Homeownership is a hallmark of the American Dream; it’s one of the few paths to building generational wealth and achieving financial freedom. Unfortunately, for many, it can feel like a pipedream.
According to a recent report from the U.S. Census, the homeownership rate has dropped to 63.1%, its lowest rate since 1970. Moreover, the outlook for individuals from minority communities is even more bleak. Based on a report from the National Association of Realtors in 2021, the homeownership rate among Black homeowners (43.6%) and Hispanic homeowners (50.6%) significantly lagged behind Asian homeowners (62.8%) and white homeowners (72.7%).
Much of the gap can be attributed to historical policies and practices, such as redlining, that prevented minorities from buying homes in certain areas, regardless of income level. As a result, individuals from underserved communities were denied the same wealth-generating opportunities. While many of those policies and practices are now illegal, homeownership still feels unattainable for some consumers.
Increasing the homeownership rate — particularly among diverse communities — is a marker of progress for our country. Closing the gap is paramount to uplifting individuals and households from underserved communities. We have a responsibility as a mortgage and financial services industry to drive meaningful change and create a more equitable path to homeownership.
Driving homeownership change requires resolve and education
While there are programs designed to create a path to homeownership for low- and moderate-income families, some of these programs haven’t gone far enough. For example, some families may be able to access down-payment assistance through non-profits and lenders, however, those families frequently need more financial assistance to maintain and remain in their homes over the course of many years. Without the additional help, some families may lose their homes.
Quite frankly, providing access to financial resources is only part of the homeownership equation.
Based on a recent Experian survey comparing the experiences of Black, Hispanic and white consumers, one barrier for Black and Hispanic consumers aspiring to become homeowners is not knowing where to start. In addition, 58% of Black and Hispanic consumers who were denied a mortgage do not know what they need to do to get approved in the future.
There’s a tremendous opportunity for mortgage lenders, non-profits and other financial services participants to redefine our financial inclusion efforts. In addition to addressing financial hurdles, we need to tackle some of the other barriers to closing the homeownership gap, including financial education. This could mean examining the types of questions individuals have about certain products or services, or meeting with community leaders to better understand the challenges that underserved communities are facing.
Individuals and households from underserved communities welcome the opportunity to learn about basic financial concepts, including how to navigate the housing market. Listening to the challenges they encounter, and imparting knowledge is how the mortgage industry can help them prepare to become homeowners.
For example, HomeFree-USA’s “Fast Track to Homeownership” program gets renters ready for mortgage approval and homeownership. Its intermediary network oversees 53 affiliated community and faith-based housing counseling agencies across the nation.
Financial educational resources, such as tips for building and maintaining good credit, that is customized to each community, coupled with classes that provide individuals with financial knowledge and access to tools, can help them to boost their credit score and grow the overall homeownership rate. Even something as fundamental as understanding the various tax refunds for homeowners who are eligible can make a huge impact on new homebuyers.
Inclusion cannot happen in a vacuum. Closing the homeownership gap among diverse populations requires a long-term vision and commitment from stakeholders across the financial services community. Providing access to financial assistance and the knowledge to navigate the housing market better prepares consumers to become first-time homeowners, and more importantly, to begin building generational wealth.
Wil Lewis is the global chief diversity, equity, inclusion and talent acquisition officer for Experian. Gwen Garnett is the executive director for HomeFree-USA.
If you’re interested in pursuing a career in the tech industry, coding bootcamps can be a quicker, more affordable alternative to getting a traditional degree. However, these courses still require a significant amount of time, energy, and money.
Are coding bootcamps worth it? They can be. You’ll want to keep in mind, however, that bootcamps vary in terms of quality, so finding a good one can take some research. In addition, the skills you learn from a bootcamp may not be enough to land the type of job or career you want.
Read on for key things you need to know about coding bootcamps. Including what they are, how they work, and how much you may be able to earn when you graduate.
What is a Coding Bootcamp?
Coding bootcamps are short, intensive courses designed to provide in-depth training in software development fundamentals, and prepare students for entry-level jobs in the tech industry.
Many people consider bootcamps when pursuing a career change or looking for a shorter path into the tech industry, as they last about 15 weeks on average.
Bootcamps are conducted in both traditional classrooms and online, and are designed to accommodate students with little-to-no coding experience.
However, not all coding bootcamps are accredited schools. While some boot camps are affiliated with universities and, therefore, required to uphold the educational standards of the institution it is in partnership with, most coding bootcamps remain privately owned with educational standards that may not necessarily be governed by any scholarly entity.
Therefore, coding bootcamps, no matter how appealing, may not all produce the same quality of education or warrant any recognition outside of the tech industry.
Recommended: How to Pay for Coding Bootcamps
How Much Do Coding Bootcamps Cost?
The cost of coding bootcamp can vary widely, and will depend on the school, the length of the program, whether classes are in-person or online, and whether you study full or part time. However, on average, tuition for coding bootcamp can run around $10,800.
While that’s not nothing, it’s a lot less than the cost of a traditional undergraduate degree. According to the National Center for Education Statistics, the average annual tuition at a public university is $9,678 for in-state students and $27,091 for out-of-state students. The average annual tuition for a private institution is $38,768. If you pursue a four-year bachelor’s degree program, tuition can total anywhere from $38,712 to $155,072, depending on where you go.
Like colleges and universities, many coding bootcamps now offer a range of funding options, so you don’t necessarily have to pay the full cost up front and out of pocket. These may include:
• Scholarships Some bootcamps offer scholarships for women, minorities, vets and even those experiencing hardships. You can often find out about scholarship opportunities by going to the tuition section of the bootcamp’s website.
• Loans External loans, including tuition reimbursement program that could help you cover the cost of bootcamp.
Recommended: Student’s Guide to Certificate Programs
From the employee’s perspective, 76% of software engineers attribute their readiness for an engineering position to the bootcamps they completed, and another 57% say they would be open to hiring a bootcamp graduate for an open role if they had the opportunity.
What Can I Expect From a Coding Bootcamp?
Completing any coding bootcamp should ultimately result in fluency in at least one coding language, such as Full Stack JavaScript, NET, Ruby on Rails, or Java. In addition, you will likely graduate with a portfolio of projects you completed during the course.
And because the goal of a bootcamp is to churn graduates directly into the tech industry, these programs often help graduates find, apply, and interview for industry positions.
Also, in some cases, coding skills aren’t enough on their own to land a job. Some employers, for example, may be looking for a broader set of skills in computer science or specialization in a certain field. Others may place high value on interpersonal or soft skills that allow you to work effectively in a team and communicate with coworkers.
As a result, even after completing coding bootcamp, you may find it necessary to go back and complete your college degree at a later date.
The Takeaway
Whether or not coding bootcamp is worth it depends on your career goals and the quality of the coding camp.
On the plus side, coding bootcamp generally costs a fraction of the cost of a typical college degree. At the same time, these programs allow you to gain in-demand skills in a relatively short period of time, and many also provide job search assistance.
However, coding bootcamp may not be a great choice if you are not sure that a tech career is right for you, or you don’t have the time, interest, and motivation to complete an intensive and demanding program. Also, if you are interested in a management career or moving beyond coding, you will likely need a traditional college degree.
Whatever education route you pursue, you will need to figure out how you will cover the cost of tuition and expenses. Fortunately there are numerous options, including scholarships, grants, work-study, tuition payment plans, and both federal and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
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SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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During the past two years, regulators and lawmakers have introduced and adopted new rules and guidelines aimed at curbing the impacts of racial bias on home valuations. But some appraisers and researchers insist these efforts have been based on faulty data.
Conflicting findings from a pair of non-profit research groups call into question whether or not recent actions will improve financial outcomes for minority homeowners without leading to banks and other mortgage lenders taking on undue risks.
The debate centers on a 2018 report from the Brookings Institution, which found that homes in majority-Black neighborhoods are routinely discounted relative to equivalent properties in areas with little or no Black population, a trend that has exacerbated the country’s racial wealth gap. The study, which adjusts for various home and neighborhood characteristics, found that homes in Black neighborhoods were valued 23% less than homes in other areas.
“We believe anti-Black bias is the reason this undervaluation happens,” the report concludes, “and we hope to better understand the precise beliefs and behaviors that drive this process in future research.”
The study, titled “Devaluation of assets in Black neighborhoods,” has been cited by subsequent reports published by Fannie Mae and Freddie Mac, academics and White House’s Property Appraisal and Valuation Equity, or PAVE, task force, which used the data to inform its March 2022 action plan to address racial bias in home appraisal.
Meanwhile, as the Brookings’ findings proliferated, another set of research — based on the same models and data — has largely gone untouched by policymakers. In 2021, the American Enterprise Institute replicated the Brookings study but applied additional proxies for the socioeconomic status of borrowers.
By simply adding a control for the Equifax credit risk score for borrowers, the AEI research asserts, the average property devaluation for properties in Black neighborhoods falls to 0.3%. The researchers also examined valuation differences between low socioeconomic borrowers and high socioeconomic borrowers in areas that were effectively all white and found that the level of devaluation was equal to and, in some cases, greater than that observed between Black-majority and Black-minority neighborhoods.
“That, to us, really suggests that it cannot be race but it has to be due to other factors — socioeconomic status, in particular — that is driving these differences in home valuation,” said Tobias Peter, one of the two researchers at the AEI Housing Center who critiqued the Brookings study.
Contrasting conclusions
Peter and his co-author, Edward Pinto, who leads the AEI Housing Center, acknowledge that there could be bad actors in the appraisal space who, either intentionally or through negligence, improperly undervalue homes in Black neighborhoods. But, they argue, the issue is not systemic and therefore does not call for the time of sweeping changes that the PAVE task force has requested.
Brookings researchers have refuted the AEI findings, arguing that, among other things, their controls sufficiently rule out socioeconomic differences between borrowers as the cause of valuation differences. They also attribute the different outcomes in the AEI tests to the omission of the very richest and very poorest neighborhoods.
Jonathan Rothwell, one of the three Brookings researchers along with Andre Perry and David Harshbarger, said the conclusion reached by AEI’s researchers ignored the well documented history of racial bias in housing.
“No matter how nuanced and compelling the research is, no one can publish anything about racial bias in housing markets, without our friends Peter and Pinto insisting there is no racial bias in housing markets,” Rothwell said. “Everyone agrees that there used to be racial bias in housing markets. I don’t know when it expired.”
Mark A. Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said the source of the two sets of findings might have contributed to the response each has seen. While both organizations are non-partisan, AEI, which leans more conservative, is seen as having a defined agenda, while the centrist Brookings enjoys a more neutral reputation.
Still, Willis — who is familiar with both studies but has not tested their findings — said while the Brookings report notes legitimate disparities between communities, the AEI findings demonstrate that such differences cannot solely be attributed to racial discrimination.
“The real issue here is there are differences across neighborhoods in the value of buildings that visibly look alike, maybe even technically the neighborhood characteristics look alike, but aren’t valued the same way in the market,” Willis said. “Whatever that variable is, Brookings hasn’t necessarily found that there’s bias in addition to all of the other real differences between neighborhoods.”
Setting the course or getting off track?
The two sets of findings have become endemic to the competing views of home appraisers that have emerged in recent years. On one side, those in favor of reforming the home buying process — including fair housing and racial justice advocates, along with emerging disruptors from the tech world — point to the Brookings report as a seminal moment in the current push to root out discriminatory practices on a broad scale.
“It’s been really helpful in driving the conversation forward, to help us better define what is bias and be specific about how we communicate about it, because there’s a number of different types of bias potentially in the housing process,” Kenon Chen, executive vice president of strategy and growth for the tech-focused appraisal management company Clear Capital, said. “That report really … did a good job of highlighting systemic concerns and how, as an industry, we can start to take a look at some of the things that are historical.”
Appraisers, meanwhile, say the Brookings findings made them a scapegoat for issues that extend beyond their remit and set them on course for enhanced regulatory scrutiny.
“What’s causing the racial wealth gap is not 80,000 rogue appraisers who are a bunch of racists and are going out and undervaluing homes based on the race of the homeowner or the buyer, but rather it’s a deeply rooted socioeconomic issue and it has everything to do with buying power and and socioeconomic status,” Jeremy Bagott, a California-based appraiser, said. “It’s not a problem that appraisers are responsible for; we’re just providing the message about the reality in the market.”
Responses to the Brookings study and other related findings include supervisory guidelines around the handling of algorithmic appraisal tools, efforts to reduce barriers to entry into the appraisal profession and greater data transparency around home valuation across census tracts.
But appraisers say other initiatives — including what some see as a lowering of the threshold for challenging an appraisal — will make it harder for them to perform their key duty of ensuring banks do not overextend themselves based on inflated asset prices.
Even those who favor reform within the profession have taken issue with the Brookings’ findings. Jonathan Miller, a New York-based appraiser who has deep concerns about the lack of diversity with the field — which is more than 90% white, mostly male and aging rapidly — said using the study as a basis for policy change put the government on the wrong track.
“There’s something wrong in the appraisal profession, and it’s that minorities are not even close to being fairly represented, but the Brookings study doesn’t connect to the appraisal industry at all,” Miller said. “Yet, that is the linchpin that began this movement. … I’m in favor of more diversity, but the Brookings’ findings are extremely misleading.”
Willis, who previously led JPMorgan Chase’s community development program, said appraisers are justified in their concerns over new policies, noting this is not the first time the profession has shouldered a heavy blame for systemic failures. The government rolled out new reforms for appraisers following both the savings and loan crisis of the 1980s and the subprime lending crisis of 2007 and 2008.
But, ultimately, Willis added, appraisers have left themselves open to such attacks by allowing bad — either malicious or incompetent — actors to enter their field and failing to diversify their ranks.
“It seems clear that the burden is on the industry to ensure that everybody is up to the same quality level,” he said. “Unless the industry polices itself better and is more diverse, it is going to remain very vulnerable to criticism.”
“If these expenses were to be excluded due to their nonrecurring nature, this would result in a 4% quarter-over-quarter reduction in our core operating expenses,” Martell noted during Tuesday’s earnings call. “Profitable growth, together with our laser focus on productivity and operating leverage, accounted for a $42 million, or 46%, sequential reduction in our Q2 … [Read more…]
The Urban Institute, a well-known think tank in Washington, D.C., has a Housing Finance Policy Center that does a significant amount of research and analysis on the housing market. They also produce a monthly chart book that is packed with amazing data about the market. Today, we want to share some key observations from the March Monthly Chartbook.
The data we will share with you today highlights two things. First, the FHA program does more loans to minorities than any other agency or private label lending source — so much so that it dwarfs the GSEs, VA, and others.
Second, if it weren’t for independent mortgage bankers (IMBs), the opportunity to get into homes for first-time homebuyers would be significantly constrained.
Let’s start with the basics. In looking at full year 2021, 49.3% of FHA’s purchase transactions were provided for minority home loans.
That compares to only 28% for both GSEs combined. To be clear, the FHA remains the primary provider of mortgage financing for minorities in this country. And, if you read the report, you will see toward the end that even with the improvements in LLPAs for high LTV/Low FICO borrowers, FHA remains better execution for borrowers below a 740 FICO. Which means, all this pricing effort from the GSEs to sweep in more minority homebuyers is likely for naught.
But who does the FHA loans today? This is where you cannot help but recognize the incredible value that IMBs bring to the mortgage market.
In fact, in looking at Urban’s view of the percent of the market that IMBs fill in the chart above, the top grey line making up Ginnie Mae issuance, is dominated by IMBs that make up 90% of total volume. And yes, while IMBs are the majority of all originations in all categories, the Ginnie Mae concentration stands out and is one that policy leaders in housing should be discussing.
With IMBs contributing 90% of the loans where the highest concentration of minority purchase transactions are, it raises the question as to why are these same policymakers so focused on attacking this channel? Yes, liquidity concerns exist, but there are solutions that simply require focus and leadership here.
A former member of the National Economic Council in the White House and current Urban Institute Fellow Jim Parrott, along with the renowned chief economist from Moody’s Analytics Mark Zandi, recently penned a paper published in economy.com in defense of the FHLB system. The paper does a great job pointing out the important role the FHLB’s play and dismantling some of the arguments against their role in the market.
But Parrott and Zandi make a point to call for expansion of membership to give access to IMBs. This is important as the FHLB system could significantly reduce liquidity risk concerns in the nonbank marketplace.
One must ask, why are the IMBs so effective with Ginnie Mae lending? The answer is simple: they don’t add the credit overlays that banks generally do.
As the two graphics below show, IMBs do higher DTIs and lower FICOs than banks. And they do this while staying well within the guidelines of the various agency programs.
Look, every lender has the right to put any overlay that they choose when originating a mortgage. But when you are looking to expand credit access and opportunity and meet the needs of more first-time homebuyers, especially minority first-time homebuyers, it is the IMB that is making this all happen.
So, the conclusion is simple really, all made clear by the Urban Institute’s Monthly Chartbook. The FHA is the program that has the vast majority of minority purchase loans, and IMBs do approximately 90% of these mortgages. And they do this much simply because they use the entire credit set provided by FHA and the other programs, thus allowing lower FICOs and higher DTIs than banks.
We find ourselves continually needing to show why the IMB is so critical to the nation’s housing. And despite the many “yeah, but” responses we get, we end up more confounded as to why policymakers and housing advocates are not making a bigger point of this.
It’s the IMB that is filling the gap that was created by banks being conservative and reducing their participation in these programs. And make no mistake, banks have served a big role in providing jumbo mortgages for wealthier homebuyers, but when it comes to expanding affordability and access, it’s simply the Independent Mortgage Banker that fills this role.
David Stevens is CEO of Mountain Lake Consulting. He has served as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the MBA.
Scott Olson is the Executive Director of the Community Home Lenders of America (CHLA).
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the authors of this story: Dave Stevens at [email protected] Scott Olson at [email protected]
To contact the editor responsible for this story: Sarah Wheeler at [email protected]
Since 2008, the number of private secondary mortgage providers has reduced dramatically, and those that remain in the market generally purchase jumbo loans from more affluent borrowers.
Fannie Mae and Freddie Mac have been under government conservatorship since the beginning of 2008. Ginnie Mae is wholly owned by the federal government. This is important to note because most people believe that the government has no business competing with private enterprises unless it is there to serve segments of the market that are not being adequately served by the private sector.
While banks also have the capacity to make loans and hold them on their balance sheets, the majority sell most or all of their loans to secondary providers. They do this to reduce their risk and to free up their capital to process more loans. Independent mortgage bankers use lines of credit to fund all of their loans and therefore must sell them promptly on the secondary mortgage market. The bottom line is that the secondary mortgage market is the platform that powers the entire mortgage ecosystem in the U.S.
The benefit of a system with a robust secondary mortgage market is that borrowers can access competitively priced mortgages in almost every market in the country, and because the secondary market is limited to a handful of providers, the mortgage approval process is widely standardized. In other words, the process and criteria to qualify for a mortgage are very much the same throughout the country.
Without a strong secondary mortgage market supported by the federal government, lenders would be able to fund far fewer loans, and would likely flock to the most affluent areas in the country, leaving less-affluent markets with fewer options to finance a home. The drawback to having a uniform secondary mortgage market is that there isn’t much differentiation in the market. Because mortgage lenders need to underwrite their loans to satisfy either Fannie Mae, Freddie Mac or Ginnie Mae guidelines, every mortgage lender in every market offers much the same products and follows the same underwriting guidelines, making it difficult for mortgage lenders to serve borrowers who fall outside the narrow underwriting box.
Incentivize lenders to service more minority borrowers
Because Hispanic and Black borrowers typically have less wealth and are primarily first-time homebuyers, processing loans for minority borrowers can require more time and work.
Additionally, loans made to first-time buyers with small down payments are considered riskier and have higher rates and fees to compensate for the additional risk. Loans made to minority borrowers also tend to be smaller, so the commissions are lower. Essentially, loans made to Hispanic and Black borrowers frequently make less money, cost more to produce and carry more risk. The financial incentives are simply not there for mortgage companies that want to do more minority lending; therefore, it shouldn’t be a surprise that most banks and mortgage lenders do just enough minority lending to stay out of regulatory trouble but secretly have no desire to do much beyond that.
Fannie Mae and Freddie Mac have had affordable lending goals for years, but the impact of closing the minority homeownership gap has not been that significant. If the federal government was serious about closing the minority homeownership gap, they would require Fannie, Freddie and Ginnie Mae to provide financial incentives to lenders that outperform the market in lending to minority, first-time buyers. Today, a handful of companies make a disproportionate percentage of loans to minorities.
They do it despite the financial sacrifices, but their success proves that it can be done. Minority lending goals without financial incentives will continue to have modest outcomes, but if the financial incentives are aligned with the goals, lenders will respond accordingly and the impact on minority lending would be substantial.
How to safely qualify more minority borrowers
The U.S. is one of the few places in the world where you can get a fixed-rate mortgage amortized over 30 years. It is also a great product that would not be possible without our secondary market. Fixed-rate mortgages provide stability and predictability. The criteria to qualify for a fixed-rate mortgage has not changed much in the last 60 years.
Lenders use systems called automated underwriting systems (AUS) that are accessed by Fannie Mae and Freddie Mac. Income and credit information are inputted into the AUS. Then, it makes a decision based on three primary factors: debt-to-income ratio (DTI), credit score and loan-to-value ratio (LTV). Credit and loan-to-value ratios are fairly easy to determine for most people, but evaluating income is where judgment is sometimes involved. Today, for borrowers who do not get all of their income fromfixed wages, their income is averaged over the most recent two-year span, making it more difficult for self-employed and part-time workers to qualify for a mortgage.
Latinos and other minorities are almost twice as likely to have self-employment or part-time income as the overall population. The emergence of the “gig economy,” where more people earn their money by working multiple part-time or temporary jobs, presents challenges for underwriters who are bound by a process that was designed when 90% of the population earned a standard paycheck. A borrower’s income should always be evaluated as part of the underwriting process, but closing the minority homeownership gap will require more innovation in determining income and the ability of a borrower to repay a mortgage.
Thin credit, when a borrower does not have enough established credit to generate a dependable credit score, is also an issue that tends to affect minority borrowers more frequently. Recently, Fannie Mae and Freddie Mac have allowed lenders to use rental history to build a credit profile. This is an important development because the data shows that a borrower’s history of paying rent or a previous mortgage is the single best indicator of a borrower’s ability to repay.
The consequences of risk-based pricing for mortgages
For the most part, interest rates for mortgages are determined by market forces; however, risk is also a factor. Ironically, higher interest rates and fees are assigned to the borrowers that can least afford them. This practice is called risk-based pricing. Borrowers with high loan-to-value ratios and lower credit scores are required to pay higher rates and fees for mortgages. This practice disproportionately affects minority first-time homebuyers. The most prominent exceptions to this practice are FHA and VA loans, in which everyone pays the same price and fees regardless of LTV or credit score.
Recently, the Federal Housing Finance Agency (FHFA), the regulator for Fannie Mae and Freddie Mac, made adjustments to their policies that reduced the pricing for loans that were previously deemed riskier. The policy initially received criticism from people who believed it penalized people with good credit. However, FHFA understands that homeownership rates, especially for minorities, won’t improve without addressing mortgage affordability for first-time buyers.
Diversity in the industry
If the industry was given one silver bullet to reduce the minority homeownership gap, it might be to substantially improve diversity in the mortgage industry. The process of purchasing a home is complicated and intimidating, especially for someone who has no experience with it. Having a mortgage professional who comes from your community, understands the cultural nuances and speaks your preferred language makes a huge difference. The mortgage companies that service the highest percentage of minority borrowers also have the most diverse teams — up and down their organization, from the C-suite to their operations and sales teams. Every year NAHREP surveys the top Latino mortgage originators in the nation. When asked why they chose the company for which they currently work, the No. 1 answer has been, “They understand my borrowers and know how to close my loans.”
Translation: my company employs people who look and sound like my clients and me.
Final words on access to mortgage credit
As our nation becomes a majority-minority country, our long-term prosperity depends on our ability to close ethnic wealth and prosperity gaps. Because home equity is the primary source of wealth for most Americans, closing the minority homeownership gap is the first step toward that goal. Closing the homeownership gap will require improving housing affordability, closing knowledge gaps, increasing diversity in the housing industry, and improving access to affordable mortgage credit. The latter can be accomplished by 1) Incentivizing mortgage lenders who originate a high percentage of their loans to minority borrowers, 2) Developing new metrics to determine the ability to repay, 3) Continuing to find solutions for borrowers with thin credit files, 4) Improve loan pricing for first-time homebuyers with average credit scores and small down payments, and 5) Dramatically improving diversity in the mortgage industry.
Gary Acosta is the co-founder and CEO of NAHREP.
This piece was originally published in the August/September 2023 issue of HousingWire Magazine. To read the full issue, click here.
In our latest real estate tech entrepreneur interview, we’re speaking with Michael Worthington from Brightdoor & HomeRover.
Who are you and what do you do?
My name is Michael Worthington and I am the co-founder and CEO of BrightDoor. Since co-founding the business, my primary focus has been leadership around product ideation as well as marketing and brand management. I am the creator of the newly released HomeRover livestream video home tour app.
What problem does your product/service solve?
Real estate agents often find themselves having to perform live home tours for remote buyers using off-the-shelve apps like FaceTime and Skype that only offer the live video feature. And, often the agent and house hunters are hampered by not having common devices or apps. Finally, the users don’t have the ability to replay the tour and share with others involved in the home buying process. HomeRover is a smartphone app for iOS and Android that solves all of these problems and adds even more value by replicating all aspects of the scheduling, planning and execution of a personal home tour experience.
What are you most excited about right now?
While the current COVID-19 crisis is certainly nothing to be excited about, I do feel that the industry’s shift to online tools might finally crack the dam open (so to speak) with regards to use of innovative technology in real estate. As an entrepreneur, it’s been difficult to innovate in this space (for a myriad of reasons). I’m excited that that might change now.
What’s next for you?
I’m going to be working diligently to grow adoption of the HomeRover platform and look for strategic partnerships to extend the ability to make a remote, livestream home tour a natural option for homebuyers.
What’s a cause you’re passionate about and why?
I’ve always been interested in movies and filmmaking (one of my college majors at UNC-Chapel Hill was TV & Film). I’m thrilled that many of the long-standing barriers that have kept minorities out of key roles in cinema have been eroding and crumbling. While I don’t have an official organization I’m currently aligned with, I do support independent filmmaking and the further growth of minority-led projects.tour
Thanks to Michael for sharing his story. If you’d like to connect, find him on LinkedIn here.
We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,'” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?'” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,'” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
Mortgages are essential financial tools that create a pathway to homeownership for millions of Americans each year. In recent years, however, many homebuyers have struggled to obtain small mortgages to purchase low-cost homes, those priced under $150,000.1 This problem has garnered the attention of federal regulators, including the Federal Housing Administration (FHA) and the Consumer Financial Protection Bureau (CFPB), who view small mortgages as important tools to increase wealth-building and homeownership opportunities in financially undeserved communities.2
Research has explored mortgage access at different loan amounts, such as below $100,000 or $70,000, and found that small mortgages are scarce relative to larger home loans. Those analyses show that applications for small mortgages are more likely to be denied than those for larger loans, even when applicants have similar credit scores.3 Although the existing research has identified several possible contributing factors to the shortage of small mortgages, the full spectrum of causes and their relative influence are not well understood.4
The Pew Charitable Trusts set out to fill that gap by examining the availability of small mortgages nationwide, the factors that impede small mortgage lending, and the options available to borrowers who cannot access these loans. Pew researchers compared real estate transaction and mortgage origination data from 2018 to 2021 in 1,440 counties across the U.S.; looked at homeownership statistics; and reviewed the results from Pew’s 2022 survey of homebuyers who have used alternative financing methods, such as land contracts and rent-to-own agreements.5 (See the separate appendices document for more details.) This examination found that:
Small mortgages became less common from 2004 to 2021. Nationally, much of the decline in small mortgage lending is the result of home price appreciation, which continually pushes properties above the price threshold at which small mortgages could finance them. However, even after accounting for price changes, small mortgages are less available nationwide than they were two decades ago, although the decline varies by geography.
Most low-cost home purchases do not involve a mortgage. Despite rising prices, sales of low-cost homesremain common nationwide, accounting for more than a quarter of total sales from 2018 to 2021. However, just 26% of properties that sold for less than $150,000 were financed using a mortgage, compared with 71% of higher-cost homes.
Borrowers who cannot access small mortgages typically experience one of three undesirable outcomes. Some households cannot achieve homeownership, which deprives them of one of this nation’s key wealth-building opportunities. Others pay for their home purchase using cash, though this option is challenging for all but the most well-resourced households and is almost never available to first-time homebuyers. And, finally, some resort to alternative financing arrangements, which tend to be riskier and costlier than mortgages, because in most states they are poorly defined and not subject to robust—or sometimes any—consumer protections.
Structural and regulatory barriers limit the profitability of small mortgage lending. The most significant of these barriers is that the fixed costs of originating a mortgage are disproportionally high for smaller loans. Federal policymakers can help address these challenges by identifying opportunities to modernize certain regulations in ways that reduce lenders’ costs without compromising borrower protections.
Mortgages are the main pathway to homeownership
In the United States, homeownership remains a priority for most families: In one nationally representative survey, 74% of respondents said owning a home is an integral part of the American Dream.6 Some Americans value homeownership for personal reasons, citing it as a better option for their family, their sense of safety and security, and their privacy.7 Still others emphasized homeownership’s financial benefits, noting that owning makes more economic sense than renting, enables them to take advantage of their home’s resale value, and can provide substantial tax benefits.8
But regardless of their reasons for buying homes, most American families rely on mortgages to gain access to homeownership because they cannot afford to purchase a home with cash. According to a survey conducted from July 2021 to June 2022, 78% of homebuyers financed their purchases with mortgages, most of which were fixed-rate loans. Mortgages are even more prevalent among first-time homebuyers: 97% used a mortgage to purchase their starter home.9 Given the predominance of mortgages, it is no surprise that changes in mortgage availability have closely correlated with shifts in the nation’s homeownership rate over the past two decades.10 (See Figure 1.)
Mortgages not only enable homeownership, but they also enhance its financial benefits. In most cases, these loans help borrowers purchase larger or more valuable homes than they could otherwise afford. Fixed-rate mortgages also serve as a hedge against inflation and offer borrowers housing cost certainty in the form of a predictable schedule of payments for the duration of the loan.
In addition, mortgages are subject to robust consumer protections. Most mortgages include inspection and appraisal contingencies, which ensure that homes meet minimum habitability standards and that the sale price reflects the home’s true market value, respectively.11 Further, real estate transactions involving mortgages typically include a clear process for transferring the property’s title from seller to buyer, which is a crucial step in guaranteeing that borrowers can demonstrate ownership of their property. And in the event of default, CFPB rules contain clear foreclosure and delinquency processes that give mortgage borrowers an opportunity to make any missed payments and retain their homes.12
Because of these advantages, financing a home purchase with a mortgage is almost always in buyers’ best interest. However, homebuyers seeking loans under $150,000 are often unable to find a mortgage and so are deprived of the benefits of homeownership, of mortgages, or both.
Small mortgages are scarce
Small mortgages are less common today than they were before the Great Recession, when lenders issued small and large mortgages in roughly equal measure. In 2004, for example, lenders originated 2.7 million mortgages for less than $150,000 (in 2004 dollars) and 2.9 million large mortgages—those of $150,000 or more. But Pew estimates that from 2004 to 2021, small mortgage lending fell by nearly 70% to 830,000 loans a year, while large mortgage lending grew by 52% to 4.4 million loans annually. The decline was more acute in certain parts of the country. For instance, the Federal Reserve Bank of Philadelphia found that small mortgages declined by only 28% in Pennsylvania and Delaware from 2019 to 2021 but fell by 43% in New Jersey over the same span.13
Some of the decrease in small mortgage lending can be explained by rising home prices. As homes become more expensive, fewer properties can be purchased using a small mortgage. And the issue of housing affordability has grown more acute over the past two decades. According to the Zillow Home Value Index, single-family home prices rose faster than the rate of inflation from 2004 to 2021. Furthermore, those increases were largest among lower-priced homes.14 Still, home price appreciation does not fully account for the decline in small mortgage lending. (See Figure 2.)
Although low-cost properties are scarcer than they once were, they continue to be bought and sold in large numbers across the country. But the share of those homes purchased with a mortgage is far lower than that for higher-priced properties. From 2018 to 2021, the 1,440 counties Pew studied collectively recorded about 20 million home sales, of which 5.3 million were for less than $150,000. Although the share of low-cost properties varied based on local market conditions, every county in this analysis recorded at least one low-cost sale. During the same period, lenders originated about 12.1 million mortgages in the counties Pew studied, including roughly 1.4 million for purchases under $150,000.15 Based on these mortgage origination and home sale figures, Pew estimates that about 71% of homes priced at $150,000 or more were financed using a mortgage, compared with just 26% of lower-cost homes. (See Figure 3.) This amounts to a financing gap of 44 percentage points, or about 560,000 home purchases that were not financed with small mortgages.
Importantly, however, this analysis probably overstates the magnitude of the financing gap for two key reasons. First, Pew is unable to observe the physical quality of the homes purchased in the studied counties. Evidence suggests that low-cost homes are more likely than higher-cost homes to have structural deficiencies that disqualify them from mortgage financing. Second, even if small mortgages are readily available, many sellers, and probably some buyers, are likely to prefer cash transactions. (See “Cash purchases” below for more details.) Still, these factors do not fully account for the gap in small mortgage financing.
What happens when people cannot get a small mortgage?
When prospective buyers of low-cost homes cannot access a small mortgage, they typically have three options: turn to alternative forms of financing such as land contracts, lease-purchases, or personal property loans; purchase their home using cash; or forgo owning a home and instead rent or live with family or friends. Each of these outcomes has significant disadvantages relative to buying a home using a small mortgage.
Alternative financing
Many alternative financing arrangements are made directly between a seller and a buyer to finance the sale of a home and are generally costlier and riskier than mortgages.16 For example, personal property loans—an alternative arrangement that finances manufactured homes exclusive of the land beneath them—have median interest rates that are nearly 4 percentage points higher than the typical mortgage issued for a manufactured home purchase.17 Further, research in six Midwestern states found that interest rates for land contracts—arrangements in which the buyer pays regular installments to the seller, often for an agreed upon period of time—ranged from zero to 50%, with most above the prime mortgage rate.18 And unlike mortgages, which are subject to a robust set of federal regulations, alternative arrangements are governed by a weak patchwork of state and federal laws that vary widely in their definitions and protections.19
But despite the risks, millions of homebuyers continue to turn to alternative financing. Pew’s first-of-its-kind survey, fielded in 2021, found that 36 million people use or have used some type of alternative home financing arrangement.20 And a 2022 follow-up survey on homebuyers’ experiences with alternative financing found that these arrangements are particularly prevalent among buyers of low-cost homes. From 2000 to 2022, 50% of borrowers who used these arrangements purchased homes under $150,000. (See the separate appendices document for survey toplines.)
Further, the 2022 survey found that about half of alternative financing borrowers applied—and most reported being approved or preapproved—for a mortgage before entering into an alternative arrangement. Pew’s surveys of borrowers, interviews with legal aid experts, and review of research on alternative financing shed some light on the advantages of alternative financing—despite its added costs and risks—compared with mortgages for some homebuyers:
Convenience. Alternative financing borrowers do not have to submit or sign as many documents as they would for a mortgage, and in some instances, the purchase might close more quickly.21 For example, Pew’s 2022 survey found that just 67% of respondents said they had to provide their lender with bank statements, pay stubs, or other income verification and only 60% had to furnish a credit report, credit score, or other credit check, all of which are standard requirements for mortgage transactions.
Upfront costs. Some alternative financing arrangements have lower down payment requirements than do traditional mortgages.22 Borrowers who are unable to afford a substantial down payment or who want small monthly payments may find alternative financing more appealing than mortgages, even if those arrangements cost more over the long term. For example, in Pew’s 2022 survey, 23% of respondents said they did not pay a down payment, deposit, or option fee. And among those who did have a down payment, 75% put down less than 20% of the home price, compared with 59% of mortgage borrowers in 2021.23
Specifics of a home. Borrowers who prioritize the location or amenities of a specific home over the type, convenience, and cost of financing they use might agree to an alternative arrangement if the seller insists on it, rather than forgo purchasing the home.
Familiarity with seller. Borrowers buying a home from family or friends might agree to a transaction that is preferable to the seller because they trust that family or friends will give them a fair deal, perhaps one that is even better than they would get from a mortgage lender.
However, regardless of a borrower’s reasons, the use of alternative financing is cause for concern because it is disproportionately used—and thus the risks and costs are inequitably borne—by racial and ethnic minorities, low-income households, and owners of manufactured homes. Among Americans who have financed a home purchase, 34% of Hispanic and 23% of Black households have used alternative financing at least once, compared with just 19% of White borrowers. (See Figure 4.) Further, families earning less than $50,000 are seven times more likely to use alternative financing than those earning more than $50,000. And nearly half of surveyed manufactured home owners reported using a personal property loan.24 In all of these cases, expanding access to small mortgages could help reduce historically underserved communities’ reliance on risky alternative financing arrangements.
Cash purchases
Other homebuyers who fail to obtain a small mortgage instead choose to pay cash for their homes. In 2021, about a quarter of all home sales were cash purchases, and that share grew in 2022 amid an increasingly competitive housing market.25 The share of cash purchases is larger among low-cost than higher-cost property sales, which may partly be a consequence of the lack of small mortgages.26 However, although cash purchases are appealing to some homebuyers and offer some structural advantages, especially in competitive markets, they are not economically viable for the vast majority of first-time homebuyers, 97% of whom use mortgages.27
Purchasing a house with cash gives buyers a competitive advantage, compared with using a mortgage. Sellers often prefer to work with cash buyers over those with financing because payment is guaranteed, and the buyer does not need time to secure a mortgage. Cash purchases also enable simpler, faster, and cheaper sales compared with financed purchases by avoiding lender requirements such as home inspections and appraisals. In essence, cash sales eliminate “financing risk” for sellers by removing the uncertainties and delays that can accompany mortgage-financed sales. Indeed, as the housing supply has tightened and competition for the few available homes has increased, purchase offers with financing contingencies have become less attractive to sellers. As a result, some financing companies have stepped in to make cash offers on behalf of buyers, enabling those borrowers to be more competitive but often saddling them with additional costs and fees.
However, most Americans do not have the financial resources to pay cash for a home. In 2019, the median home price was $258,000, but the median U.S. renter had just $15,750 in total assets—far less than would be necessary to buy a house.28 Even households with cash on hand may be financially destabilized by a cash purchase because investing a substantial sum of money into a home could severely limit the amount of money they have available for other needs, such as emergencies or everyday expenses. Perhaps because of the financial challenges, homes purchased with cash tend to be smaller and cheaper than homes bought using a mortgage.29
These challenging economic factors limit the types of homebuyers who pursue cash purchases. Investors—both individual and institutional—make up a large share of the cash-purchase market, and are more likely than other buyers to purchase low-cost homes and then return the homes to the market as rental units.30
Researchers have questioned whether cash purchases are truly an alternative to mortgage financing or whether they fundamentally change the composition of homebuyers. One study conducted in 2016 determined that tight credit standards enacted in the aftermath of the 2008 housing market crash resulted in a large uptick in cash purchases, mostly by investor-buyers.31 More recent evidence from 2020 through 2021 suggests that investor purchases are more common in areas with elevated mortgage denial rates, low home values, and below-average homeownership rates.32 In each of these cases, a lack of mortgage access tended to benefit investors, possibly at the expense of homeowners.
No homeownership
Some prospective homebuyers who are unable to access a small mortgage simply forgo homeownership entirely. Instead of buying, these families may choose to rent or live with friends or family. And although these are not necessarily bad outcomes, they lack the financial advantages of homeownership.
On average, homeowners have a net worth that is more than 40 times that of renters, largely because of the equity they accrue from paying down their mortgage balances and from their homes’ appreciation over time.33 In 2019, the median homeowner had $225,000 of equity, accounting for almost 90% of their overall net worth.34
Further, in rental markets with few vacancies and commensurately high costs, owning a home can cost less per month than renting. Recent evidence suggests that, particularly when mortgage interest rates are low, a mortgage payment for a three-bedroom house can be cheaper than the monthly rent for a three-bedroom apartment.35 Likewise, some evidence suggests that buying an inexpensive starter home costs less than renting in some metropolitan areas in the South and Midwest.36
Importantly, the financial benefits of homeownership are not shared equally throughout the country. Historical patterns of discrimination in mortgage lending and government policy have prevented Black, Hispanic, and Indigenous households from accessing homeownership at the same rate as White households. And many of those structural barriers persist, as evidenced by the Black-White homeownership gap, which was wider in 2020 than it was in 1970.37
Mortgage Denials Play a Small Role in Low Access to Credit
Lenders deny applications for small mortgages more often than those for larger loans. From 2018 to 2021, lenders received about 700,000 small mortgage applications per year for site-built single-family homes, of which they denied 11.8%. In contrast, lenders denied just 7.8% of the roughly 3.6 million applications submitted annually for larger mortgages during the same period.
These differences do not entirely reflect applicants’ creditworthiness, as measured by debt-to-income ratio (a person’s monthly debt divided by their income), loan-to-value ratio (dollar amount of a mortgage as a share of the subject property’s appraised value), or credit scores. Research demonstrates that, even for applicants with similar credit profiles, denial rates are much higher for small mortgages than large ones.38 Pew’s analysis confirms these findings. Lenders denied small mortgage applicants with low debt-to-income ratios (36% and below) 8.8% of the time, compared with 4.7% of the time for larger loan applicants with a similar profile. Likewise, applicants with loan-to-value ratios under 80% were more likely to be denied for a small mortgage than a large one.
However, mortgage denials are not the primary cause of the small mortgage shortage. Pew’s analysis found that if lenders denied applications for small mortgages at the same rate as those for larger mortgages, they would originate about 31,000 more small mortgages each year. Although thousands of borrowers would benefit from lower small mortgage denial rates, those additional loans would increase the share of low-cost properties financed with a mortgage by only about 3 percentage points. These findings suggest that lowering the denial rate is not sufficient to increase access to safe and affordable mortgage financing and that regulators need to do more to improve incentives for lenders to originate small mortgages and boost awareness among borrowers.
Small mortgage lending is not profitable for lenders
Policymakers, consumer advocates, and industry agree that increasing the supply of small mortgages could boost homeownership—especially in underserved, low-cost communities.39 But many mortgage lenders simply do not offer small home loans to borrowers. Of the more than 5,000 lenders that originated mortgages from 2018 to 2021, 38% did not issue a single small mortgage.40
In conversations with Pew, lenders, consumer advocates, and government officials identified several potential structural and regulatory obstacles to small mortgage lending. These include the high fixed cost of origination, commission-based compensation for loan officers, the poor physical quality of many low-cost housing units, and various rules and regulations that help protect consumers but may add cost or complexity to the origination process and could be updated to maintain safety at lower cost to lenders.
Structural barriers
Lenders have repeatedly identified the high fixed cost of mortgage originations as a barrier to small mortgage lending because origination costs are roughly constant regardless of loan amount, but revenue varies by loan size. As a result, small mortgages cost lenders about as much to originate as large ones but produce much less revenue, making them unprofitable. Further, lenders have reported an increase in mortgage origination costs in recent years: $8,243 in 2020, $8,664 in 2021, and $10,624 in 2022.41 In conversations with Pew, lenders indicated that many of these costs stem from factors that do not vary based on loan size, including staff salaries, technology, compliance, and appraisal fees.
Lenders typically charge mortgage borrowers an origination fee of 0.5% to 1.0% of the total loan balance as well as closing costs of roughly 3% to 6% of the home purchase price.42 Therefore, more expensive homes—and the larger loans usually used to purchase them—produce higher revenue for lenders than do small mortgages for low-cost homes.
In addition, standard industry compensation practices for loan officers may limit the availability of small mortgages. Lenders typically employ loan officers to help borrowers choose a loan product, collect relevant financial documents, and submit mortgage applications—and pay them wholly or partly on commission.43 And because larger loans yield greater compensation, loan officers may focus on originating larger loans at the expense of smaller ones, reducing the availability of small mortgages.
Finally, lenders must contend with an aging and deteriorating stock of low-cost homes, many of which need extensive repairs. Data from the American Housing Survey shows that 6.7% of homes valued under $150,000 (1.1 million properties) do not meet the Department of Housing and Urban Development’s definition of “adequacy,” compared with just 2.6% of homes valued at $150,000 or more (1.7 million properties).44 The Federal Reserve Bank of Philadelphia estimates that, despite some improvement in housing quality overall, the total cost of remediating physical deficiencies in the nation’s housing stock nevertheless increased from $126.2 billion in 2018 to $149.3 billion in 2022.45
The poor physical quality of many low-cost properties can limit lenders’ ability to originate small mortgages for the purchase of those homes. For instance, physical deficiencies threaten a home’s present and future value, which makes the property less likely to qualify as loan collateral. And poor housing quality can render many low-cost homes ineligible for federal loan programs because the properties cannot meet those programs’ strict habitability standards.
Regulatory barriers
Regulations enacted in the wake of the Great Recession vastly improved the safety of mortgage lending for borrowers and lenders. But despite this success, some stakeholders have called for streamlining of regulations that affect the cost of mortgage origination to make small mortgages more viable. The most commonly cited of these are certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Qualified Mortgage rule (QM rule), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and parts of the CFPB’s Loan Originator Compensation rule.46
The Dodd-Frank Act requires creditors to make a reasonable, good-faith determination of a consumer’s ability to repay a mortgage. This provision has significantly increased the safety of the mortgage market and protected borrowers from unfair and abusive loan terms—such as unnecessarily high interest rates and fees—as well as terms that could strip borrowers of their equity. Lenders can meet Dodd-Frank’s requirements by originating a “qualified mortgage” (QM), which is a loan that meets the CFPB’s minimum borrower safety standards, including limits on the points, fees, and annual percentage rate (APR) the lender can charge.47 In return for originating mortgages under this provision, known as the QM rule, the act provides protection for lenders from any claims by borrowers that they failed to verify the borrower’s ability to repay and so are liable for monetary damages in the event that the borrower defaults and loses the home.
Some lenders and researchers have suggested that the QM rule has increased the cost of mortgage origination because lenders had to establish new processes to verify borrowers’ ability to repay and adhere to stricter compliance requirements.48 In addition, lenders who cannot keep their charges within the QM rule limits often have to offer credits to lower the borrower-facing fees, which can result in lenders originating the loan at a loss.49 And although 2020 revisions to the QM rule gave lenders more flexibility in calculating a borrower’s ability to repay, the extent to which those changes help lenders keep origination costs in check remains unclear.
Another regulation that lenders and researchers have cited as possibly raising the cost of origination is the CFPB’s Loan Originator Compensation rule. The rule protects consumers by reducing loan officers’ incentives to steer borrowers into products with excessively high interest rates and fees. However, lenders say that by prohibiting compensation adjustments based on a loan’s terms or conditions, the rule prevents them from lowering costs for small mortgages, especially in underserved markets. For example, when making small, discounted, or reduced-interest rate products for the benefit of consumers, lenders earn less revenue than they do from other mortgages, but because the rule entitles loan officers to still receive full compensation, those smaller loans become relatively more expensive for lenders to originate. Lenders have suggested that more flexibility in the rule would allow them to reduce loan officer compensation in such cases.50 However, regulators and researchers should closely examine the effects of this adjustment on lender and borrower costs and credit availability. Although such changes would lower lenders’ costs to originate small mortgages for underserved borrowers, they also could further disincline loan officers from serving this segment of the market and so potentially do little to address the small mortgage shortage.
Lastly, some lenders have identified HOEPA as another deterrent to small mortgage lending. The law, enacted in 1994, protects consumers by establishing limits on the APR, points and fees, and prepayment penalties that lenders can charge borrowers on a wide range of loans. Any mortgage that exceeds a HOEPA threshold is deemed a “high-cost mortgage,” which requires lenders to make additional disclosures to the borrower, use prescribed methods to assess the borrower’s ability to repay, and avoid certain loan terms. Changes to the HOEPA rule made in 2013 strengthened the APR and points and fees standards, further protecting consumers but also limiting lenders’ ability to earn revenue on many types of loans. Additionally, the 2013 revision increased the high-cost mortgage thresholds, revised disclosure requirements, restricted certain loan terms for high-cost mortgages, and imposed homeownership counseling requirements.
Many lenders say the 2013 changes to HOEPA increased their costs and compliance obligations and exposed them to legal and reputational risk. However, research has shown that the changes did not significantly affect the overall loan supply but have been effective in discouraging lenders from originating loans that fall above the high-cost thresholds.51 More research is needed to understand how the rule affects small mortgages.
Regulators and lenders have taken some action to expand access to small mortgages
A diverse array of stakeholders, including regulators, consumer advocates, lenders, and researchers, support policy changes to safely encourage more small mortgage lending.52 And policymakers have begun looking at various regulations to identify any that may inadvertently limit borrowers’ access to credit, especially small mortgages, and to address those issues without compromising consumer protections.
Some regulators have already introduced changes that could benefit the small mortgage market by reducing the cost of mortgage origination. For example, in 2022, the Federal Housing Finance Agency (FHFA) announced that to promote sustainable and equitable access to housing, it would eliminate guarantee fees (G-fees)—annual fees that Fannie Mae and Freddie Mac charge lenders when purchasing mortgages—for loans issued to certain first-time, low-income, and otherwise underserved homebuyers.53 Researchers, advocates, and the mortgage industry have long expressed concern about the effect of G-fees on the cost of mortgages for borrowers, and FHFA’s change may lower costs for buyers who are most likely to use small mortgages.54
Similarly, FHFA’s decision to expand the use of desktop appraisals, in which a professional appraiser uses publicly available data instead of a site visit to determine a property’s value, has probably cut the amount of time it takes to close a mortgage as well as appraisal costs for certain loans, which in turn should reduce the cost of originating small loans without materially increasing the risk of defaults.55
At the same time, some lenders have been exploring the use of special purpose credit programs (SPCPs) to increase access to mortgage financing for low-cost homebuyers from historically disadvantaged communities.56 SPCPs allow lenders to design loan products that address the unique needs of borrowers of color, manufactured home buyers, and residents of areas where alternative financing is prevalent, all of whom have typically been underserved by the mortgage industry.
Other entities, such as nonprofit organizations and community development financial institutions (CDFIs), are also developing and offering small mortgage products that use simpler, more flexible underwriting methods than other mortgages, thus reducing origination costs.57 Where these products are available, they have increased access to small mortgages and homeownership, especially for low-income families and homebuyers of color.
Although these initiatives are encouraging, high fixed costs are likely to continue making small mortgage origination difficult, and the extent to which regulations governing loan origination affect—or might be safely modified to lower—these costs is uncertain. Unless policymakers address the major challenges—high fixed costs and their drivers—lenders and regulators will have difficulty bringing innovative solutions to scale to improve access to small mortgages. Future research should continue to explore ways to reduce costs for lenders and borrowers and align regulations with a streamlined mortgage origination process, all while protecting borrowers and maintaining market stability.
Solutions to small mortgage challenges in underserved communities
Structural barriers such as high fixed origination costs, rising home prices, and poor home quality partly explain the shortage of small mortgages. But borrowers also face other obstacles, such as high denial rates, difficulty making down payments, and competition in housing markets flooded with investors and other cash purchasers. And although small mortgages have been declining overall, the lack of credit access affects some communities more than others, driving certain buyers into riskier alternative financing arrangements or excluding them from homeownership entirely.
To better support communities where small mortgages are scarce, policymakers should keep the needs of the most underserved populations in mind when designing and implementing policies to increase access to credit and homeownership. No single policy can improve small mortgage access in every community, but Pew’s work suggests that structural barriers are a primary driver of the small mortgage shortage and that federal policymakers can target a few key areas to make a meaningful impact:
Drivers of mortgage origination costs. Policymakers should evaluate federal government compliance requirements to determine how they affect costs and identify ways to streamline those mandates without increasing risk, particularly through new financial technology. As FHFA Director Sandra L. Thompson stated in April 2023: “Over the past decade, mortgage origination costs have doubled, while delivery times have remained largely unchanged. When used responsibly, technology has the potential to improve borrowers’ experiences by reducing barriers, increasing efficiencies, and lowering costs.”58
Incentives that encourage origination of larger rather than smaller mortgages. Policymakers can look for ways to discourage compensation structures that drive loan officers to prioritize larger-balance loans, such as calculating loan officers’ commissions based on individual loan values or total lending volume.
The balance between systemic risk and access to credit. Although advocates and industry stakeholders agree that regulators should continue to protect borrowers from the types of irresponsible lending practices that contributed to the collapse of the housing market from 2005 to 2007, underwriting standards today prevent too many customers from accessing mortgages.59 A more risk-tolerant stance from the federal government could unlock access to small mortgages and homeownership for more Americans. For example, the decision by Fannie Mae and Freddie Mac (known collectively as the Government Sponsored Enterprises, or GSEs) and FHA to include a positive rent payment record—as well as Freddie Mac’s move to allow lenders to use a borrower’s positive monthly bank account cash-flow data—in their underwriting processes will help expand access to credit to a wider pool of borrowers.60
Habitability of existing low-cost housing and funding for repairs. Restoring low-cost homes could provide more opportunities for borrowers—and the homes they wish to purchase—to qualify for small mortgages. However, more analysis is needed to determine how to improve the existing housing stock without increasing loan costs for lenders or borrowers.
In addition to reducing structural and regulatory barriers to small mortgage lending, a robust policy response on home financing should focus on borrowers who are acutely affected by the lack of small mortgages. Federal policymakers should look for opportunities to expand existing programs and policies for communities that have historically been excluded from homeownership and mortgage access, particularly:
The Duty to Serve rule, which directs the GSEs to improve access to mortgage financing for borrowers of modest means in three underserved markets: manufactured housing, rural communities, and areas requiring funds to preserve affordable housing. Homebuyers in these markets often require a small mortgage to purchase a home, so the GSEs could seek to link their Duty to Serve obligations with small mortgage lending in these markets.
Equitable Housing Finance Plans, which are three-year strategies that the GSEs develop to promote equitable access to affordable and sustainable housing for disadvantaged groups, particularly Black and Hispanic communities. People in these communities are less likely to own a home and more likely to use alternative financing than the overall population, which probably indicates an unmet demand for mortgages. The GSE leadership should consider adding an objective to their plans related to refinancing alternative financing arrangements—which the plans’ target communities disproportionally use—into mortgages.
SPCPs, which can help lenders better serve specific populations that would otherwise be denied credit or receive it on less favorable terms. Policymakers should encourage the creation and use of these programs for underserved populations in low-cost areas where there is a special need for small mortgages and measure the impacts.
Future Pew research will explore not only important questions about the barriers to small mortgage origination but also the strategies that policymakers can use to expand the nation’s affordable housing stock, improve the habitability of existing low-cost homes, and ensure that small mortgages are more accessible and competitive in the marketplace.
Conclusion
Mortgages are vital financial tools that enable homeownership and wealth-building opportunities for millions of Americans each year. However, the scarcity of small mortgages deprives some prospective borrowers of homeownership opportunities and drives others to buy their homes with cash or risky alternative financing arrangements.
To address this problem, policymakers should aim to expand mortgage access and the overall safety of financing for low-cost homes by reducing the structural and regulatory constraints that increase lenders’ costs and make small mortgages unprofitable, and establishing strong consumer protections for alternative arrangements. In addition, federal agencies and lawmakers can reduce racial disparities in mortgage lending by prioritizing Black, Hispanic, and Indigenous households in the development and implementation of small mortgage and alternative financing programs. Together, these initiatives would help bring homeownership opportunities to more Americans.
This brief also benefited from the valuable insights of Dan Gorin, lead supervisory policy analyst, Federal Reserve Board of Governors; Roberto Quercia, professor, the University of North Carolina at Chapel Hill; Craig Richardson, professor, Winston-Salem State University; and Sabiha Zainulbhai, senior policy analyst, New America. Although they reviewed drafts of the brief, neither they nor their institutions necessarily endorse the findings or conclusions.
This brief was researched and written by Pew staff members Tracy Maguze, Tara Roche, and Adam Staveski. The project team thanks current and former colleagues Nick Bourke, Ryan Canavan, Jennifer V. Doctors, David East, Anne Holmes, Alex Horowitz, Dave Lam, Omar Antonio Martínez, Cindy Murphy-Tofig, Tricia Olszewski, Reagan Ortiz, Travis Plunkett, Andy Qualls, Ryland Staples, Drew Swinburne, and Mark Wolff for providing important communications, creative, editorial, and research support for this work.
Endnotes
Pew defines small mortgages as loans under $150,000. For the purposes of this study, loan values are adjusted for inflation to reflect 2021 dollars unless otherwise noted. This value is based on conversations with mortgage lenders and on an observed decline in lending below that threshold over the past decade. Additionally, for the purposes of this paper, low-cost homes are those priced at less than $150,000, also in 2021 dollars. This price range is consistent with the majority of purchases financed with small mortgages. The median down payment among small mortgage borrowers is just 5%, and as a result, 75% of small mortgages are used to purchase a home under $157,500, although some borrowers do pair small mortgages with larger down payments to purchase higher-cost homes.
Request for Information Regarding Small Mortgage Lending, 87 Fed. Reg. 60186-87 (Oct. 4, 2022); Request for Information Regarding Mortgage Refinances and Forbearances, 87 Fed. Reg. 58487-92 (Sept. 27, 2022).
U.S. Department of Housing and Urban Development, “Financing Lower-Priced Homes: Small Mortgage Loans” (2022), https://www.huduser.gov/portal/portal/sites/default/files/pdf/Financing-Lower-Priced-Homes-Small-Mortgage-Loans.pdf.
S. Zainulbhai et al., “The Lending Hole at the Bottom of the Homeownership Market” (New America, 2021), https://www.newamerica.org/future-land-housing/reports/the-lending-hole-at-the-bottom-of-the-homeownership-market/; U.S. Department of Housing and Urban Development, “Financing Lower-Priced Homes”; A. McCargo et al., “Small-Dollar Mortgages for Single-Family Residential Properties” (Urban Institute, 2018), https://www.urban.org/research/publication/small-dollar-mortgages-single-family-residential-properties; E. Goldstein and K. DeMaria, “Small-Dollar Mortgage Lending in Pennsylvania, New Jersey, and Delaware” (Federal Reserve Bank of Philadelphia, 2022), https://www.philadelphiafed.org/community-development/credit-and-capital/small-dollar-mortgage-lending-in-pennsylvania-new-jersey-and-delaware; L. Goodman, B. Bai, and W. Li, “Real Denial Rates: A Better Way to Look at Who Is Receiving Mortgage Credit” (working paper, Urban Institute, 2018), https://www.urban.org/sites/default/files/publication/98823/real_denial_rates_1.pdf; A. McCargo, B. Bai, and S. Strochak, “Small-Dollar Mortgages: A Loan Performance Analysis” (Urban Institute, 2019), https://www.urban.org/sites/default/files/publication/99906/ small_dollar_mortgages_a_loan_performance_analysis_2.pdf.
Federal Financial Institutions Examination Council, Home Mortgage Disclosure Act, 2018-2021, https://ffiec.cfpb.gov/data-browser/; Zillow Group Inc., Zillow Transaction and Assessment Database, 2018-21, https://www.zillow.com/research/ztrax/. This analysis uses data on mortgage transactions from the HMDA database, the most comprehensive source of information on mortgage lending in the United States. Mortgage lenders report application-level information directly to the CFPB, which compiles and republishes the data for public use. Data on home sales was provided by Zillow through Zillow’s Transaction and Assessment Database (ZTRAX). More information on accessing the data can be found at https://www.zillow.com/research/ztrax/. The results and opinions are those of the authors and do not reflect the position of Zillow Group.
Bankrate, “Nearly Two-Thirds Say Affordability Factors Are Holding Them Back From Homeownership” (Bankrate.com, 2022), https://www.bankrate.com/pdfs/pr/20220330-march-fsp.pdf.
D. Sackett and K. Handel, The Tarrance Group, letter to Woodrow Wilson Center, “Key Findings From National Survey of Voters,” May 21, 2012, https://www.wilsoncenter.org/sites/default/files/media/documents/article/keyfindingsfromsurvey.pdf.
Ibid.
National Association of Realtors, “Profile of Home Buyers and Sellers” (2022), https://www.nar.realtor/sites/default/files/documents/2022-highlights-from-the-profile-of-home-buyers-and-sellers-report-11-03-2022_0.pdf.
A. Acolin, L. Goodman, and S.M. Wachter, “Accessing Homeownership With Credit Constraints,” Housing Policy Debate 29, no. 1 (2019): 108-25, https://www.tandfonline.com/doi/full/10.1080/10511482.2018.1452042?casa_token=5ZjHGNxo1VoAAAAA%3AtLKWk_xn7JT3Uz2G7T_zziEuPZa0NlarhJ-tGl6m83DgxB6rq-IYSU7eZNI9mIwBAFx5o7BGbulINcjA.
N. Bourke, T. Roche, and C. Hatchett, “Homeowners With Risky Alternatives to Traditional Mortgages Eligible for COVID-19 Relief Money,” The Pew Charitable Trusts, Nov. 1, 2021, https://www.pewtrusts.org/en/research-and-analysis/articles/2021/11/01/homeowners-with-risky-alternatives-to-traditional-mortgages-eligible-for-covid19-relief-money.
Goldstein and DeMaria, “Small-Dollar Mortgage Lending in Pennsylvania, New Jersey, and Delaware.”
Zillow Group Inc., “Zillow Home Value Index (ZHVI),” 2000-22, https://www.zillow.com/research/data/.
Some borrowers use small mortgages to purchase properties valued at more than $150,000, but Pew is primarily interested in expanding homeownership opportunities to underserved populations, so this analysis considers only low-cost properties.
The Pew Charitable Trusts, “What Has Research Shown About Alternative Home Financing in the U.S.?” (2022), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/04/what-has-research-shown-about-alternative-home-financing-in-the-us.
Consumer Financial Protection Bureau, “Manufactured Housing Finance: New Insights From the Home Mortgage Disclosure Act Data” (2021), https://files.consumerfinance.gov/f/documents/cfpb_manufactured-housing-finance-new-insights-hmda_report_2021-05.pdf.
A. Carpenter, T. George, and L. Nelson, “The American Dream or Just an Illusion? Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis” (Joint Center for Housing Studies of Harvard University, 2019), 9, https://www.jchs.harvard.edu/sites/default/files/media/imp/harvard_jchs_housing_tenure_symposium_carpenter_george_nelson.pdf.
The Pew Charitable Trusts, “What Has Research Shown?”; National Consumer Law Center, “Summary of State Land Contract Statutes” (2021), https://www.pewtrusts.org/en/research-and-analysis/white-papers/2022/02/less-than-half-of-states-have-laws-governing-land-contracts.
The Pew Charitable Trusts, “Millions of Americans Have Used Risky Financing Arrangements to Buy Homes” (2022), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/04/millions-of-americans-have-used-risky-financing-arrangements-to-buy-homes.
H.K. Way, “Informal Homeownership in the United States and the Law,” Saint Louis University Public Law Review XXIX, no. 113 (2010): 113-92, https://law.utexas.edu/faculty/hway/informal-homeownership.pdf.
Ibid.
HMDA data for 2022 was not available at time of publication.
The Pew Charitable Trusts, “Millions of Americans Have Used Risky Financing Arrangements to Buy Homes.”
National Association of Realtors, “Realtors Confidence Index Survey” (2022), https://cdn.nar.realtor/sites/default/files/documents/2022-09-realtors-confidence-index-10-20-2022.pdf; D. Anderson, “Share of Homes Bought With All Cash Hits Highest Level Since 2014,” Redfin, https://www.redfin.com/news/all-cash-home-purchases-fha-loans-october-2022/.
T. Malone, “Single-Family Investor Activity Bounces Back in the First Quarter of 2022” (CoreLogic, 2022), https://www.corelogic.com/intelligence/single-family-investor-activity-bounces-back-in-the-first-quarter-of-2022/.
Federal Reserve Board, Survey of Consumer Finances, 1989-2019, https://www.federalreserve.gov/econres/scf/dataviz/scf/table/#series:Transaction_Accounts;demographic:agecl;population:all;units:median. In 2019, the median balance in the checking and savings accounts of Americans younger than 35 was just $3,240; it jumps to $5,620 for accountholders ages 55 to 64.
Ibid.
S. Riley, A. Freeman, and J. Dorrance, “Alternatives to Mortgage Financing for Manufactured Housing” (The University of North Carolina at Chapel Hill Center for Community Capital, 2021), https://www.pewtrusts.org/-/media/assets/2022/03/alternatives-to-mortgage-financing-for-manufactured-housing.pdf.
L. Goodman, J. Zhu, and B. Bai, “Overly Tight Credit Killed 1.1 Million Mortgages in 2015,” Urban Wire (blog), Urban Institute, Nov. 21, 2016, https://www.urban.org/urban-wire/overly-tight-credit-killed-11-million-mortgages-2015.
E. Dowdall et al., “Investor Home Purchases and the Rising Threat to Owners and Renters: Tales From 3 Cities” (Nowak Metro Finance Lab, 2022), https://drexel.edu/~/media/Files/nowak-lab/220923_InvestorHomePurchases_Final.ashx?la=en.
Federal Reserve Board, Survey of Consumer Finances, 2019, https://www.federalreserve.gov/econres/scfindex.htm.
Ibid.
ATTOM Data Solutions, “Owning a Home More Affordable Than Renting in Nearly Two Thirds of U.S. Housing Markets,” Jan 7, 2021, https://www.attomdata.com/news/market-trends/home-sales-prices/attom-data-solutions-2021-rental-affordability-report/.
D. Olick, “Here’s Where Owning a Home Is Cheaper Than Renting One,” CNBC, Feb. 7, 2020, https://www.cnbc.com/2020/02/07/where-owning-a-home-is-cheaper-than-renting-one.html.
The Pew Charitable Trusts, “What Has Research Shown?,” 5.
Goodman, Bai, and Li, “Real Denial Rates.”
Consumer Financial Protection Bureau, “Request for Information: Mortgage Refinances and Forbearances,” Sept. 27, 2022, https://www.regulations.gov/document/CFPB-2022-0059-0001/comment; U.S. Department of Housing and Urban Development, “Request for Information Regarding Small Mortgage Lending,” Oct. 4, 2022, https://www.regulations.gov/docket/HUD-2022-0076/comments.
Alan S. Kaplinsky et al., “DOJ Fair Lending Focus Continues in Settlement of Case Challenging Lender’s Minimum Loan Amount Policy by the Consumer Financial Services and Mortgage Banking Groups,” Casetext, https://casetext.com/analysis/doj-fair-lending-focus-continues-in-settlement-of-case-challenging-lenders-minimum-loan-amount-policy-by-the-consumer-financial-services-and-mortgage-banking-groups. Although some lenders might not originate small mortgages mainly because they operate primarily in high-cost areas, others may require minimum loan sizes, either formally or informally, that exclude low-cost borrowers. The U.S. Department of Justice ruled in 2012 that setting minimum loan sizes of $400,000 or more violates the Fair Housing Act and the Equal Credit Opportunity Act, but whether minimum thresholds of $150,000 are unlawful remains unclear.
Mortgage Bankers Association, “Chart of the Week—July 23, 2021 Retail Production Channel: Cost to Originate ($ Per Closed Loan),” July 23, 2021, https://newslink.mba.org/mba-newslinks/2021/july/mba-newslink-monday-july-26-2021/mba-chart-of-the-week-july-23-2021-retail-production-channel-cost-to-originate/; Mortgage Bankers Association, “MBA: 2022 IMB Production Profits Fall to Series Low,” MBA Newslink, https://newslink.mba.org/mba-newslinks/2023/april/mba-2022-imb-production-profits-fall-to-series-low/.
K. Graham, “Mortgage Origination Fee: The Inside Scoop,” Rocket Mortgage LLC, https://www.rocketmortgage.com/learn/mortgage-origination-fee; M. Crace, “Closing Costs: What Are They, and How Much Will You Pay?,” Rocket Mortgage LLC, https://www.rocketmortgage.com/learn/closing-costs.
Zillow Inc., “How Is Your Loan Officer Paid?,” https://www.zillow.com/blog/how-is-your-loan-officer-paid-500/.
U.S. Census Bureau, American Housing Survey (2021), https://www.census.gov/programs-surveys/ahs/data/2021/ahs-2021-public-use-file–puf-/ahs-2021-national-public-use-file–puf-.html.
E. Divringi, “Updated Estimates of Home Repairs Needs and Costs and Spotlight on Weatherization Assistance” (Federal Reserve Bank of Philadelphia, 2023), https://www.philadelphiafed.org/community-development/housing-and-neighborhoods/updated-estimates-of-home-repairs-needs-and-costs-and-spotlight-on-weatherization-assistance.
U.S. Department of Housing and Urban Development, “MBA Response to FHA RFI Regarding Small Mortgage Lending,” Dec. 5, 2022, https://www.regulations.gov/comment/HUD-2022-0076-0025; U.S. Department of Housing and Urban Development, “New America and CSEM Response to Docket No FR-6342-N-01 on Small Mortgage Lending,” Dec. 5, 2022, https://www.regulations.gov/comment/HUD-2022-0076-0015.
To qualify, loans must meet three criteria: They cannot have negative amortization, interest-only payments, or balloon payments; the total points and fees charged cannot exceed 3% of the loan amount; and the term must be 30 years or less. They also must satisfy at least one of the following three criteria: The borrower’s total monthly debt-to-income ratio must be 43% or less; the loan must be eligible for purchase by Fannie Mae or Freddie Mac or insured by the FHA, U.S. Department of Veterans Affairs, or U.S. Department of Agriculture; or the loan must be originated by insured depositories with total assets of less than $10 billion, but only if the mortgage is held in portfolio.
F. D’Acunto and A.G. Rossi, “Regressive Mortgage Credit Redistribution in the Post-Crisis Era,” The Review of Financial Studies 35, no. 1 (2022): 482-525, https://academic.oup.com/rfs/article-abstract/35/1/482/6136188?redirectedFrom=fulltext; Freddie Mac, “Cost to Originate Study: How Digital Offerings Impact Loan Production Costs” (2021), https://sf.freddiemac.com/content/_assets/resources/pdf/report/cost-to-originate.pdf; T. Hogan, “Costs of Compliance With the Dodd-Frank Act” (Rice University’s Baker Institute for Public Policy, 2019), https://www.bakerinstitute.org/research/dodd-frank-costs-compliance.
K. Berry, “Fed’s Rate Hikes Are Tanking the Mortgage Market,” American Banker, Oct. 24, 2022, https://www.americanbanker.com/news/feds-rate-hikes-are-tanking-the-mortgage-market.
Mortgage Bankers Association, “MBA Members Urge Bureau to Change Loan Originator Compensation Rule,” MBA Newslink, Oct. 24, 2018, https://newslink.mba.org/mba-newslinks/2018/october/mba-newslink-wednesday-10-24-18/mba-members-urge-bureau-to-change-loan-originator-compensation-rule/.
Y. Benzarti, “Playing Hide and Seek: How Lenders Respond to Borrower Protection,” TheReview of Economics and Statistics (2022): 1-25, https://direct.mit.edu/rest/article-abstract/doi/10.1162/rest_a_01167/109257/Playing-Hide-and-Seek-How-Lenders-Respond-to?redirectedFrom=fulltext; Consumer Financial Protection Bureau, “Manufactured Housing Finance,” 25-27.
Consumer Financial Protection Bureau, “Request for Information: Mortgage Refinances and Forbearances.”
Federal Housing Finance Agency, “FHFA Announces Targeted Pricing Changes to Enterprise Pricing Framework,” news release, Oct. 24, 2022, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Targeted-Pricing-Changes-to-Enterprise-Pricing-Framework.aspx. G-fees are based on the individual mortgage’s product type and credit risk attributes and help Fannie and Freddie cover administrative costs and credit losses from borrower defaults. However, these fees also increase loan origination costs.
Americans for Financial Reform, “Joint Letter: FHFA RFI on PACE Loans,” March 16, 2020, https://ourfinancialsecurity.org/2020/03/joint-letter-fhfa-rfi-pace-loans/; G. Kromrei, “Industry to Congress: G-Fees Aren’t Your ‘Piggybank,’” HousingWire, July 23, 2021, https://www.housingwire.com/articles/industry-to-congress-g-fees-arent-your-piggybank/; L. Goodman et al., “Guarantee Fees—an Art, Not a Science” (Urban Institute, 2014), https://www.urban.org/sites/default/files/publication/22841/413202-Guarantee-Fees-An-Art-Not-a-Science.PDF.
Federal Housing Finance Agency, “FHFA Announces Two Measures Advancing Housing Sustainability and Affordability,” news release, Oct. 18, 2021, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Two-Measures-Advancing-Housing-Sustainability-and-Affordability.aspx.
S. Lee, “How Mortgage, Housing Industries Tackled Affordability in 2022,” National Mortgage News, Dec. 29, 2022, https://www.nationalmortgagenews.com/list/how-mortgage-housing-industries-tackled-affordability-in-2022; Wells Fargo, “Wells Fargo Announces Strategic Direction for Home Lending: A Smaller, Less Complex Business Focused on Bank Customers and Minority Communities,” news release, Jan. 10, 2023, https://newsroom.wf.com/English/news-releases/news-release-details/2023/Wells-Fargo-Announces-Strategic-Direction-for-Home-Lending-A-Smaller-Less-Complex-Business-Focused-on-Bank-Customers-and-Minority-Communities/default.aspx.
A. McCargo et al., “The MicroMortgage Marketplace Demonstration Project: Building a Framework for Viable Small-Dollar Mortgage Lending” (Urban Institute, 2020), https://www.urban.org/research/publication/micromortgage-marketplace-demonstration-project; Hurry Home, “A New Way to Be a Homeowner,” https://www.hurryhome.io/.
Federal Housing Finance Agency, “FHFA Announces Inaugural Housing Finance TechSprint,” news release, April 4, 2023, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Inaugural-Housing-Finance-TechSprint.aspx.
L. Goodman, J. Zhu, and T. George, “Four Million Mortgage Loans Missing from 2009 to 2013 Due to Tight Credit Standards,” Urban Wire (blog), Urban Institute, April 2, 2015, https://www.urban.org/urban-wire/four-million-mortgage-loans-missing-2009-2013-due-tight-credit-standards.
Fannie Mae, “Fannie Mae Introduces New Underwriting Innovation to Help More Renters Become Homeowners,” news release, Aug. 11, 2021, https://www.fanniemae.com/newsroom/fannie-mae-news/fannie-mae-introduces-new-underwriting-innovation-help-more-renters-become-homeowners; Freddie Mac, “Freddie Mac Takes Further Action to Help Renters Achieve Homeownership,” news release, June 29, 2022, https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-takes-further-action-help-renters-achieve; Freddie Mac, “Freddie Mac Announces Underwriting Innovation to Help Lenders Qualify More Borrowers for a Mortgage,” news release, Oct. 17, 2022, https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-announces-underwriting-innovation-help-lenders; U.S. Department of Housing and Urban Development, “Federal Housing Administration Expands Access to Homeownership for First-Time Homebuyers Who Have Positive Rental History,” news release, Sept. 27, 2022, https://www.hud.gov/press/press_releases_media_advisories/HUD_No_22_187.
Editor’s note: This brief was updated July 3, 2023, to recognize the peer reviewers and Pew staff members who contributed to its development.
In our latest real estate tech entrepreneur interview, we’re speaking with Garret Flower from ParkOffice.
Who are you and what do you do?
My name is Garret Flower, I’m the co-founder and CEO of ParkOffice – the parking software for smart offices. I’ve been an entrepreneur for almost as long as I can remember. I started my first business at 15 and have progressively been getting more and more ambitious ever since.
Currently I split my time between New York City and Dublin where I’m managing the rapid growth of ParkOffice in both Europe and the US. We started out a couple of years ago with ParkOffice with a very simple concept – employee parking was broken and we wanted to fix it.
Our progress in such a short space of time has been really energising, we’ve developed an industry leading product which is trusted by 6 Fortune 500s and countless SMEs in 13 countries across the globe.
What problem does your product/service solve?
Office parking is dysfunctional on so many levels.
The end experience is often incredibly frustrating as employees arrive at offices to find parking lots unexpectedly full or worse, they pay for parking off-site and walk to the office through a half-empty car park.
The management experience isn’t much better, facilities managers often complain that managing parking is the most time intensive part of their job and that no matter how hard you try you will still be inundated with complaints from disgruntled employees.
From a community perspective, according to research from UCLA, every time someone sits into a car and doesn’t know if they have a space at work or not, they will spend an extra 800m cruising at their destination looking for somewhere to park. This causes massive traffic issues in neighbourhoods close to large offices.
ParkOffice gives a fully automated solution which allows companies to solve all these problems while also reducing costs and carbon emissions in the process.
What are you most excited about right now?
When you look at the figures there is almost as much space in the USA dedicated to office parking as there is to office buildings. However, in most cases, it is a massively under-utilized piece of real estate.
The average company who believes they don’t have enough parking space actually have up to 40% of their parking spaces empty during the working day. This is often caused by people working from home, being off-site at meetings or being on holidays. What a waste of space and money.
In a world where our cities are running out of space, I’m incredibly excited about how technology can be used to park cars more effectively, freeing up whole swathes of space for cities across the world to grow.
We’ve just adapted our product to tackle the issues surrounding COVID-19. Over recent years our key focus has been on supporting companies to reduce their employees car dependency.
With COVID-19 changing the business environment for companies all over the world, we knew we had to innovate to thrive. By altering our product slightly we can now help companies return to the office safely sooner. With public transport a no-go area for many people who are worried about the virus, employee parking is going to be under greater pressure than ever. Our automated solution can monitor parking availability in real-time and assign spaces to those in most need – think of it like hot-desking but for parking spaces. The beauty is that we can increase parking availability by up to 40% for companies.
What’s next for you?
The USA is a massive focus for us – we’ve been lucky to pick up a few big clients over there but we’re opening up a full-time office over there in the next 6 months to accelerate our growth.
What’s a cause you’re passionate about and why?
Racism really angers me. I feel strongly that all people were created equal, and this world is unfortunately structured in a way which disadvantages swathes of people because of their gender and race. As half-American, half-Irish, I’m acutely aware of the disadvantages many of my ancestors had to overcome to lay the foundations for me to thrive. I’m always looking for ways in which I can pave a path for minorities to lay the way for their communities to flourish. It is my job as a CEO and a leader of ParkOffice to encourage an environment of inclusion to learn how to implement policies that will correct this inequality.
Thanks to Garret for sharing his story. If you’d like to connect, find him on LinkedIn here.
We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).