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Homeownership for Underserved Households

Confusion prevented lenders from utilizing special purpose credit programs to extend credit to more potential homebuyers

The racial disparity in homeownership has increased since the Fair Housing Act of 1968 made it illegal to refuse to sell a home to a person on a racial basis. Prior to the act’s passing, white households were far more likely to own their homes: 65% compared to 38% of Black households, a 27-point difference. In 2017, the gap increased to 30 points, according to an analysis of American Community Survey data by the Urban Institute. The gap persists even in cities where Black households are the majority, the Urban Institute found.

Financing homeownership can be a challenge for nonwhite homebuyers, particularly Black homebuyers who are almost twice as likely as white buyers to have a mortgage application denied, according to the National Fair Housing Alliance. Analyzing 2019 Home Mortgage Disclosure Act data, NFHA also found Latino and Latina applicants were almost 1.5 times as likely to be denied.

The Department of Housing and Urban Development released guidance in December 2021 that clarifies special purpose credit programs that conform with anti-discriminatory measures in the Equal Credit Opportunity Act and Regulation B don’t violate the Fair Housing Act. Special purpose credit programs are explicitly allowed by the Equal Credit Opportunity Act, but are not mentioned in the Fair Housing Act, which meant some lenders were reluctant to participate in SPCPs.

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Special purpose credit programs must have a written plan that clearly outlines who the program is intended to benefit and standards and procedures for extending credit, as well as how long the program will last, according to attorneys Anand Raman and Darren Welch at Skadden. There must be a demonstrated need for the program, and it may not discriminate against applicants, the attorneys explained in a blog post. An example of an SPCP is a reduced interest rate for applicants in underserved neighborhoods who would likely not qualify for lending due to typical caps on payment-to-income ratios.

Lisa Rice, president and CEO of the National Fair Housing Alliance, celebrated the new guidance, citing the lack of harmony between the ECOA and the FHA.

“HUD’s clarification that SPCPs fulfill the letter and spirit of the Fair Housing Act will provide much-needed confidence to lenders and other entities who want to provide meaningful solutions to consumers and communities long blocked from accessing fair credit opportunities,” Rice said.

The National Association of Realtors also expressed hope for increased opportunity for new homebuyers.

“Special Purpose Credit Programs are an innovative approach to addressing a problem that has persisted for decades,” Leslie Rouda Smith, NAR president, said in a statement. “We look forward to learning more about these programs and how they can potentially benefit homebuyers around the country. Realtors applaud HUD for its efforts to help Americans of every background build wealth through homeownership.”



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