Education is key to removing barriers for underserved borrowers
BLOG VIEW: More and more companies are devoting time and resources to creating equity in housing and home ownership. Part of this effort is understanding why housing is inequitable today.
There seems to be universal agreement in the mortgage and housing industries that education is key. However, it is important to note that the need for education is not just for minorities who have not yet realized – or even imagined – the dream of home ownership. Education is also essential for those who are unaware of the barriers that still exist for many people across the country.
For example, many professionals in the mortgage industry may not know that the gap between minority homeowners today is no better than it was when discrimination was legal. As we all become better informed, we will be better equipped to effect positive change in the industry.
It is not enough to end open discrimination in the industry, we must also shed light on and eliminate other barriers. Let’s look at some of the challenges faced by minorities in the housing industry – and how the industry can overcome these obstacles to better serve underrepresented borrowers.
The biggest challenge often faced by historically marginalized groups is the lack of financial education. Levels of financial literacy vary greatly from community to community – and even from person to person. A borrower’s background has a lot to do with their level of financial literacy and, more specifically, their understanding of the mortgage and home buying process.
For example, some households may have no experience with home ownership. And while most don’t consciously think about the fact that they grew up in a home their parents owned, it certainly affects their perception of the possibility of home ownership.
According to 2019 census data, 58% of black American households are rented and 53% of Latino households are rented, while less than 31% of white households are rented. Financial literacy, especially when it comes to home ownership, tends to be passed down from generation to generation. And, with so many families lacking experience or knowledge of homeownership, it creates a cycle where homeownership can seem out of reach.
Another example, 12% of Latino households do not have a bank account, according to CNBC. Some families may come from a country where the banking system was corrupt or untrustworthy, while others may face a language barrier that makes it difficult to establish a banking relationship. These people continue to work and pay their bills, including housing. However, without a bank account, they usually don’t have what it takes to secure a mortgage.
Clearly, education is part of the solution and the sooner it starts the better. The industry needs to find ways to educate everyone about the benefits of home ownership and what it takes to buy a home. Whether it’s in school, college, or just starting out on their home buying journey, education is a key part of making home ownership more accessible and accessible to everyone.
Financial education can help potential homeowners prepare for home ownership not only with skills directly related to the home buying process, but also with skills like building credit or saving .
It is also important to continue the education once the house is purchased. It is important to find ways to educate borrowers after closing on how to stay in their home. The homeownership journey doesn’t end at closing – and ongoing education can help prepare borrowers for all the decisions and events they will face as homeowners.
Similarly, many historically marginalized groups have limited credit or no credit history. While better financial education can help, the industry can do something else: it’s possible to change the way we view credit and use other important data to decide a borrower’s ability to perform. payments.
Utilities and rent payments are increasingly accepted as a means of demonstrating a borrower’s ability to make payments, despite their credit history or lack thereof. With the U.S. Department of Housing and Urban Development’s decision that Special Purpose Credit Programs (SPCPs) are permitted under the Fair Housing Act, lenders may also choose to make greater use of these programs to fill the minority home ownership gap. While it must be done in a safe and sustainable way, giving minority borrowers a chance to access homeownership can help them build credit and, ultimately, wealth.
Another challenge that many underserved groups face when buying a home relates to income. Many people may have multiple sources of income, such as working in a restaurant, driving for a ride-sharing service, or working on contract. A 2021 Pew Research study showed that 30% of Latino adults made money through the gig economy, compared to 20% of black adults, 19% of Asian adults, and 12% of white adults.
The mortgage industry needs to be better prepared and equipped to work with borrowers who come with multiple streams of income, not a single W2. The industry is progressing, but there are still opportunities for expansion and improvement.
This is by no means an exhaustive list, but only some of the major and most common challenges that some disadvantaged groups face when trying to access property. By understanding these challenges – and helping potential borrowers understand them as well – the mortgage industry can lead the way to accessible and sustainable homeownership for all.
Colleen Kennedy is Vice President, Head of Strategic Accounts at Enact (formerly Genworth Mortgage Insurance).