Homeownership plays a pivotal role in building intergenerational wealth and remains the single most effective way for many Americans to build wealth. Today, homeownership largely remains elusive in the African American community. To understand why, we must examine where we've been, historically, and what obstacles have prevented the growth of Black wealth.
Our History: Where We've Been
Michael Innis-Thompson, Head of Community Lending & Development and the Fair Lending Center of Excellence at TD Bank, said, “As a child, when I studied American history and the New Deal, I learned about a positive series of programs to support a fallen economy. But what I didn't learn until later in life was how one government-sponsored agency created as part of the New Deal — the Federal Home Owners Loan Corporation (HOLC) — was one of the most detrimental policy decisions to impact Black homeownership in American housing history.”
HOLC created uniform national appraisal methods to help people keep their homes. It also created a legal system that considered race as a fundamental factor in deciding the value of a neighborhood and how desirable it was to live there. In short, redlining began. Neighborhoods with high Black and immigrant populations were shaded red, indicating that they were high risk, so lenders avoided providing loans in those areas. The discriminatory practice prevented Black families from participating in the 1950s and 1960s homeownership boom, because they were systemically denied loans not due to credit worthiness or if they could afford the home, but due to race. If they did receive loans, banks offered them at exorbitantly higher interest rates, equivalent to predatory lending.
The Fair Housing Act (FHA) of 1968 made redlining illegal. However, the economic impact had already taken root and set Black families behind their White counterparts, thus gravely contributing to the lag in wealth for Black communities.
Our Progress: Where We Are
The homeownership gap between African Americans and White Americans is wider today than it was in 1960, when housing discrimination was still legal. The byproducts of redlining coupled with statistics on homeownership and wealth garnered through equity, demonstrates why African American wealth continues to be elusive. Some data to consider:
- According to the U.S. Census Bureau, as of Q4 2022, the White homeownership rate was 74.5%, 30 points higher than the Black homeownership rate at 44.9%.
- On a national level, a homeowner who purchased a single-family existing-home 10 years ago at the median sales price of $169,000 is likely to have gained $225,000 in home equity if the home were sold at the median sales price of $363,100 in Q3 2021, according to the National Association of Realtors.
- Median wealth for White families is $184,000, compared to $23,000 for Black families, according to the Federal Reserve Bank of St. Louis. The difference can be attributed to the significant difference in homeownership rates.
- Based on a study by Freddie Mac, credit score distributions differ between race/ethnicity groups. Black and Hispanic individuals are more likely to fall in the 660 and below range than their White and Asian counterparts. That translates to higher costs for credit, including car loans, home loans, and other secured and unsecured consumer products.
Where We Want to Be — What Is TD Doing?
TD has committed to increasing homeownership by further diversifying its mortgage salesforce, so that our colleagues help to represent the communities they serve. Consumers typically prefer to bank with people with whom they feel comfortable.
TD Home Access Mortgage
Innis-Thompson explains that “In March of 2022, TD launched a Special Purpose Credit Program — TD Home Access Mortgage — designed to increase homeownership opportunities for Black and Hispanic individuals.” The Equal Credit Opportunity Act (ECOA) and Regulation B permit lenders to extend credit to persons that probably would not otherwise receive it or would receive it on less favorable terms and can be based on factors such as race. But until the Federal authorities clarified this requirement over a year ago, many lenders were reluctant to create these products.
TD, however, was at the forefront with TD Home Access Mortgage. Note that TD Legal played a prominent role in advising the Home Mortgage Business about how to structure TD Home Access Mortgage. The offering includes a $5,000 lender credit, which does not require repayment, that borrowers can use for closing costs or toward a down payment on the home purchase. That helps to address the fact that Black applicants generally have more limited financial resources when buying a home. TD Home Access Mortgage also offers more flexibility with a greater debt-to-income (DTI) ratio and expanded underwriting requirements, as well as credit parameters that increase accessibility.
TD Home Access Mortgage is just the latest offering the Bank has introduced to accelerate affordable home lending and increase inclusivity across its consumer product suite, including:
- Enhancing TD Bank Right Step Mortgage product by expanding FICO score requirements, DTI, and Loan to Value qualifications
- Reducing secured card entrance deposit from $500 to $300
- Reducing home equity loan minimum from $25k to $10k
- Launching TD Essential Banking, a low-cost, no overdraft fee deposit account
- Launching FNMA Refi NOW, which offers higher DTI flexibility
Fair Lending Center of Excellence
In addition to making changes to our product suite, we've made internal changes. Most recently, TD launched the Fair Lending Center of Excellence to aggregate risks and control activities related to home mortgage lending, and advance our commitment to fair and responsible banking within TD.
Financial Education
Alongside all these efforts is the need for financial education, particularly around what's needed to purchase a home. Some in the Black community believe they are not creditworthy or able to buy a home because of historic disparities deeply engrained and reinforced— but that’s simply not true. These are myths that must be debunked, like needing to have excellent credit or 20% down before you can purchase a home. You certainly should be in solid financial standing, but there are programs and products, like TD Home Access Mortgage and other government and local programs, that provide down payment assistance or products that allow minority consumers to put as little as 3% down on the cost of the home. Educating Black communities can open opportunities for them to pursue homeownership, and on the path to generating wealth. Financial education is embedded into an always-on strategy at TD, and we provide several free resources to build awareness, particularly around homeownership.
Resources
Meaningful work is being done within and outside of TD to increase and improve opportunities for Black families to buy homes, to build generational wealth. But it's not enough. It will take every one of us to make change.
Innis-Thompson says: “Be part of that change. Talk about where Black communities have been so people can better understand where we are and where we're going. And if there is someone in your life who might be open to buying a home but is on the fence, encourage them to speak to a mortgage professional that can help them and connect them to free resources.”
It's been 55 years since the FHA made redlining illegal, but it will take far longer to repair the damage. The best way to accelerate Black homeownership and Black wealth is to provide more equity for these families and to actively be a part of the change. Please use and share the following resources so that you can be a catalyst for positive change.
TD Bank Learning Center modules:
Finance 101 articles:
- Achieve financial independence
- Building a good credit score
- Get smart about credit: How good - and bad - credit impacts your life
Let's Talk Money articles and tips:
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