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June 19, 2021

Expanding Homeownership In LMI Communities

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Homeownership remains the primary means by which most households in this country can attain wealth.Yet many families—especially those of color—are locked out of the opportunity to buy homes of their own. Homeownership rates in low- and moderate-income (LMI) communities and for people of color have historically been considerably lower than other groups, making it one of the largest drivers of the racial wealth divide. Barriers to accessing mortgage finance are a major explanation of this.

Financing of homeownership is also uneven. In 2017, 19.3% of Black borrowers and 13.5% of Hispanic borrowers were turned down for a conventional loan. At the same time, just 7.9% of White and 10.1% ofAsian applicants were denied a conventional loan. The refinancing market saw similar differentials, withBlacks rejected on 39% of their applications and Whites on 22.9%. Further, 60% of CRA-qualifying loans in LMI census tracts are made to middle- and upper-income borrowers, including 29% to higher-income borrowers. Community Development Financial Institutions (CDFIs) are well-positioned in many communities to help address these gaps.

In this paper, we will examine the portfolios, products and outreach of nonprofit and traditional lenders to gain an understanding of best practices in the CDFI space, specifically those that effectively reach communities of color and LMI families.

As we move toward a post COVID-19 world, we know that now more than ever, we need proactive measures from lenders and servicers to protect all vulnerable households. What we have learned from the last decade is that recoveries from natural disasters and economic downturns are not equal. There has not been an equitable recovery for people of color – who store more of their wealth in home equity than other groups – from the housing crash of the 2000s, nor housing stability for LMI households post natural disasters such as Hurricanes Katrina and Sandy.

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