No-Down Loans to Close the Racial Homeownership Gap: What You Need to Know

By Ayesha Rascoe | NPR
Sunday, September 11, 2022

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Vanessa Perry, nonresident researcher at the Urban Institute Housing Finance Policy Center, speaks with NPR’s Ayesha Rascoe about new “zero” mortgages for black and Hispanic first-time buyers.



You may have seen those exorbitant property prices in your area drop slightly over the past month. But overall, prices still remain unaffordable for many and mortgage rates have nearly doubled, making the goal of owning a home out of reach for many first-time Black and Hispanic families. But recently, banks have started offering mortgages aimed at closing the growing racial gap in home ownership for those who have faced a long history of discrimination in the housing market. Last week, Bank of America announced new no-downpayment loans for first-time home buyers in predominantly black and Hispanic neighborhoods. These loans include grants of up to $15,000. JP Morgan Chase and TD Bank offer similar loans with grants of $5,000. And so far, we’ve seen a lot of questions and skepticism. We are now joined by Vanessa Perry, non-resident member of the Urban Institute Housing Finance Policy Center. Welcome.

VANESSA PERRY: Thank you. I am delighted to be here.

RASCOE: A lot of people, though, you know, hear about these loans and I’ve seen some things on social media, they talk about the 2008 financial crisis and they have concerns. How will these loans be different?

PERRY: I think it makes sense to think back to the 2008 crisis because it’s relevant. We found ourselves in a situation where there were products that had low down payments and other types of arrangements that proved to be predatory and detrimental to the market. What we have learned as an industry is, certainly from a regulatory perspective, a lot since this crisis. And so we know how to prevent a remix of those kinds of concerns. These loans are likely to be relatively small-scale programs. They are only available in certain regions.

RASCOE: I understand there’s no down payment, but what they’re going to do is give them grants. And these are grants that would not have to be repaid. Is that the case?

PERRY: It’s my understanding that they’re grants so they wouldn’t have to be repaid, which is great. This means that borrowers start out with more equity than they otherwise would have.

RASCOE: Technically anyone can apply of any race, that’s right, it’s based on the area they’re buying from whether the area is predominantly black or Hispanic. Does this lead to a concern about gentrification?

PERRY: Absolutely. I mean, gentrification is always a concern when doing location-based types of targeting per se. It’s a great product. He has no mortgage insurance. And so anyone who can, who has an interest in getting into those areas, I guess, would jump in there and try to get access to those products.

RASCOE: Well, it seems like it would be the opposite of what these programs are theoretically supposed to do, which helps black and Hispanic first-time buyers who have historically been shut out of the market. For example, what other concerns do you now have about banks offering loans like this?

PERRY: My biggest concern is how much it costs. What interests me is how these rates compare to other products that are on the market. So, for example, there are other loan programs offered by Freddie Mac and Fannie Mae, and these programs charge price adjustments at the loan level.

RASCOE: They charge higher interest rates to compensate for the other guidelines. Is that what you mean?

PERRY: Absolutely. They charge higher interest rates in order to compensate for the fact that they had to waive some of their traditional underwriting requirements. Say you allow people to make lower down payments, or you allow borrowers to have lower FICO scores. It’s not necessarily a huge bonus. But for borrowers who are barely able to afford a loan, these additional fees can be prohibitive. Any mortgage where the down payment is less than 20% – and there are some exceptions to this – but historically it was 20%, the borrower had to pay mortgage insurance. Either government-provided mortgage insurance through the FHA or VA, or private mortgage insurance.

RASCOE: There has been a growing gap between homeowners along racial lines. I guess you hope these programs can at least make a dent in the problem? Or should there be other policies or programs to actually, you know, help solve this problem?

PERRY: I think so. I’m excited about this product and others because they finally address the real underlying hurdles, at least some of them, which have to do with down payment and credit requirements. That said, we still have a problem of very high house prices. They are so high that this amount of down payment assistance is not necessarily going to move the needle significantly. The reason real estate prices are so high has to do with some kind of investor activity. But the other has to do with the fact that there just isn’t enough affordable housing. As long as this is the case, there will always be a significant share of black and Hispanic households who cannot afford homeownership.

RASCOE: This is Vanessa Perry from the Urban Institute and also a professor at George Washington University. Thank you very much for joining us.

PERRY: Thank you.


RASCOE: A Bank of America spokesperson said the loans would be offered at fixed market rates that could adjust to market conditions. Transcript provided by NPR, Copyright NPR.

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