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Affordability Still Holds Minorities Back from Homeownership

saving-homesSince the housing crisis, minority borrowers have had trouble getting a mortgage loan or been completely locked out of the housing market due to affordability problems. Now, eight years into the recovery, minorities are still a disproportionate part of the housing economy.

Zillow's recent analysis of mortgage access and homeownership by race showed that eased credit access is allowing more people to be eligible for mortgage loans, especially among middle-income blacks and Hispanics, but despite the uptick, they still lag behind in the housing market recovery.

Another report from the Urban Institute showed that clear signs of recovery have been recorded in the housing market, but minority borrowers do not seem to be linked to this recovery.

Minority households were locked out of the recovery period following the recession partly due to tight lending standards as they tend to have lower income and weaker credit scores.

The share of loans among African-Americans and Hispanic households deceased from 23 percent to 12 percent from 2005 to 2012.

"A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom," Urban Institute said. "A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today’s tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African-American and Hispanic families from building wealth and benefiting from the recovery


The Federal Reserve's January 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices shows that credit standards may be easing among lenders, which should be making it easier for minorities to enter the housing market. Although the standards are easing, lenders are still carefully evaluating borrowers' ability to pay the mortgage loan.

An Urban Institute report found that the mortgage industry missed out on 4 million loan from 2009 to 2013 because of tight credit standards. This was mostly observed among low-to-moderate-credit borrowers.

Another issue that experts point to is the use of a singular credit-scoring model. As new credit populations emerge in the housing market and competition among lenders heats up, other data avenues must be considered to accommodate new borrowers. A TransUnion survey found that there is still a significant amount of unrealized opportunity for lenders to use alternative data, or any information that is not captured in a traditional credit score, or data points that are incremental to the credit bureau report, including property, tax and deed records, checking/debit account, and payday lending information, among other sources, to reach more creditworthy consumers.

In an effort to bring minorities into the housing market, HUD recently awarded $55.5 million to 75 Native American communities throughout the country to "improve housing conditions and stimulate community development, including construction projects and local jobs for low- and moderate-income families."

HUD will provide the grants through its Indian Community Development Block Grant (ICDBG) Program, which supports community development and affordable housing activities.

“Every family deserves the chance to have a decent home, economic opportunity and vibrant neighborhoods to call their own,” said HUD Secretary Julián Castro. “Today we make another critical investment in helping tribal nations address affordable housing and community development needs in their communities.”

“The goal of the ICDBG program is to develop viable Indian and Alaska Native communities, including decent housing, suitable living environments, and economic opportunities,” said HUD Principal Deputy Assistant Secretary Lourdes Castro Ramírez. “Awardees can use the funding to rehabilitate or build new housing or to buy land for housing; for infrastructure such as roads, water and sewer facilities; and to spur economic development including jobs.”


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