Why Bank of America’s New Mortgage Program Is Good — But Not Great

Bank of America recently announced a new mortgage pilot program, Community Affordable Loan Solution, which will require no down payment, mortgage insurance or closing costs and will accept other ways to qualify for mortgages beyond credit. While open to all who qualify, regardless of race, the program is launching in predominantly Black and Hispanic ZIP codes and can be seen as an effort to close the racial gap in employment. home ownership.

For now, it will be available in Charlotte, Dallas, Detroit, Los Angeles and Miami.

This is not the first time that national lenders have announced initiatives like this. And while the program will undoubtedly help some borrowers who qualify, America won’t close its racial homeownership gap by tweaking mortgage product offerings. If it were that simple, we would have already closed it. Instead, the property difference between black and white households is just as wide today as it was when the Fair Housing Act became law in 1968.

Bank of America offers a useful option, but what good is a mortgage product if the home buying system is set up in a way that makes it difficult for people who need this type of program to get in?

Bank of America offers a useful option, but what good is a mortgage product if the home buying system is set up in a way that makes it difficult for people who need this type of program to get in?

We can close the racial divide in homeownership, but it will require systemic changes in our home buying process; not just tinker around the edges. It is essential to think holistically about the home buying process from start to finish and develop a more streamlined system that provides essential information about this process to people looking to buy a home.

In fact, if we don’t fix the system, new mortgage products like those from Bank of America will likely be underutilized. For example, not requiring a down payment will not help a potential buyer if they cannot qualify for a mortgage due to credit or debt issues. And while I commend Bank of America for expanding the way a homebuyer’s credit history is assessed — using factors like paying rent, utilities, and phone bills on time — it is important to know that it will not be used as a means of compensating for bad credit. . Rather, it is a method for borrowers who have been excluded from traditional forms of construction credit (i.e., underwriting credit cards or loans) to establish some sort of track record of credit.

Indeed, there is a difference between no credit and bad credit. And tackling the latter and making home ownership a reality – in a way that doesn’t lower credit standards to the point of poor outcomes for families and neighborhoods (remember the housing crisis of 2008?) – means teaching potential buyers how to develop strategies to improve their credit.

In my 30 years of working with first-time buyers, I have lost count of the number of people who have been surprised to learn that, yes, they can buy a house (even if they have work to do to qualify for a mortgage). Many have been people of color. There are several reasons for this surprise, but the main one is that no one they know has ever owned a house. Misconceptions can also get in the way. A common rule is that you need at least 20% down payment while many programs require much less.

Between the lack of representation of the possible and the false information, offering a good education to the accession to the property has become essential. And I’m not talking about the “tick the box” course that lenders often require a week before closing. I’m talking about the kind of preparation that helps someone in the beginning stages of buying a home, find out how to qualify for an affordable and secure mortgage. To the credit of Bank of America, it offers Educational resources to help first-time buyers through the process. Still, much of it seems to lack the kind of interaction and clarity that I’ve seen make first-time buyers more informed and confident.

Beyond the problems plaguing potential buyers, our system is not designed to ensure the long-term success of owners. Foreclosure rates for black and Hispanic households are disproportionately higher than for white households. While this will not address all of the overt discrimination and microaggressions that contribute to families of color losing their homes, part of the education process is to prepare people to develop savings habits and manage household finances. housekeeping appropriately. This is extremely important because new owners who were tenants are often unprepared for unexpected expenses, such as repairs that their landlord would have been responsible for. When the time comes, a homeowner needs enough savings or the ability to borrow for a necessary repair. We should be teaching people how to develop these habits when they are motivated to buy a home, but such education is rarely built into the home buying process.

Beyond the problems plaguing potential buyers, our system is not designed to ensure the long-term success of owners.

But there are other flaws in the system that have nothing to do with the buyer’s financial situation. For example, the vast majority of loan officers and real estate agents earn commissions based on the price of real estate and the size of the loan. Imagine you’re a buyer who qualifies for a good mortgage (one with a fixed rate, affordable interest rate, and reasonable fees), but you can’t get a loan officer or realtor for you. help because what you can afford is too low to get their attention. This is not uncommon, especially when the housing and refinance markets are very hot and real estate agents and loan officers are looking for the biggest sales. We can solve this problem by ensuring that at least some home buying professionals earn salaries rather than commissions. Households should not be punished for staying within their means.

Fortunately, there are organizations that take a holistic approach to helping families become homeowners. Community Development Financial Institutions, community development credit unions, and nonprofits like the one I lead—Homewise—focus on responsible service to underserved populations. But we need to dramatically expand the capacity of this nascent network focused on helping first-time homebuyers so it can more effectively deliver the services, support and funding these communities need.

There simply isn’t a single quick fix that will close the race gap in homeownership. The obstacles homebuyers face are systemic, but they are often also buyer-specific. That’s why we need to develop a unified system that helps homebuyers from start to finish. And we need policy makers at government, philanthropy and national banking levels to invest in building such a system. It will take time and resources — and it won’t happen overnight. But as the old saying goes: the best time to plant a tree was 30 years ago. The second best time is now.

About Scott Conley

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