Building the goal of increasing minority home ownership
As we celebrate Black History Month, it’s important to remember why mortgage and housing finance systems need to focus on black homeownership. Owning a home helps to increase financial security, strengthen family and community stability, and create intergenerational wealth. According to United States Census Bureauthe Black and Hispanic homeownership rates are 43 and 48 percent, respectively, compared to 74 percent for white households. Many have noted that this racial gap grew alarmingly even after the Fair Housing Act was enacted in 1968, when explicit racial discrimination was legal. While the industry has focused on ways to close this racial gap, there is still much to do.
To better identify and highlight the biggest homebuying challenges for borrowers today, US Mortgage Insurers (USMI) conducted a national survey last June. the National Homeownership Market Survey found that black respondents are more likely to perceive greater challenges during the home buying process, with credit scores, existing debts and the inability to pay a down payment being identified as the main obstacles. Nearly 60% of black respondents said they spent more than 30% of their income on housing and were more likely to worry about housing payments. Meanwhile, white respondents are three times more likely to say there are no barriers to homeownership.
Additionally, nearly 70% of all survey respondents said that the lack of affordable housing was the biggest challenge in buying a home. As house prices continue to soar as available inventory remains limited, stress surrounding the desire to buy a home among minorities is likely to increase. According to the Federal Housing Finance Agency (FHFA) Housing price index, housing prices increased by 17.5% in 2021. National Association of REALTORS® Trust Index Survey found that the market share of first-time buyers fell to 26% and nearly one million renter households were priced out due to rising house prices.
The persistent racial gap must be closed, and we should work to accelerate efforts to bring sustainable homebuying within the reach of more Americans. Fortunately, this challenge is getting the attention of housing and mortgage finance experts and policymakers, including FHFA Acting Director Sandra Thompson. As the curator of Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, the FHFA has released a Contribution request (RFI) on fair housing finance plans and has included fair housing as a pillar in its project Strategic Plan 2022-2026.
In its RFI, the FHFA set out a framework within which GSEs will be required to prepare and implement three-year plans to advance equity in housing finance. FHFA’s actions are commendable, but the specifics on how to address homeownership are important. This is why USMI urged FHFA will use targeted, data-driven approaches to reduce barriers to affordable mortgages for minority households.
The issues faced by minority borrowers and other underserved borrowers are complex, multifaceted, and vary by geography. Addressing them requires being very specific about identifying the borrowers served, their specific problems and target outcomes. In addition, there should be consistency in how government and GSEs approach initiatives related to access to housing finance. These initiatives should aim to increase sustainable access to credit for borrowers most in need, while reducing credit risk. Whether FHA or FHFA, policies should also be aimed at not fueling additional demand in the market, which would not drive up prices, which has an acute impact on income borrowers. low or moderate.
Here are some key areas that the housing industry and policy makers should focus on: 1) the production of affordable housing; 2) financial and home ownership education and awareness; and 3) a holistic review of GSE pricing, including a review of the 2008 Loan Level Pricing Adjustments (LLPAs), which disproportionately impact minority borrowers.
Finally, there should be greater transparency around GSE credit policies, underwriting technologies, and performance in key areas, including access to credit for minority households. Data and other factors that contribute to decisions that impact the GSE credit box should be publicly available to better inform policies and mortgage products regarding access to credit. Increased transparency will encourage greater collaboration between policy makers and industry players and foster policies that can bring balance between supply, demand and affordability.
Minority buyers represent those who will increase home ownership in America in the decades to come. As an industry that exclusively serves homebuyers with limited access to funds for large down payments, we believe the issues and challenges facing these borrowers today will require significant collaboration to ensure they have access to sustainable and affordable financing.
Lindsey Johnson is the president of the US mortgage insurers (USMI), which represents the nation’s leading private mortgage insurance (MI) companies.