TheMReport — News and strategies for the evolving mortgage marketplace.
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34 | M R EP O RT FEATURE A t first glance, the prospects for first-time homebuyers couldn't seem brighter. The job market is incredibly strong, and unemployment is at a record low. Mortgage interest rates are already at record lows and maybe heading even lower. The American Dream is surely in reach of anyone willing to work hard enough to achieve it. And yet, it's not—at least not for everyone. The truth is that some of us are better positioned for homeowner- ship than others. Largely, the divide between those who are able to get their foot in the door of the hous- ing market and those who cannot is drawn along racial lines. When you throw in rising home prices, record high rents, and increasing student loan debt, the dream of homeownership is actually grow- ing further away for many. At the center of this problem lies one of the biggest impedi- ments to buying a home—coming up with enough money for a down payment. Indeed, the hous- ing gap between different ethnic groups often boils down to a down payment gap, as some have more access to savings and family wealth than others. But there are tools that we as an industry can use to shrink that gap. Understanding the Down Payment Gap E ven with FHA loans that require a 3.5% down payment, saving up for that payment can be tough. In fact, making a down payment is the single largest ob- stacle to buying a home, according to a recent nationwide survey of renters by Zillow. The down pay- ment hurdle is particularly hard for younger, low- to medium- income consumers who recently graduated college and make a decent income, but who still have student loans to pay off. Yes, it's true that many loan programs allow borrowers to use gift money from a family member toward their down payments. But some potential buyers are less likely to get help from a relative than others. In particular, racial minorities—and especially African Americans—often miss out on buying a home because their families do not have the ability to contribute funds. Evidence of this fact is both compelling and scary. According to a study by the Urban Institute, the homeownership gap between black and white Americans has grown wider since the Great Recession, from 28.1 percentage points in 2010 to 30.1 percentage points in 2017. That's the widest gap in 50 years—even wider than it was before the Fair Housing Act was signed into law, when it was actually legal to discriminate against homebuyers based on race. Currently, the homeownership rate among white households is 71.9% compared to 41.8% among black households. The black homeown- ership rate is actually 4.8 percent- age points lower than it was in 2000, and it's also lower than any other racial or ethnic group. The Urban Institute found that income is a significant factor behind the homeownership gap, but not the only factor. Black households had a median income of $38,183 compared to $61,363 for white households, according to the study. Obviously, the ability to save enough money for a down payment is tied to how much money a borrower earns. But the study found there is another factor at play. For most Americans, buying a home is the most important step toward generating wealth. Because of past discriminatory lending policies and practices, however, black families are less likely to accumulate wealth through homeownership and pass it on to their children compared to white families. According to the Urban Institute's study, the wealth gap between black and white house- holders is another major factor behind the homeownership gap. While wealth is tied to income, it's not quite the same thing. Two different households could have the same income, but one may have fewer expenses than the other or could have accumulated assets from inheritances or prop- erties handed down from past generations. For decades, there has been a huge disparity between the wealth of black and white families that continues to this day. For example, according to a February 2020 report from the Brookings Institute, the net wealth of a typical white family in 2016 was $171,000, almost 10 times that of the typical black fam- ily's wealth of $17,150. The wealth gap is even evident among high earners. Among households that ranked in the top 10% by income, white families had a median net worth of $1.8 million compared to $343,160 for black families. How DPA Helps Close the Gap L uckily, there is help available for borrowers who are other- Closing the Homeownership Gap Here's why down payment assistance can serve a critical role in helping first-time homebuyers achieve the American Dream. By Richard Ferguson