a long way toward helping low- and middle-income people and families buy homes, since a lack of savings for a down payment was a big barrier. “In that respect, it is significant,” he said.
Tracking and monitoring the results of the pilot program, he said, would be key to determining which groups are participating, whether residents are getting good opportunities to own homes and what impact the program is having on communities. “Those are open questions,” he said.