Why “zero-down” mortgages are gaining ground

You can expect more banks to start offering mortgages that don’t require some first-time buyers to save a big down payment, as part of an effort to close the racial and ethnic homeownership gap, which is a big part of the racial wealth gap. . .

Driving the news: Bank of America recently announced “zero down payment” loans for first-time homebuyers in predominantly black and Hispanic neighborhoods who meet certain income requirements.

  • two other banks JPMorgan Chase Y td bankThey offer similar programs. If widely adopted in both the public and private sectors, programs like these could really make a dent in the racial homeownership gap, but so far they haven’t.

Details: Bank of America’s “zero down payment” loans are a bit of a misnomer. They technically require a down payment, but the bank offers grants of up to $15,000 to cover it.

  • So buyers don’t have to pay a down payment, but they aren’t borrowing the full cost of the home, and they end up keeping some measure of equity from the start.
  • That’s different from no-down-payment loans, which, along with questionable underwriting standards, helped create such a mess in the run-up to the Great Recession.

What they are saying: “There are a handful of banks that are interested in this,” said Liam Reynolds, a research assistant at the Urban Institute who co-wrote a piece about these types of programs earlier this year.

  • If the programs proliferate, “then they have the ability to make a significant dent in the homeownership gap,” he told Axios.

Because right now: The programs are gaining traction now in part because of the renewed focus on racial equity that came out of the 2020 protests and because of support from the White House, Reynolds said. “It certainly has helped that the administration has encouraged them so much.”

  • In 2020, BofA and JPMorgan have committed to spending billions of dollars on racial equity. The JPM program is related to your engagementalthough you have not limited the amount of money you can spend.
  • BofA’s program complements its commitment, but the funding is separate, a spokesperson told Axios: “This program is intended to address the unique challenges and needs faced by minority homebuyers.”

BofA also has a separate and very similar program, launched in 2019, offering down payment grants in 69 markets across the country.

  • That grant program, which has stricter criteria than the bank’s latest offer announced last week, lent more than $9.5 billion in mortgages in total, helping 36,000 people.
  • That sounds great, but consider that the bank lent $14.5 billion in mortgages in just three months this year.

State of the situation: These programs allow lenders to target predominantly black or Hispanic neighborhoods.

  • Banks use what’s called a special purpose credit program (SPCP), a policy made possible by the Equal Credit Opportunity Act of 1974, which actually allows lenders to discriminate in order to help disadvantaged borrowers.
  • Federal regulators from various agencies have issued guidance on SPCPs over the last year or so encouraging their use.

Zoom out: The origins of the racial gap in homeownership lie in the actions of the federal government and the private sector. Through the red line, they worked together to exclude majority black neighborhoods from home loans.

  • Black buyers couldn’t get the federally backed mortgages that helped launch so many Americans into the middle class, setting them on a path to generating generational wealth.
  • The practice was banned in 1968, but its legacy haunts the real estate market to this day.

Go deeper: Race and Housing in America.

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