A fight looms over down payment aid to close the racial wealth gap
Democrats are “in a hurry to put families in homes they cannot afford,” said Sen. Pat Toomey of Pennsylvania, the top Republican on the banking and housing committee.
Other critics say it would exacerbate the affordable housing problem by increasing the demand for housing at a time when supply is already at historically low levels. “It adds demand on top of already strong demand, so you’re going to drive up house prices even more,” said Lawrence Yun, chief economist at the National Association of Realtors. “It’s a gain for the current owners, not for the buyers.”
The fight exemplifies the daunting challenges Democrats face as they attempt to deliver on their promises to tackle racial inequality in the Biden era. In trying to remedy the discriminatory policies of the past by focusing on specific groups, they run the risk of creating new, unbalanced policies that alienate other Americans and could be challenged in court.
But homeownership is perhaps the most glaring area of economic disparity in the United States, and housing advocates are focused on down-payment assistance to offset intergenerational wealth disadvantages.
“We are just providing first-generation buyers, mostly people of color, what first-time white buyers have been receiving in years in the form of the ‘Daddy Down Payment’ loan – homemaking that hardly ever goes back. Said David Dworkin, president and CEO of the National Housing Conference, an advocacy group.
The median wealth of parents of young white adults, $ 215,000, eclipses that of parents of young black and Hispanic adults, at $ 14,400 and $ 35,000, respectively – giving white adults who buy their first home a much larger resource at home. tap for the first upfront payment. The difference between homeownership and parental wealth accounts for between 12% and 13% of the homeownership gap between black and white young adults, according to a study by the Urban Institute.
Now Democratic lawmakers and housing advocates are circulating proposals to help first-generation buyers buy their first homes, just as banks like JPMorgan Chase and Wells Fargo are rolling out programs with repayable down payment loans.
An estimate from the Urban Institute found that providing down payment assistance to first-generation first-time homebuyers earning up to 120% of the area’s median income would reach around 5 million people. , distributed fairly evenly among black, Latino and white households.
The most attractive plan – the $ 10 billion proposal in a housing infrastructure bill from Waters – would give housing finance agencies grants to provide up to $ 20,000 in down payment assistance. funds to first generation buyers below a certain income threshold and up to $ 25,000 if the buyer belongs to a “socially and economically disadvantaged” group. The Waters Bill includes this provision, along with massive investments in public housing and the National Housing Trust Fund.
California lawmakers have ruled that down payment assistance is a necessary remedy for “serious injustices against people of color” produced by past US policies.
“It is a sad truth that such injustices persist today, including in the form of obstacles that systematically exclude people and communities of color from equitable access to housing and property,” he said. she said this month.
While the housing industry broadly supports the plan – increasing homeownership is good for its bottom line – lobbyists raise concerns about its implementation and how a potential homebuyer’s eligibility would be determined.
There is no standard way to verify who counts as a first generation home buyer, for example, as there is no central database to track this information.
The bill defines socially disadvantaged homebuyers, who might qualify for greater credit, as individuals who identify as black, Hispanic, Native American, or Asian American, but “such a presumption can be rebutted by credible evidence. on the contrary ”, according to a draft discussion of the legislation.
The eligibility conditions have worried some mortgage lenders.
“We advocated for a safe haven to make sure people have the comfort to do that kind of identification, whether it’s for the breed or for the first generation home buyer, ”said Bill Killmer, senior vice president of legislative and policy affairs at the Mortgage Bankers Association. “We want to make sure that lenders have protections so that they are not held responsible for any errors that occur in this process of determining who qualifies.”
Republicans are outright defying racial targeting, and it doesn’t stop at housing.
On May 18, a white restaurateur, with the backing of former Trump adviser Stephen Miller, clinched a legal victory in a lawsuit against the policies of a federal small business subsidy program created by Democrats in March which also gave priority to the socially and economically disadvantaged. people. He highlighted the potential legal risks if Democrats pursue a similar approach to housing assistance.
“This is exactly what [the Federal Housing Administration] was set up to do, to redline, ”said a Senate GOP aide, referring to the sad history of government policies discouraging mortgage lending in black neighborhoods. “Now to engage in the same practice – to find out who is of a certain race and see who should get what money – politically, that’s something we absolutely oppose.”
GOP lawmakers have also expressed concern over relaxing down payment requirements, which serve to ensure borrowers have “their skin in the game” when they receive a loan. They are starting to warn that billions of dollars in down payment assistance could put homebuyers and taxpayers at risk.
Toomey, who heads housing oversight for Senate Republicans, warned at a hearing last month that “easing underwriting requirements or expanding down payment assistance programs for families low-income, especially in an overheated housing market, is a recipe [for] disaster.”
Mortgages with higher loan-to-value ratios – meaning the borrower has put less money upfront – default at higher rates, according to the government’s own data.
The severe default rate – when a borrower has not made a payment for more than 90 days – for FHA-guaranteed mortgages was 10.5% in fiscal 2019, according to the 2020 annual report of the agency. For loans receiving down payment assistance provided by the government, the severe default rate was 14.6% that year.
But down payment supporters reject the argument that government-backed financial support puts first-generation homebuyers at risk. They say young white adults also get help with down payments, but family members.
“When we talk about skin in the game, we have to recognize the skin we’re talking about,” said Dworkin, who supports Waters’ down payment proposal.
Thanks to new post-crisis regulations, loans made today are much safer than those before the subprime collapse, Dworkin said.
“The environment we live in no longer looks like 2008,” he added. “The toxic loans that caused 95% of the damage don’t exist.”
The biggest challenge – even in the eyes of advocates of down payment assistance – may be that there is just not enough homes on the market. It’s an issue Biden is also trying to address with his $ 2.3 trillion infrastructure bill, which includes funds to expand affordable housing.
The National Association of Real Estate Agents supports pairing a down payment assistance program with proposals that would boost housing supply, saying the two policies “must go hand in hand.”
“Homeownership assistance, technical assistance, down payment assistance – we are working on all of these issues because we know there are so many barriers to buying a home,” said Fudge said during a Senate hearing Thursday. “But the biggest problem is really a supply problem. So that’s the most important thing we’re working on, and it’s part of the jobs bill.