Homeward Bound: Removing Barriers to Mortgage Credit for Black Homebuyers

Abstract

We analyze some of the key barriers to Black homeownership and propose several solutions that promise to expand homeownership opportunities, lower the costs of homeownership, and hasten equity accumulation for Black households. These barriers are centered in the secondary market.

We analyze disparities between Black and White prospective and recent homebuyers, the fair housing obligations of the GSEs and their regulators, the GSEs’ statutory mission as directed by their federal charters (their Duty to Serve), and then proceed to identify three barriers to be addressed immediately, and some suggestions to improve the impact of Fannie Mae and Freddie Mac high LTV affordable loan programs. Based on these findings and analysis, we provide a set of specific action items and policy priorities for the industry and regulators.

In summary, we recommend that the Enterprises and their regulators:

Increase monitoring and enforcement of fair housing requirements;

Establish goals for expanding lending to borrowers with high LTVs, high DTIs, and/or non-traditional credit histories;

Adopt credit scoring models that look outside existing credit repository data;

Eliminate credit score and DTI credit overlays;

For loan purchases, eliminate loan-level pricing adjustments based on borrower characteristics;
Develop more robust and equitable alternatives to conventional high LTV “affordable” loan programs.