Equitably increasing access to credit
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.
The barriers in place only serve to compound the cycle of wealth inequality that prevails across the country. 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. “More people own homes than have retirement accounts,” he says.
Beyond building wealth, homeownership also opens the door to opportunities previously unavailable to families, says Ryan. “By leveraging their equity, families can do repairs on their home, pay for a college education. They can invest.”
“If you consider, then,” says Shannon Vilhauer, executive director of Habitat for Humanity Oregon, “how inequitable access to ownership has historically been and how down payments often come from intergenerational wealth — from parents’ or grandparents’ mortgage assets — you can see a huge social injustice.”
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.
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.
Prior to the boost in funding, D.C. Habitat had completed 164 homes in 28 years. Now, with help from the growing HPAP, 52 Habitat homes are currently under construction in the metro area.
On the other side of the country, Habitat affiliates and other housing advocates in Oregon hope to build on the success of the state’s Individual Development Accounts program. These accounts are matched savings accounts that allow low-income participants to save for things like a down payment or home repairs, while matching those savings at a 3:1 rate. Participants also are provided financial education to build their financial capability to help meet their personal goals.
Habitat Oregon has long been an advocate for the IDA program and is part of the Oregon Housing Alliance, 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.
Housing solutions such as those in place in D.C. and Oregon not only are directly expanding homeownership opportunities for some families, they’re also indirectly affecting the availability 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.
It will take all of us working together. Join the campaign today!
Learn more about efforts like the ones in D.C. and Oregon and how — when we come together — we can create lasting change through advocacy. Learn more about our Cost of Home campaign local policy successes.