Black homeownership – what are the issues?

Several programs have been implemented to help increase the level of homeownership among Black borrowers – steps intended to correct a grim legacy of discrimination as it relates to lending. Yet numerous roadblocks remain to prevent borrowers of color securing financing to buy homes – from mortgage brokers unwilling to visit low-income neighborhoods to educate would-be homeowners to the very algorithms in place to determine creditworthiness.

Janine Kempfer (pictured), broker/owner at Colorado-based Prime Mortgage, acknowledged the fight to achieve higher levels of homeownership for Black borrowers continues. For her part, it’s not from lack of trying. In addition to tackling the issue personally, she promotes equity with her work at the Association of independent Mortgage Experts (AIME) where she is part of the executive leadership team.

“I intentionally engage in community-based groups,” she told Mortgage Professional America during a telephone interview. “Like there’s a group here in Denver called Black in Denver. They do a great job of putting together different social events.” The accessible format enhances attendance levels, she suggested. There’s also a monthly women’s brunch that continues to grow in popularity, featuring speakers promoting Black homeownership.

“We did a vision board brunch, and I actually spoke at that as a mortgage professional,” Kempfer said. “I said: Homeownership is a dream that you’re probably putting on your dream board. Let’s talk about that. So on a really local, grassroots kind of level, getting face to face with people so you’re not just barking information – you’re really getting to hear what people are talking about and then tailoring what you can teach to the community, based on what the community needs.”

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It’s during these forays into communities that Kempfer sees the results of neglect. “The more that I get out there and do outreach to educate people, the more surprised I am at how much education is needed. When you’re out there talking to people, it’s alarming how much people don’t know about getting financing for a new home.”

Part of the reason is a general reluctance by other mortgage professionals to enter such communities, knowing the commission based on a home someone of a lower-income strata might secure is considerably lower than the norm – and not worth pursuing at all, Kempfer suggested.

Exacerbating that neglect is a lack of understanding some lenders have on recently emerged programs designed to increase Black homeownership. She invoked programs offered by the GSEs as examples:

• The Fannie Mae HomeReady® mortgage program catering to lower-income homebuyers lacking a robust down payment. Those who qualify for this program need only a 3% down payment – less than the 3.5% down payment minimum required for loans backed by the Federal Housing Administration (FHA).
• For its part, Freddie Mac offers the Home Possible® mortgage program catering to low- to moderate-income borrowers who have amassed a 3% down payment. Like a HomeReady loan, PMI is discounted and required until the loan balance drops to at least 80% of the home’s value.

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Also emerging is the growing idea of using rental histories as a barometer of creditworthiness among those in the lower-income strata. Rental histories increasingly are being used as an additional measure for those with thin credit histories to qualify for a home loan. The problem is, Kempfer said, they sometimes fail to utilize the newly emerged barometer to achieve creditworthiness.

“What I’m seeing is that the lenders are not real familiar with some of the initiatives that are out there to help underserved communities,” Kempfer said. “So, if you’re not aware of it as a broker, then maybe you’re not helping your client ss well as you would and getting that loan denied. It is a little frustrating to know there are other programs out there that are underutilized. I think the issue is communicating those programs in the right way so that people really understand the impact they might have.”

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But even when rental histories are used toward securing home financing for borrowers, they are sometimes done in by the very algorithms used to determine if they qualify for a loan. It’s the tyranny of unforgiving math that sometimes threatens to doom some borrowers’ chances of achieving homeownership.

“The ironic thing is most people who are not homeowners will pay their rent on time religiously,” she said. “It’s great that program is out there. These same people may not have a credit card or a lot of debt because either they have a dream of homeownership, or their income level is low so that they don’t want to have a lot of credit or can’t afford to have a lot of credit. So, there’s definitely some disconnect there.”

The algorithm as foil is no mere abstraction to Kempfer: “I actually have a loan right now that’s not getting approved,” she said. “The credit score is OK – it’s not horrible; we’ve got 5% down. By all accounts, it should be approved. The only reason it’s not is we have down payment assistance and a thin credit file. These people are trying to keep their debt down; they don’t make a lot of money; and they have to buy a condo, which is a higher risk. So these people, in my mind, are getting redlined out, and they’re being discriminated against through an algorithm – your income is this, your LTV is too high, you’re buying a condo instead of a single-family home and you don’t have a lot of credit. So too bad – you’re not getting a house.”

And it’s not the first time she’s encountered the pitfalls of an automated underwriting system dampening the dream of homeownership with the cold dispassion of an algorithm-based assessment. “I had one almost identical to this, and it also was a Black borrower,” Kempfer noted. While the other loan she described remains in limbo, the earlier one did have a happy ending after considerable effort. “I had to fight tooth and nail to use the 12-month rental history,” she said. “No-one knew how to do it, so it took moving heaven and earth to get someone to even try to do it.”

Kempfer said it will be education that will save the day in the future. “I’ve talked to some of the top lenders – I won’t name them – and I’ve told them this needs to be in your job aid,” Kempfer said. “People need to have this top of mind.”

But in the end, the future is still fraught with questions: “Where is the disconnect between Freddie and Fannie and whomever is making these programs available and the lender? How do we educate underwriters and the account executives as well as mortgage professionals so that, at the end of the day, we are getting more people in homes?”