How do we end mortgage inequity?

by Ryan Smith28 Jul 2020

More than 50 years after the passage of the Fair Housing Act, there’s still a racial divide when it comes to housing. Black Americans are still less likely to own a home than white Americans – and when they do, their mortgages are often more expensive. That’s a dynamic that needs to change, according to a top exec at CBC Mortgage Agency, a federally chartered government agency that works to promote affordable homeownership.

Home buyers in predominantly Black communities receive mortgage loans with interest rates 13 basis points higher than buyers in predominantly white communities, according to a recent analysis by realtor.com. That adds up to nearly $10,000 in extra interest over the life of a 30-year mortgage on a home sold for the median US price of $281,000.

The government and the housing industry need to do more to level the playing field, said Miki Adams, executive vice president of CBC Mortgage Agency.

“What’s so discouraging is we’re not changing enough, and we’re not changing fast enough,” Adams told MPA. “I think it’s time for us to start looking at what we’re doing, and thinking a little bit differently about how to solve this problem.”

One of the causes of the disparity in mortgage costs between white borrowers and people of color, according to the realtor.com report, is down-payment amount.

“They typical down payment in a Black neighborhood may be 3%, while the typical down payment in white neighborhoods might be 5%,” Adams said. “That’s because whites typically have more access to credit.”

Expanded down-payment assistance programs, Adams said, “will go a long way to reducing that 13 basis points.”

“The objective for [CBC Mortgage Agency] is to protect access to down-payment assistance for everyone, and for people of color particularly – to make it available nationwide,” she said. “… Currently, down-payment assistance is primarily offered through state housing agencies. Opening it up on the national level and allowing housing agencies to operate more nationally might make it more accessible.”

Adams also pointed out that – largely due to the disparity in homeownership – Black Americans typically have less intergenerational wealth to pass on than white Americans. That creates a cycle where Black Americans are often less able to help their children with a home purchase than white Americans – and those children are less able to build wealth themselves without the boost given by homeownership.

“When you start 200 yards back in the race, it’s hard to catch up,” Brett Theodos, a senior fellow at the Urban Institute, told realtor.com. That’s a metaphor that resonated with Adams.

“Some sports recognize handicaps and make allowances for them,” she said. “Maybe that’s what we should think about when it comes to the legacy of housing discrimination in this country. … There’s a long history of unequal treatment and unequal access to credit, and that’s got to change – either by applying handicaps or by thinking outside the box. The traditional model of assessing credit risk has to change. It’s not a one-size-fits-all.”