The proliferation of special-purpose credit programs should help increase homeownership rates among Black households, but it won't happen without specialized expertise and intentionality, according to industry leaders.
The products have gained traction in the aftermath of 2020 racial justice protests following the death of George Floyd as businesses attempt to address wealth disparities between Blacks and whites. Since the end of the Great Financial Crisis, the difference in homeownership rates between Black and white households has widened, with the 2020 gap exceeding the difference that existed in 1960.
Meaningful progress on DEI initiatives has a real effect on the workforce. We examine the dynamics that drive this conclusion and what it means for companies.
But offering SPCPs is not about doing "a good thing," according to Nikitra Bailey, executive vice president of the National Fair Housing Alliance. They ought to be a business priority moving forward as well.
"We know that seven out of 10 future borrowers are going to be families of color," she said at a September roundtable discussion organized by four government regulating agencies. "This is actually about the health and the financial safety and soundness of our mortgage market."
Financial institutions that have taken the initiative to introduce SCPCs in the past two years say that success depends not only on having more minority loan and banking officers. Desired outcomes can only occur by bringing to the table historical knowledge and sensitivity to enable effective communication with the stakeholders they're meant to serve. Those types of efforts may require a shift in the typical approach to customer acquisition and originator compensation.
"We're building the trust within the community, recognizing that there's still a level of mistrust with banks amongst minority communities," said Michael Innis-Thompson, senior vice president and head of community lending and development and fair lending center of excellence at TD Bank, which has offered SPCPs since early 2022.
Recognizing the need to have professionals who both look like and can relate to their likely clients, TD created a network of community mortgage loan officers serving as "credible intermediaries" to help build that trust, Innis-Thompson said.
With community loan officers focused on outreach to low-to-moderate income people of color, "their payment structure is designed, so that they have a salary to compensate for the additional community work they do on top of loan commissions, versus a standard loan officer that's on pure commission," he said.
Arizent released the findings of its third annual DEI report.
"There's an incentive for them to continue to develop these relationships, and we designed it specifically that way."
Much of the work involved with strengthening SPCPs entails finding partnerships in neighborhoods. With a great deal of nuance in each program as well as differences between individual SPCPs, there's a fair amount of education required before the first transaction can take place, according to Dale Baker, president of home lending at KeyBank.
"We do sit down with Realtors, we do work with various community groups, trade associations, affinity groups, faith based organizations, to provide education. And, in exchange they help us with getting the information out to their members, constituency, et cetera, in order to take advantage of this funding," he said. Baker also added that KeyBank has received interest from loan officers themselves who want to join the company as a result of their bringing SPCPs to the market.
The most constructive partnerships make the work for lending officers simpler, thanks to the backing of influential sources.
New American Funding's Patty Arvielo found hiring initiatives can help match lending with demographics but says hurdles to recruiting in general are high now.
"When you're dealing with community organizations, for example, those are trusted intermediaries that potential homebuyers go to. When they're sharing the information, they consider it credible." Innis-Thompson said.
The work behind special-purpose credit programs don't end once the loan closes, but require regular monitoring to improve upon them. While the fine details may seem complicated, having analysts who can examine processes and identify missed opportunities is vital toward fulfilling the mission SPCPs were created to address. Even after their programs rolled out, lenders continue to sort through their data to see if they failed to offer the program to an eligible borrower.
"That's a key point about any special-purpose credit programs — monitoring to see if it's really having the effect that it was designed to have," Innis-Thompson noted.
