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Bank of America said it is now offering first-time homebuyers in a select group of cities zero down payment, zero closing cost mortgages to help grow homeownership among Black and Hispanic/Latino communities.
The option will first become available in certain neighborhoods in Charlotte, Dallas, Detroit, Los Angeles and Miami. The new mortgage, called the Community Affordable Loan Solution, aims to help eligible individuals and families obtain an affordable loan to purchase a home, the bank said.
According to a Bloomberg News analysis of federal mortgage data, only 47% of nationwide Black homeowners who completed a refinance application with Wells Fargo in 2020 were approved, compared with 72% of White homeowners. Bank of America looks to right the wrongs of their banking rival.
“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” AJ Barkley, head of neighborhood and community lending for Bank of America, said in a release. “Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families, and it is part of our broader commitment to the communities that we serve.”
“During the pandemic, rising home prices and low housing supply have disproportionally impacted Black households more than any other race/ethnic group,” the NAR said in a report. White households are now 40% more likely to be able to afford to buy a home compared with Black households, the association said.
Bank of America: Increasing homeownership after decades of redlining
The obstacles to Black homeownership are deeply rooted in American history, and the effects are still felt today.
Forbes reported in 2020 that Black homeowners are nearly five times more likely to own a home in a formerly redlined district than in one that was greenlined.
That has led to disparities in wealth, too.
“The typical homeowner in a neighborhood that was redlined for mortgage lending by the federal government has gained 52% less—or $212,023 less—in personal wealth generated by property value increases than one in a greenlined neighborhood over the last 40 years,” according to Forbes.
The Charlotte-based bank is going beyond credit scores so “people can use other mechanisms to define their creditworthiness, buy a home and build their wealth,” AJ Barkley, head of neighborhood and community lending at BofA, said in an interview.
According to NBC News, while US homeownership saw its biggest annual increase ever during the pandemic, it remained lower than a decade earlier for African Americans, and Black and Hispanic buyers were more likely to be rejected for mortgages than their White and Asian counterparts, according to the National Association of Realtors.
No minimum or maximum loan size under the new offering
Approval rates for homeowners looking to lower their payments have also varied by race, with BofA approving 66% of Black refinancing applicants and 78% of White ones in 2020, according to data compiled by Bloomberg.
Under the BofA program, the lender is giving homebuyers down-payment grants of $10,000 to $15,000 so they have immediate equity in their homes.
According to Bloomberg, The Bank of America offering requires borrowers to have certification from the US Department of Housing and Urban Development and counseling to qualify, Barkley said. In the past, the bank has had to deal with soured loans inherited from Countrywide Financial Corp., which was accused of failing to properly verify and analyze borrowers’ employment, income, credit information, liabilities and other data.
“We will qualify applicants to confirm they have demonstrated an ability to repay,” she said. “What we don’t want to do with this program is place people in homes they cannot stay in.”
Applicants don’t need to disclose their race, and US Census data will be used to determine that eligible neighborhoods are predominately Black or Hispanic, Barkley said. There is no minimum or maximum loan size under the new offering, which qualifies as a Federal Deposit Insurance Corp. “special purpose credit program.”