Only Blacks Need Apply… In the Spirit of Equity
Last week, Fannie Mae & Freddie Mac announced actions that aim to make it easier to buy a home and close the racial homeownership gap. Their Equitable Housing Finance Plan for 2022-2024 outlines a range of pilot programs that remove barriers blacks face when buying or renting, and keeping homeowners and renters at home:
- Valuation Modernization aims to support an equitable appraisal process for Black households and communities of color
- Expand Appraiser Diversity Initiative (ADI) to attract new entrants to the residential appraisal field, overcome barriers to entry (such as education, training, and experience requirements), and foster diversity, which we believe will help to reduce appraisal bias against Black homebuyers, homeowners, and communities over the long term.
- The reduction of borrower closing costs for Black homebuyers via appraisal products, appraisal reimbursements, and/or title products
- Reduce Closing Costs for Black consumers to help support the removal of the barrier of lack of sufficient funds for closing (down payment plus closing costs)
- Increase access to credit for the 15% of Black consumers who lack credit scores by (a) implementing automated underwriting enhancements and (b) expanding positive rental data in Desktop Underwriter ® (DU®) adoption
- Support the expansion of homeownership eligibility and availability of down payment assistance, while exploring ways to reduce Special Purpose Credit Programs (SPCP) participation hurdles for lenders.
- Test add-on features to one or more SPCP pilots aimed at strengthening ongoing borrower stability by helping borrowers deal with unexpected expenses and repairs, or temporary disruptions to income…
One program would assist black borrowers with down payments. Most home-buyers are required to put down at least 20% of the cost of a new home to reduce the risks of default. Fannie’s plan would effectively require taxpayers to subsidize down payments for black borrowers. Revenue that Fannie earns on its mortgage portfolio is retained as capital to protect taxpayers during a downturn. Under Fannie’s plan, some of that revenue would go to reducing down payments.
Another new program would reduce “loan level price adjustments” for black home buyers. Lenders typically charge higher rates for borrowers with lower credit scores, and Fannie says reducing them can “reduce obstacles for prospective Black homeowners.”
Still another program would “support the reduction of borrower closing costs for Black homebuyers” — for instance, via appraisal reimbursements. Taxpayers would help finance this “support.” Fannie also wants to help black homeowners avoid foreclosure by helping them “deal with unexpected expenses and repairs, or temporary disruptions to income.” This suggests that Fannie may now push into funding home repairs and welfare…
Fannie makes its subsidies for blacks explicit, but they don’t appear to extend to other racial groups such as Hispanics and Asians. Low-income white borrowers are also excluded.
Haven’t we seen this movie before? Who remembers the movie “The Big Short”?
They should not be making exceptions to fund bad loans in the spirit of ‘equity.’ In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. The Clinton/Cuomo era HUD policies led directly to the housing meltdown of 2008, and this too will be a disaster.
Shades of the 2008 mortgage lending fiasco. How easily we forget past mistakes!