6 Ways to Close the Wealth Gap

The FWD #185 • 662 Words

The Black homeownership rate is increasing. How do we make sure it stays that way? 

In a recent edition of the FWD, we discussed one of the few glimmers of hope for homebuyers of color. The pandemic prompted increased attention from federal and state governments that gave relief to homeowners and boosted the Black homeownership rate by 0.6% from 2020 to 2022, compared to just 0.3% for white households. 

There is a wealth of research demonstrating the widespread systemic hurdles Black people face in buying homes, the primary driver of personal wealth in the U.S. Earlier this week, a Joint Center for Housing Research webinar dove into these longstanding obstacles. Today, a significant gap in homeownership rates between Black households (45% in 2022) and white (75% in 2022) remains the status quo. Segregation and institutional racism have led to Black families losing several decades of generational wealth. 

These hurdles include the devaluing of homes in Black neighborhoods, unequal access to lending, discriminatory lending affecting credit scores, and higher debt due to rising education costs. Researchers and activists maintain that it is imperative to adopt comprehensive policies to make progress on closing the racial wealth gap. Dr. Rayshawn Ray and others at the Brookings Institute recently put forward these policy recommendations.

1. Bolster funding for less expensive mortgage loan programs.

Programs like Special Purpose Credit can prioritize servicing lower value mortgages despite the fictitious narrative that lower value mortgages are more risky. This could counter the effects of the devaluation of homes in Black neighborhoods. 

2. Lower costs of mortgages for Black homeowners via rate-and-term refinancing, lower interest rates, and reduced mortgage insurance.

Many lenders require mortgage insurance if the borrower does not have 20% of the home’s purchase price to essentially “buy down” the risk of the loan. Reduced interest rates and mortgage insurance requirements can reduce monthly mortgage payments significantly. 

3. Boost credit and down payment assistance.

Unequal access to financial services has led to 54% of minority populations being underbanked. As a result, predatory lenders target these individuals and increase chances of compounding debt that prevents access to credit.

4. Use more relevant metrics for credit scoring such utility and rent payments.

Many lending measures use loan and credit card payments to measure worthiness of credit, which disproportionately affect many underbanked BIPOC families. 

5. Encourage more diversity in the appraisal industry.

Appraisers as a profession are 90% white. Studies have found vast discrepancies in appraisals of homes occupied by Black and white families. Better representation may address this racial bias.  

6. Strengthen assistance for homeowners and first-time homebuyers.

Pandemic responses created a stronger safety net which has allowed Black families to retain their homes, as well as helping increase the Black homeownership rate. Direct  assistance for homebuyers and homeowners is a proven tactic.

The authors suggest industry leaders incorporate best practices in their own fields that actively remove barriers for Black homeowners. Fortunately, there is a wealth of literature backing these  recommendations for making a more equitable housing market. The real challenge is implementing these policies on a broad scale—and with urgency. Rising home prices and continuing interest rate hikes could wipe out the progress made since the pandemic unless intentional action is taken.

Here in the Commonwealth, Virginia LISC and Wells Fargo are giving it a try. They recently  announced a $7.5 million initiative to expand BIPOC homeownership through Wells Fargo’s Opportunity Restored Through Homeownership (WORTH) grant fund. The goal of this initiative is to create 5,000 new homeowners of color in the Richmond region by 2025. 

The WORTH initiative plans to promote equitable homeownership and wealth-building through outreach and education campaigns, increasing access to affordable mortgage products, innovations that lower construction costs to increase housing production, and advocating for policies that address systemic barriers to homeownership. Will this investment redress the harms of the past? Only time will tell—stay tuned to the FWD to hear more coverage of this initiative in the future.

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