Housing affordability: In the pursuit of equity

Affordable housing is an old problem in search of new solutions. As banks develop creative, sustainable programs to help close ever-widening wealth and homeownership gaps in underserved communities, they know there’s more to be done.

By Lindsay Torrico

As we slowly emerge from the COVID-19 pandemic, another crisis comes back into focus for many Americans. Housing affordability is a major concern in our communities, leading to greater gaps in homeownership and wealth across the nation.

As mortgage rates rise and inventory remains low, housing affordability has reached its lowest level since the Great Recession in 2007, according to a report by S&P Global Ratings.

Lola Pol (center) and her team of affordable housing lenders in Washington, D.C.
Communities of color are acutely affected by unaffordable housing. A recent Urban Institute report predicts that Black households will have significantly lower homeownership rates than in past generations, producing double the number of Black elderly renters in the next 20 years.

But housing affordability and accessibility problems long predate rising interest rates.

For far too long, the housing policies in this country kept certain segments of the population from accessing the benefits of homeownership. The far-reaching consequences of past policies and practices are still felt today. Our financial institutions play a critical role in closing the growing homeownership gap for low-to-moderate-income households. Several innovative solutions are emerging from banks, in collaboration with government and community partners, to help address the housing affordability crisis.

Many banks are finding creative ways to bridge the homeownership gaps. Three banks, in particular, are employing effective and replicable approaches—homebuyer counseling, below-market mortgages and special-purpose credit programs—to move toward housing affordability and economic mobility for all Americans.

Homebuyer counseling and financial education

Washington, D.C., and the surrounding metro area is one of the most expensive real estate markets in the country. In 2021, the median single-family house sales price was $820,000 and continues to rise. The area has some of the most generous down payment assistance programs nationwide—offering as much as $206,000 and these programs can be layered with additional assistance grants from organizations such as DC Open Doors, Birdseed, DC4ME and the Federal Home Loan Bank.

Access to these programs, however, is burdened by heavy bureaucratic requirements. In addition to the problems facing borrowers are the difficulties real estate agents have in getting sellers to accept contracts with down payment assistance because of the delays caused by the numerous and often conflicting underwriting.

Capital Bank, headquartered just outside Washington in Rockville, Maryland, recognized the problems that first-time, low- to moderate-income buyers were experiencing using these assistance programs. Six years ago, the bank established a branch dedicated to community lending and prioritized addressing the issue of getting low- to moderate-income borrowers successfully through the mortgage lending process. Under the leadership of branch manager and longtime mortgage lender Lola Pol, the branch is structured to respond to community needs with a staff of employees who are trained in the affordable housing field.

Every team member has specific duties to guide borrowers through the process, and many of the staff members speak Spanish. One team member is responsible for making sure all phone messages are returned, another handles post-closing problems and issues with tax abatement, and another works as a dedicated liaison with the Home Purchase Assistance Program, the D.C. Department of Housing and Community Development and the Council of the District of Columbia.

Pol has established office guidelines that her employees follow, focused on care and respect for the client, in order to help borrowers through what might otherwise be an overwhelming process. The branch office is decorated to be beautiful, warm and homey—intended to make borrowers feel supported and cared for. There is a dedicated space in the basement with video games and toys to keep children entertained and an area for the loan officer to meet with parents. The client benefits from a friendly network and a supportive environment where many players involved in mortgage lending want to help.

The bank’s deep engagement with loan applicants includes analyzing their overall financial capacities and counseling them to make sensible purchase and borrowing decisions. They explore issues such as whether the family can actually afford the purchase, ongoing maintenance and long-term affordability. The branch also partners with community-based organizations, such as Manna, the District of Columbia Housing Finance Agency and the Greater Washington Urban League, in facilitating homebuyer education and down payment assistance program processing.

With this comprehensive and hands-on approach to assisting borrowers, Capital Bank has made it possible for thousands of D.C. area residents to purchase a home. While most loan officers close roughly 18 to 25 loans in a year, the Capital Bank branch closed 277 loans in 2021, with 102 involving D.C. public down payment assistance. What’s more, Pol is now working on a plan to present to the D.C. City Council that will give sellers an incentive to work with buyers who have down payment financing to ensure the business transaction is advantageous for both sides.

In 2022, Pol was recognized with the ABA Foundation’s George Bailey Distinguished Service Award for exemplary community leadership by bankers. “Lola has demonstrated when you put care and community first, great things are achievable,” says Ed Barry, Capital Bank’s CEO.

Underwriting below-market mortgages

The approach that Bremer Bank in Minnesota has taken to tackle the issue of accessible housing centers on harnessing its lending power and philanthropic dollars to provide below-market mortgages for community residents. Like many metropolitan communities, the Twin Cities metro area of Minneapolis-St. Paul has a significant affordable housing issue, particularly among non-white residents. More than half a million people in the area spend more than a third of their income on housing. With housing costs rising faster than wages, a decline in the amount of affordable housing inventory within the region, and institutional barriers to credit for people of color, the result is one of the nation’s highest racial gaps in homeownership.

In 2017, Bremer Bank partnered with the Twin Cities Habitat for Humanity to create the Home Loan Impact Fund. Both organizations spent hundreds of hours developing and implementing the program and collaborated to develop a solution that would meet the long-term needs of the community. The Home Loan Impact Fund focuses on creating pathways to homeownership for low- and moderate-income families and opens opportunities for families to achieve generational wealth. It gave Twin Cities Habitat a conduit for permanent capital that far exceeded its prior capacity. Through the partnership, TCHFH’s wholly owned mortgage company originates mortgages for LMI households, then sells them to Bremer Bank.

To date, 500 Twin Cities families have achieved affordable home-ownership. The total value of the home loans approved through the fund is expected to reach $200 million by the end of 2025.

In 2022, the partnership doubled down on its effort, renewing the program with a commitment of up to $125 million with the renewal expected to benefit hundreds more families. Bremer provides the below-market interest rate to double the number of families who can partner with Habitat on affordable homeownership, with a particular focus on households of color. Also in 2022, the program was recognized with ABA’s Community Commitment Award for affordable housing.

“Everyone deserves a safe place to live and call home,” says TCHFH President and CEO Chris Coleman. “Access to secure, affordable homeownership directly translates to successful and healthy communities. Twin Cities Habitat is enormously proud to stand side by side with Bremer Bank through our partnership. Together, we are working to ensure that more families have the opportunity to achieve homeownership in the Twin Cities metro.”

SPCPs: Improving capital access

For over 40 years, special-purpose credit programs have been made available by federal regulators to expand fair access to credit for communities affected by historical discrimination. The programs were established to allow lenders to expand credit access for underserved borrowers who have been historically locked out of homeownership and small-business opportunities. However, very few lenders have implemented them to support underserved small-business owners, in part, because there was little information about these programs.

In the last few years, particularly in the wake of the murder of George Floyd and conversations that followed, many corporations and nonprofits have reignited the conversation about SPCPs as a critical tool to promote fair access to credit and homeownership for all.

Cherry Hill, New Jersey-based TD Bank is one of several banks that stepped up to use the SPCP approach as part of its continued commitment to address homeownership inequities in communities of color. In March of 2022, TD Bank launched a special purpose credit program, TD Home Access Mortgage, which was specifically designed to increase homeownership opportunities for Blacks and Hispanics across several markets within the bank’s footprint.

TD Bank recognized the need for an affordable mortgage option that addressed common barriers to purchasing homes in communities of color, including lower credit scores and limited financial resources for a down payment or closing costs, due to income disparities. The program provides a $10,000 lender credit that does not require repayment and that can be used for closing costs or toward a down payment. It also offers expanded credit parameters on debt-to-income and loan-to-value ratios, increasing accessibility and inclusivity for borrowers.

“The importance of providing more equity in the homebuying process to increase homeownership in communities of color cannot be overstated,” says Michael Innis-Thompson, head of community lending and development and the Fair Lending Center of Excellence at TD Bank. “Homeownership continues to be a path for creating generational wealth. As families build equity, it can allow them the opportunity to start a business, send their children to college, consolidate high-interest debt and improve their overall financial standing.”

After a year, Innis-Thompson says that Home Access Mortgage continues to fulfill its goal of increasing homeownership opportunities for historically underserved communities. The bank continues to evaluate and modify the program to ensure it is meeting the needs of communities of color.

Scaling solutions nationwide

Capital Bank, Bremer Bank and TD Bank have taken critical steps to be part of a long-needed solution to address housing affordability and economic inequity in this country.

While most banks have resources and financial education services at their disposal to make a dent in closing the homeownership gap, banks also see a need for better policy incentives and support to encourage more institutions to get involved. Today, banks represent a smaller—and steadily declining—segment of mortgage lenders across the country. In just the last few months, several banks announced they are stepping back from the housing market due to significant decreases in mortgage volume.

Today, many depository institutions describe high burdens in mortgage operations and face barriers to staying profitable in the housing market. Costs for corporate administration are generally higher for banks. Depository institutions are crucial to the systemic soundness of the mortgage finance system as nonbank entities are more vulnerable to funding risks.

For decades, housing policy has been used to keep affordable housing out of reach for too many. Enacting new and improved policies that employ the strengths of the industry will make the difference in reversing generations of wealth gaps and housing inequality to ensure that all Americans can realize the dream of homeownership and wealth generation.

Lindsay Torrico is executive director of the ABA Foundation.