Struggle threatens down payment aid to close the racial wealth gap


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Democrats are “in a hurry to put families in homes they can’t afford,” said Sen. Pat Toomey of Pennsylvania, the top Republican on the banking and housing committee.

Other critics say it would exacerbate the affordable housing problem by increasing demand for housing at a time when supply is already at historically low levels. “This adds demand to an already strong demand, so you will further drive up house prices,” said Lawrence Yun, chief economist of the National Association of Realtors. “It’s a win for current homeowners, not for homebuyers. “

The fight illustrates the daunting challenges Democrats face as they attempt to deliver on their promises to tackle racial inequality in the Biden era. In trying to remedy the discriminatory policies of the past by focusing on specific groups, they run the risk of creating new, unbalanced policies that alienate other Americans and could be challenged in court.

But homeownership is perhaps the most glaring area of ​​economic disparity in the United States, and housing advocates focus on down payment assistance as a way to offset intergenerational disadvantages associated with wealth.

“We’re just providing first-generation homebuyers, many of them people of color, what first-time white homebuyers have been receiving in years in the form of the ‘Daddy Down Payment’ loan – a homemaker that doesn’t. is almost never reimbursed, ”said David Dworkin, president and CEO of the National Housing Conference, an advocacy group.

The median wealth of parents of young white adults, $ 215,000, eclipses that of parents of young black and Hispanic adults, at $ 14,400 and $ 35,000, respectively, giving white adults who buy their first home a great resource. more important to exploit for the first upfront payment. The difference between homeownership and parental wealth accounts for between 12 and 13 percent of the homeownership gap between black and white young adults, according to a study by the Urban Institute.

Now Democratic lawmakers and housing advocates are circulating proposals to help first-generation buyers buy their first homes, just as banks like JPMorgan Chase and Wells Fargo are rolling out programs with repayable loans.

An estimate by the Urban Institute found that paying down payment assistance to first-generation first-time homebuyers earning up to 120% of the region’s median income would reach around 5 million people, spread across fairly evenly between black, Latino and white households.

The most successful plan – the $ 10 billion proposal in a housing infrastructure bill from Waters – would give state housing finance agencies grants to award up to $ 20,000 down payment to first generation home buyers below a certain income threshold and up to $ 25,000 if the buyer is from a “socially and economically disadvantaged” group. Waters’ bill includes the provision alongside massive investments in public housing and the National Housing Trust Fund.

California lawmakers have called down payment assistance as a necessary remedy to “grave injustices against people of color” produced by past US policies.

“It is a sad truth that such injustices persist today, including in the form of obstacles that systematically exclude people and communities of color from equitable access to housing and property,” he said. she said this month.

While the housing industry broadly supports the plan – boosting homeownership is good for their bottom line – lobbyists are concerned about its implementation and how a potential homebuyer’s eligibility would be. determined.

There is no standard way to verify who counts as a first generation buyer, for example, as there is no central database to track this information.

The bill defines socially disadvantaged homebuyers, who might qualify for greater credit, as individuals who identify as Black, Hispanic, Native American or Asian American, but “such a presumption can be rebutted by others. credible evidence to the contrary, “according to a draft discussion of the legislation.

The eligibility requirements have made some mortgage lenders uncomfortable.

“We advocated for a safe harbor to make sure people have the comfort to do that kind of identification, whether it’s for the breed or the first generation home buyer, ”said Bill Killmer, senior vice president of legislative and policy affairs at the Mortgage Bankers Association. “We want to make sure that lenders have protections so that they are not held responsible for errors that occur in this process of determining who qualifies.”

Republicans outright challenge racial targeting, and it doesn’t stop at housing.

On May 18, a Caucasian restaurant owner, with the backing of former Trump adviser Stephen Miller, won a court victory in a lawsuit against the policies of a federal small business subsidy program created by the Democrats in March which also prioritized the socially and economically disadvantaged. people. He highlighted the potential legal dangers if Democrats take a similar approach to housing assistance.

“This is exactly what [the Federal Housing Administration] was set up to do, to make the red line, ”said a GOP aide in the Senate, referring to the ugly history of government policies discouraging mortgages in black neighborhoods. “Now to engage in the same practice – to determine who is a certain race and see who should get what money – as a political issue, it’s just something that we absolutely oppose.”

GOP lawmakers have also expressed concern over the easing of down payment terms, which help ensure borrowers have “the skin of the game” when they receive a loan. They are starting to warn that billions of dollars in down payment assistance would potentially put homebuyers as well as taxpayers at risk.

Toomey, who heads housing oversight for Senate Republicans, warned at a hearing last month that “easing underwriting requirements or extending down payment assistance programs for low-income families , especially in an overheated housing market, is a recipe [for] disaster.”

Mortgages with higher loan-to-value ratios – meaning the borrower has put less money upfront – default at higher rates, according to the government’s own data.

The severe default rate – when a borrower has not made a payment for more than 90 days – for FHA-guaranteed mortgages was 10.5% in fiscal 2019, according to the 2020 annual report of the agency. For loans with down payment assistance provided by the government, the severe default rate was 14.6 percent that year.

But down-payment support supporters reject the argument that government-backed financial support puts first-generation homebuyers at risk. They say young white adults also get help with down payments, but family members.

“When we talk about skin in the game, we have to recognize what skin we’re talking about,” said Dworkin, who supports Waters’ down payment proposal.

Thanks to new post-crisis regulations, loans made today are much safer than those before the subprime collapse, Dworkin said.

“The environment we live in now is nothing like 2008,” he added. “The toxic loans that caused 95% of the damage do not exist.”

Perhaps the biggest challenge, even in the eyes of supporters of down payment assistance, is that there is simply not enough housing on the market. It’s an issue Biden is also trying to address with his $ 2.3 trillion infrastructure bill, which includes funds to expand affordable housing.

The National Association of Realtors supports pairing a down payment assistance program with proposals that would boost housing supply, saying the two policies “must go hand in hand.”

“Help with buying a house, technical assistance, help with the down payment – we are working on all these issues because we know that there are so many obstacles to buying a home,” said Fudge said during a Senate hearing Thursday. “But the biggest problem is really a supply problem. So that’s the most important thing we’re working on, and it’s part of the jobs bill.

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About Matthew R. Dailey

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