Minority borrowers face barriers in reaping full benefits of homeownership

​Minority homeowners can face significant barriers to realizing the full benefits of homeownership – especially when it comes to building intergenerational wealth, according to a recent report by the Urban Institute.

According to the report, since homeownership became viable for Black families, “the benefits have been uneven and have not accrued equitably.” Black households with housing equity have about half the equity of white households on average, while Hispanic households have about 63% of the equity of white households on average.

“These differences in housing equity reflect differences in underlying home values and the total amount of mortgage debt,” the study said. “All else equal, lower home values for homeowners of color relative to the values of homes owned by white homeowners contribute to lower housing equity for Black and Hispanic homeowners.”

Miki Adams, executive vice president at CBC Mortgage Agency – a nationally chartered housing finance agency – said more needs to be done to address that disparity.

“I would attribute (the disparity) to historical government policy – the legacy of redlining, which has held values back in areas where minorities tended to concentrate.,” she told MPA. “I think that we have a way to go. The challenge is starting to make homeownership for minorities more equitable and more on par with the white population. There’s a lot that needs to happen, and a lot of that needs to come from government policy.”

In order to address the disparity, the Urban Institute made four policy recommendations: reform zoning laws that enforce racial segregation, expand down-payment assistance (DPA) programs, strengthen pre- and post-purchase counseling, and develop financial products for home maintenance and repair.

Two of those recommendations – expanding DPA and strengthening pre- and post-purchase counseling – are especially important, Adams said.

“When we talk about down-payment assistance and strengthening pre-purchase and post-purchase counseling, those are huge,” she said. “The biggest challenge for minority homeownership is coming up with the down payment and understanding what goes into owning a home. … Quality counseling early on in the mortgage process is very important, and providing continued support after the mortgage closes is critical.”

While pre-purchase counseling is a requirement for many loans, post-purchase counseling is comparatively rare, Adams said.

“But when you marry pre-purchase and post-purchase counseling, you give the buyer a very strong support system,” she said.

CBC Mortgage Agency recently expanded its own post-purchase counseling program from one year to 18 months – and it’s already reaping benefits for borrowers, Adams said.

“Our rate of engagement is incredibly high, which tells us that borrowers like and want to be supported after the first year of homeownership,” she said. “Expanding out post-purchase counseling allows us to help borrowers through the difficult times. It’s coaching and mentoring so that borrowers can start to build intergenerational wealth for themselves and their families. The best way they can do that is by becoming successful homeowners.”

Robust DPA programs are also important in closing the gap in the benefits of homeownership, Adams said.

“In 2019, 54% of our down-payment assistance recipients were minorities, who if not for down-payment assistance would not have had the opportunity to become homeowners,” she said. “Many minority borrowers don’t have the same opportunity to get down-payment assistance from their families as white borrowers do.”

In fact, Adams said that 34.8% of CBC Mortgage Agency’s borrowers in 2019 were the first generation in their families to own a home. 

In addition to expanding its post-purchase counseling, CBC Mortgage Agency also recently expanded its own DPA program, Adams said.

“Before, our down-payment assistance was limited to 3½% of the purchase price,” she said. “We just expanded it up to 5%. This will allow borrowers to hang on to a little more of their savings as a cushion for emergencies that may come up after closing.”

CBC Mortgage Agency’s mission, Adams said, is to help borrowers become successful homeowners – which can benefit not only those borrowers, but succeeding generations.
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“We are very focused on how we can increase the numbers of minority homeownership through education and counseling. We think that’s a very important step to bridge that gap,” she said. “The whole point of trying to change the paradigm here is to increase intergenerational wealth over time – and that requires successful homeownership.”