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December 14, 2021

Fostering Low-Income Homeownership: Challenges and Opportunities

On November 18, the New York Fed hosted “An Economy That Works for All: Fostering Low-Income Homeownership,” a virtual event that featured the latest Fed research on mortgage forbearance and refinancing. The event also featured two discussions: one on preparing low-income families for home ownership, and another on efforts by banks and financial institutions to address hurdles to first-time homebuying for low-income families.

Here are some of the key takeaways from the conversations:

Current Realities in Homeownership

  • Inequity in homeownership and access to mortgages persists over generations: While the overall homeownership rate in the United States is around 65%, that measure varies by race. Roughly three-quarters of whites and 60% of Asians and Pacific Islanders own their homes, but the homeownership rate is slightly less than half for Latinos, and only 44% for Blacks. Some of these disparities reflect housing discrimination from earlier eras: for instance, whites who inherit wealth tied to the sale of home might have money for a down payment, while such resources might be less available to people of color. “Many Black and brown consumers have sufficient income to pay a monthly mortgage, but what they lack is intergenerational wealth…these families have been unable to give assistance to successive generations,” said Bernell Grier, executive director of IMPACCT Brooklyn, a Community Development Corporation that supports neighborhood stability through financial education and housing counseling services.
  • Among homeowners, white borrowers are two times more likely to refinance than Black borrowers: Research by the Boston Fed highlighted a racial gap in interest rates, with Black borrowers paying rates that are 0.2 to 0.4 percentage points higher on active loans relative to whites, even though the rate differential at origination has narrowed over time. The research attributes this outcome to the fact that white homeowners historically have been more likely than Black homeowners to refinance when rates go down — a tendency that remained true during the refinancing wave from March to October 2020, during the early months of the pandemic.
  • Pandemic-related forbearance programs kept people in their homes: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided forbearance to economically distressed borrowers on federally backed mortgages, such as loans backed by Fannie Mae and Freddie Mac, allowing homeowners to temporarily pause or reduce mortgage payments for up to 18 months. New York Fed research found that forbearance helped prevent mortgage defaults and assisted in keeping people in their homes. Still, borrowers with lower income and lower credit scores remained disproportionately at risk for delinquency.

Fostering Low-Income Homeownership

  • Low-income individuals and families need access to credible down payment assistance: Several federal programs, such as Federal Housing Administration loans and homeownership vouchers, exist to assist first-time homebuyers by lowering closing costs and the amount of down payment needed to purchase a home. New York City recently increased the maximum amount offered to qualified first-time homebuyers from $40,000 to $100,000 through the NYC Department of Housing Preservation and Development’s HomeFirst Down Payment Assistance Program, Grier noted.
  • Commercial banks can help by introducing consumers to banking services and practices that will prepare them for mortgages: Patricia Sampson, vice president at Banco Popular, cited the importance of developing financial products, such as credit-building programs, for customers who are not yet ready to take on a mortgage and may need to become more familiar with banking services.
  • One-stop shopping can help first-time buyers: One way to help people achieve their homeownership goals is to integrate all steps of the home purchasing process and equip customers with knowledge and solid financial habits, according to Mike Loftin, CEO of Homewise. As a Community Development Financial Institution (CDFI), Homewise offers customers homebuying education, affordable mortgages, financial counseling, and on-staff realtors who don’t work on commission. The aim is to make customers feel comfortable seeking further assistance from Homewise when needed, Loftin said.
  • Don’t assume first-time buyers understand the fundamentals of homeownership: “Many people buy property without preparing themselves for the next steps of homeownership,” Grier said. “Do they know about the importance of property taxes, repair loans or… estate planning?” One organization, NeighborWorks America, recently deployed $88 million of federal funding through its Housing Stability Counseling Program to provide counseling to individuals and families at risk of losing their homes.
  • Local nonprofits can play an important role: NeighborWorks America works to improve the wealth and financial wellbeing of communities across the country by supporting local and regional nonprofit partners. Vice president Noelle Melton explained how the organization supports capacity-building efforts in the 250 nonprofits it serves through financial and grant support, technical assistance, and executive leadership support. Its CDFI Fund Capacity Building Initiative, designed to increase network competitiveness in securing federal dollars from the CDFI Fund, helps organizations strengthen their lending business models and leverage private investments. In fiscal year 2020, more than 30 CDFIs that completed the program were awarded $27.9 million to invest in communities.

The virtual event on low-income home ownership was the first in a planned series on crafting an economy that works for all. These events will bring together experts from across the New York Fed and elsewhere, with the goal of elevating workable, scalable solutions to longstanding challenges.

About Community Development

The New York Fed’s Community Development team works with community leaders to understand community needs and with capital providers to foster economic opportunities. To learn more about the team’s work in this area, see Community Development: Household Financial Stability.

This article was originally published by the New York Fed on Medium.


The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

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