Promising strategies for equitably increasing access to credit for underserved populations
- Expanding down payment assistance.
- Adopting tax policies that increase access to affordable homeownership for lower-income households.
- Investing in homebuyer counseling and financial education.
- Combatting predatory lending.
- Providing new options for families in debt.
- Boosting working families’ incomes through state earned income tax credits.
- Supporting individual development accounts.
Credit is difficult, if not impossible, for many households to access, and minority and lower-income applicants often do not have access to credit at all or have access only to predatory credit.
Generally, institutions that extend credit aim to serve wealthier populations because their business model largely depends on it, says Jesse Van Tol, president and CEO of National Community Reinvestment Coalition, an organization that champions fairness in banking, housing and business development.
“Wealth building is intergenerational. If you start out with very little wealth, it makes it harder to build wealth,” he says. “A bank is more likely to want to make a $1 million loan than a $75,000 one because they make more money off the bigger loan. This ongoing discrimination creates impediments for low-wealth families, especially people of color, to access the credit they need to buy a home.”
Homeownership is the primary source of wealth for most Americans, says Doug Ryan, senior director of affordable homeownership at Prosperity Now, a national nonprofit dedicated to expanding economic opportunity for low-income families and communities. “By leveraging their equity, families can do repairs on their home, pay for a college education. They can invest.”
“You can see a huge social injustice when you look at how, historically, access to ownership and down payments often come from intergenerational wealth — from parents’ or grandparents’ mortgage assets.”— Shannon Vilhauer, executive director of Habitat for Humanity Oregon
“You can see a huge social injustice when you look at how, historically, access to ownership and down payments often come from intergenerational wealth — from parents’ or grandparents’ mortgage assets, says Shannon Vilhauer, executive director of Habitat for Humanity Oregon.
Tackling inequity requires reforming local, state and federal policies and increasing investments that will effectively expand access to credit and help pave the path to homeownership for underserved populations. Expanding homeownership opportunities also indirectly affects the ability and affordability of rentals for others.
“It’s important that all folks have the opportunity to move into the wealth-building opportunity of homeownership, thereby freeing up a spot a little lower down on the affordability spectrum on the rental side,” says Vilhauer. “We’re all part of the same continuum of housing stability, so making opportunities for stable housing at each level positively impacts us all.”
All of this is why the Cost of Home campaign supports advocacy for policies that increase and broaden access to safe and sound credit for underserved populations, including policies that address the homeownership gap for communities of color. Advocates and policymakers must acknowledge and address the well-documented historic patterns of racial discrimination that still impact the makeup and opportunities of our communities.
Solutions in action
In the nation’s capital, Habitat of Washington, D.C. and its partners in the Coalition for Nonprofit Housing and Economic Development convinced the District of Columbia to not only reverse major cuts to the city’s down payment assistance program, but also to nearly double the funding to it. Eligible applicants can now receive up to $80,000 in gap financing assistance for a down payment and up to $4,000 toward closing costs through the Home Purchase Assistance Program.
Habitat affiliates and other housing advocates in Oregon, many of which are part of part of the Oregon Housing Alliance, hope to build on the success of the state’s Individual Development Accounts program. Participating individuals work with one of the partner agencies to identify a goal ─ such as purchasing a home, pursuing education, launching a small business or repairing their home ─ and create a savings plan. Once the participant has saved the agreed upon amount, the program matches their savings 3-to-1. Participants are also required to partake in financial management education.
Habitat Oregon has long been an advocate for the IDA program and is, which is pursuing state legislation that would double the program’s funding — from $11 million to $22 million — as a response both to the program’s success and to the state’s high and growing housing costs.
Habitat affiliates in Indiana partnered with a wide variety of nonprofit, community development, veterans and faith-based groups to halt legislation that would have expanded payday and predatory short-term lending in the state. The bill would have permitted more payday lending products in the state and higher rates.
Habitat Indiana worked to engage its supporters and members of the Statehouse to oppose the proposal. Although the bill passed the state Senate, it died in the state House when its sponsor declined to call it for a vote by the required deadline.