What Bank of America's mortgage pilot can and can't fix for homeownership disparities

A vehicle drives through a residential neighborhood in Los Angeles.
Frederic J. Brown/AFP via Getty Images

Bank of America launched a pilot program last week that foregoes a down payment, closing cost, minimum credit score and mortgage insurance for some first-time homebuyers in some Black and/or Latino neighborhoods.

The goal is to bolster homeownership among communities that have historically faced trouble in the real estate market and particularly help Black and Latino families build wealth over time.

Some experts say it's a good step forward, but worry the program will not go far enough to support homeowners after they have purchased a home.

"It's not that we just get folks into the home, but that we're also able to help them have the savings, the resources necessary to make sure their homes are safe and healthy in the long run," Samira Payne, director of community revitalization at Rebuilding Together, a nonprofit group that focuses on safe and healthy housing, told NPR.

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What the program entails

Eligibility will mainly be determined by income, home location and payment history for bills such as rent, phone, utilities and auto insurance. Applicants are also required to complete a homebuyer certification course.

The initiative is taking place in Charlotte, Dallas, Detroit, Los Angeles and Miami, specifically in neighborhoods where Black and/or Latino residents make up the majority.

"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 statement.

Depending on the success of the initiative, the company will consider expanding in the months ahead, a spokesperson for Bank of America told NPR.

The racial gap in homeownership

Racial inequities in the country's housing system date back to slavery and were reinforced by segregating practices such as redlining, where federal agencies refused to insure mortgages to people in certain areas. The term is most associated with Black neighborhoods.

Today, many residents in predominantly Black or Hispanic neighborhoods continue to struggle in the housing market because of discriminatory practices.

In 2020, Black and Hispanic applicants were more likely to be rejected for mortgage loans than their white or Asian counterparts, according to a February report from the National Association of Realtors.

While white, Asian and Hispanic Americans all saw "decadelong highs" in homeownership rates that year, the rate for Black Americans turned out to be slightly lower in 2020 than in 2010.

No-down payment or minimum credit score will help Black, Latino and low-income white borrowers

For some prospective homebuyers, it can take years or decades to save up for a down payment on a home. That can be especially true for Black and Latino families who make about half as much as the average white household, according to a 2021 report from the Federal Reserve.

"Even a 3% down payment on a home is a level of wealth or just spare cash that many families don't have. And that will be disproportionately true for Black and Latino borrowers," Jesse Van Tol, the president and CEO of the National Community Reinvestment Coalition, told NPR.

Eliminating a minimum credit score and examining payment history will also help families who have student loan or medical debt, but are generally responsible borrowers, he said.

Van Tol foresees both of these strategies helping communities that have historically been starved of capital and credit.

"It will help many Black and Latino borrowers and I think it will also help many lower income white borrowers," he added. "That's a good thing."

Black and Latino neighborhoods need investment to increase value of homes and ensure wealth

The program's homebuyer certification course is designed to demonstrate an applicant's ability to meet current obligations and create a budget roadmap in sustaining their homeownership in the future, according to a Bank of America spokesperson.

But Payne, from Rebuilding Together, said that's not enough.

"The first-time homebuyer course may help in developing knowledge around saving and maintenance, but we also recognize that there are things that are beyond that initial savings, like unexpected expenses, critical home repairs, disaster recovery," Payne said.

She added that for the program to be a long-term success, there needs to be greater investment in the targeted neighborhoods at large.

"Having resources in the community beyond the homes, like community spaces, organizations, and quality schools — all of those pieces tie into realizing the benefits of homeownership and helping folks build resilience for challenges that may come," Payne said.