The path toward homeownership is no cakewalk, but history and data have shown that it can be arduous for specific demographics, particularly among Black and Hispanic buyers.
While the racial homeownership gap won’t close overnight, steps by Bank of America could help push the needle in the right direction in select markets. The lender recently launched a mortgage product that won’t require a down payment or closing cost for first-time homebuyers in designated neighborhoods across five U.S. cities.
“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” said AJ Barkley, head of neighborhood and community lending for Bank of America, in a statement.
The loan is being offered in Charlotte, Dallas, Detroit, Los Angeles and Miami. Barkley indicated that the loan is also part of Bank of Ameria’s “broader commitment to the communities that we serve.”
A Bank of America spokesperson tells RISMedia that the program “aims to address the unique challenges and needs that minority homebuyers face; however, eligibility is based on income and home location, and not race.”
“We are focused on connecting diverse people and communities to good jobs, ensuring adequate access to health care, providing access to capital to grow small businesses, and building a solid base of affordable housing,” the spokesperson says.
Buyers must earn less than or equal to 150% of Area Minimum Income (AMI) to qualify for the loan while demonstrating that they can repay debt obligations like rent, utility bills, phone and auto insurance.
Prospective buyers must complete a thorough homebuyer certification course to ensure they are ready to buy.
According to Bank of America, the product—dubbed The Community Affordable Loan Solution™—is meant to help eligible individuals and families obtain an affordable home loan.
Although Bank of America touts its new program as a zero-downpayment product, it’s not that simple. According to Bank of America, the company will make a downpayment for the client in the form of a grant of up to $15,000, giving them immediate home equity.
The company’s spokesperson notes that the option “tackles some of the biggest homebuying obstacles impacting minority communities—including upfront costs like down payments and closing costs—thus helping to expand access to affordably priced home loan options.”
“We did extensive research into the creation of this program, evaluating potential benefits and risks,” the spokesperson says. “Like all our offerings, the Community Affordable Loan Solution is underwritten with substantial rigor to ensure performance throughout various market and economic cycles.
“Our responsible growth framework is designed to ensure that our products meet the needs of both clients and shareholders, and we are not deviating away from that in any way with this offering,” the spokesperson adds.
The loans are still classified as fixed-rate mortgages. According to the company, the customer’s overall monthly payments will be in line with conforming and FHA products with similar loan characteristics.
This has proven to be a significant hurdle among minority buyers who have historically struggled to close the widening gap in the homeownership rate, according to experts from the National Association of REALTORS® (NAR).
As the housing market has become more competitive in recent years, the challenges for potential homebuyers, especially people of color, to buy homes have exacerbated. NAR’s data shows a nearly 30% disparity in homeownership between White and Black Americans, while the gap was almost 20% for Hispanic buyers.
“Past real estate and lending practices have had a lingering effect on the market, such that the racial homeownership gap is widening rather than closing,” said Bryan Greene, vice president of Policy Advocacy at NAR. “Now that they have the green light, several private lenders are considering bold programs to reverse this trajectory.”
Programs like Bank of America’s new loan aim to close that gap. The Community Affordable Loan Solution is a Special Purpose Credit Program (SPCP) introduced by the Equal Credit Opportunity Act to provide a tailored way to meet special social needs and benefit economically disadvantaged groups.
Although some critiqued the program on social media when it was first announced, mortgage industry leaders have indicated that it is a critical tool that they are encouraging other lenders to implement.
That’s been the case with the Mortgage Bankers Association (MBA), which partnered with the National Fair Housing Alliance (NFHA) in June to launch an online toolkit for mortgage lenders interested in developing an SPCP.
“The toolkit developed with NFHA is a great resource for our members to create their own SPCPs to serve economically and socially disadvantaged borrowers and help to close the racial homeownership gap,” says MBA President and CEO Bob Broeksmit, CMB.
Whether or not lenders will follow in Bank of America’s lead en masse remains to be seen, but LendingTree’s experts tell RISMedia that the lender’s success could be a catalyst in the industry.
“The issue of disproportionately high denial rates among Black and Latino borrowers is well known within the industry, and it’s possible that if this Bank of America program is successful, then other lenders will be more likely to follow suit,” says Jacob Channel, LendingTree’s senior economist.
Channel recently authored a report highlighting the current disparity of denial rates for Black borrowers nationwide.
Analyzing 2020 Home Mortgage Disclosure Act (HMDA) data, LendingTree’s report found that the purchase mortgage denial rate for Black homebuyers is twice as high as the denial rate for the overall mortgage borrower population of the nation’s 50 largest metros.
“Sadly, the housing-related struggles that minority borrowers frequently face are nothing new,” Channel says. “Because of this, the recent move from Bank of America is welcome. If nothing else, it seems like a substantial effort to address some of the longstanding issues relating to credit access for minority borrowers.”
While it’s not the same zero-down program that Bank of America has implemented, Las Vegas-based Legacy Home Loans took similar steps with an SPCP.
The company, the largest Black-led mortgage banking firm, launched a pilot program allowing eligible candidates in six U.S. cities to pay 1% down with a free appraisal, free home warranty program, and homebuying counseling and financial assistance with closing costs.