MReport September 2020

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M R EP O RT | 47 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Improving Black Homebuyers' Access to Capital Recessions can put homeownership even further out of reach for some minority borrowers. A ccording to new re- search from the Urban Institute, when buying a home, people of color rely largely on Black-owned banks for financing. As these banks, which are especially vulnerable during an economic recession, struggle to continue lending, Black borrowers face a lack of access to capital. Citing the insti- tute's recent study on the benefits and limits of Black- owned banks, Neal suggested a two-fold solution that includes both increasing capital to Black-owned banks and promot- ing public policies that more broadly support community development fi- nancial institutions (CDFIs). Black-owned banks are generally headquartered in and support predominately Black neighborhoods, and these institu- tions work with Black homebuyers at a much higher rate than other lenders. The typical Black-owned bank originated between 75–100% of mortgages for Black borrowers between 2004 and 2018, averag- ing 1260 purchase loans annually. Other types of lenders reportedly never exceeded 10% over the same period. Black-owned banks tend to practice relationship banking, which means looking beyond financial status when assessing potential borrowers. This allows them to more creatively and widely meet credit needs within the communities they serve. And while these Black-owned finan- cial institutions are strong, Neal reported, "they are small in size and number." Black-owned banks represent just 0.4% of the 4,681 community banks insured by the FDIC and account for less than 1% of purchase mortgage loans go- ing to Black home- buyers each year. Recessions mean dwindling numbers of Black-owned banks and less hope for mortgage lending if you are a person of color. The numbers of Black- owned financial institutions have been falling since 2001—that includes a 49% decline since 2008. At this point, Black-owned banks alone cannot handle the demand. Neal pointed out that, while all financial institutions could serve minority communities better, CDFIs, which enjoy U.S. Treasury funding, are already positioned to support neighborhoods of color. More than 40 percent of CDFIs loans today go to major- ity-minority communities, and public policies that support CDFIs would increase both mortgage and small business loans to many Black communities and histori- cally underserved areas. Bidding Wars Continue Over Most Homes on the Market Record low mortgage-rates prompt bidding wars for potential homebuyers. R ecord low mortgage-rates prompt bidding wars for potential homebuyers. Agents from Redfin report 54% of home offers in July 2020 faced competition. That's down slightly from June's 56%, but it marks the third month running that more than half of Redfin's home offers faced competition— this, according to data journalist Lily Katz, for Redfin. Negotiations enter a "bidding war" when an agent reports that an offer receives at least one rival bid, Katz said. A shortage of homes for sale and lowest-ever mortgage rates (below 3% for the first time in recorded history) means bidding wars remain steady despite a coronavirus-battered economy. "Bidding wars may slow down if interest rates tick up again, which could happen if we get good news about a coronavirus vaccine or more clarity around the outcome of the upcoming U.S. presidential election," Redfin Chief Economist Daryl Fairweather said. "At the same time, we may still be in the early innings of the pandemic migration wave. If coronavirus cases continue to climb, more employers will likely make flexible remote work poli- cies standard procedure, which will drive further migration out of large, expensive cities. As a result, we may see bidding wars gain more traction in suburban areas and small towns." The Redfin report broke it down, noting that: » Single-family homes were most likely to encounter bidding wars in July (56% of Redfin of- fers faced competition). » Townhomes were next at 54%, followed by 42% of offers for condos. » Most competed for homes priced between $400,000 and $500,000 (56% of those offers faced bidding wars). » Just 46% of offers for homes that were listed above $1.5 million received multiple bids in July. "If you price your home right and you haven't Crayola crayoned all over the wall, you're going to get at least a handful of offers," Tampa Redfin agent Brian Walsh said. "To be included in Redfin's analysis, a city had to have had at least 50 offers written by Redfin agents. Salt Lake City, San Francisco, and San Diego topped the list in July. "One of my clients recently bid $100,000 over a home's asking price and only had the eighth- highest of 15 offers. It's coming down to how much money you can throw at a house and how many contingencies you can waive." Black-owned banks tend to practice relationship banking, which means looking beyond financial status when assessing potential borrowers.

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