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Barriers to Minority Homeownership
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The Department of Housing and Urban Development (HUD) has reviewed
updated statistics issued by the U.S. Census Bureau on the homeownership
rates of minority households. Despite increases in the number of
minority families that became homeowners, the census figures show
that large differences in rates of homeownership between minority
and white households remain and have narrowed only slightly.
According to an analysis of these numbers by HUD, the minority
homeownership rate was 26.8 percentage points below the rate for
white households in 1994. The black homeownership rate was 27.5
percentage points below the white rate, and the Hispanic rate was
28.8 percentage points below the rate of whites in 1994. By 2001,
the gap had been reduced by only 1.5 percentage points for all minorities,
1.6 percentage points for African-Americans, and 1.8 percentage
points for Hispanic households.¹
Barriers to Homeownership
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Increases in minority homeownership have occurred recently in an
extremely positive low-interest-rate, low-unemployment economic
environment. Moreover, during the 1990s the conventional mortgage
industry began offering a wider range of affordable lending programs.
This is good, but not enough to close the homeownership gap.
This initial increase of innovation in the conventional market has
already reached many of those that were poised to become homeowners.
And because future economic conditions are unpredictable, a reduction
of the gap in homeownership levels of non-Hispanic whites and minority
families is not a foregone conclusion and cannot be assumed. If
the persistent gaps in minority homeownership are to be substantially
narrowed, the structural barriers faced by minority families, or
those that have a pronounced effect on minority communities, must
be eliminated.
There are multiple barriers that prevent minority families from
becoming homeowners. Those barriers include:
- lack of capital for the down payment and closing costs;
- lack of access to credit and poor credit history;
- lack of understanding and information about the homebuying process,
especially for families for whom English is a second language;
- regulatory burdens imposed on the production of housing;
- continued housing discrimination.
1. Lack of Capital for Down Payment and Closing Costs:
- Down payment and closing costs are often the single greatest
barrier to homeownership.
- Minority families lack the accumulated wealth for down payment
and closing costs. Homeownership is a vehicle to building wealth
and assets, which in turn become instruments for homeownership
opportunities for the next generation of family members.
2. Lack of Access to Credit and Poor Credit History
- Access to lenders becomes difficult when mainstream financial
institutions are not located near potential low-income homebuyers.
- Many potential low-income homebuyers have not established credit
or maintained a good credit history.
- Families with poor credit histories are either rejected for
mortgage credit or given loans with high interest rates.
3. Lack of Understanding and Information about the Homebuying
Process
- Homebuyers who do not understand the homebuying process, or
for whom English is a second language, are less likely to be successful
in their search for a home of their own.
- These families are particularly subject to predatory lending
practices by those who charge exorbitant fees and make loans with
a high likelihood of foreclosure.
- Predatory lending can include loan flipping, home improvement
scams, asset-based and unaffordable mortgage loans, repeated refinancing
with no borrower benefit, and packing single premium credit life
insurance and other products into the loan amount.
- Lack of clarity at closing time is a significant barrier to
homeownership. At closing, many families discover unexpected fees
that can add hundreds or even thousands of dollars to the cost
of their loans. The purchaser is forced to make a difficult choice:
either hand over the extra cash, or lose the house.
- The law mandating the information to be provided to consumers
in connection with their home purchase, the Real Estate Settlement
Procedures Act, dates back to 1974. Even after years of revision,
the paperwork when purchasing a home can challenge legal professionals,
and creates headaches for homebuyers.
4. Regulatory Burdens
- The high cost of housing often results from a web of government
regulations. Federal, state, and local codes, processes and controls
delay and drive up the cost of new construction and rehabilitation.
- Unnecessary and cumbersome development regulations contribute
to high housing costs. Barriers involve zoning, land development
and site planning, building codes and standards, infrastructure,
administration and processing, and impact fees.
- In some states, developers report that excessive regulation
adds 25 to 35 percent to the cost of a new house. Substantial
delays to meet burdensome regulations are not uncommon.
- When barriers are intentional - through the "Not In My
Back Yard" syndrome of exclusionary zoning, expensive building
fees, and burdensome regulations - the situation is particularly
harmful; communities with the most restrictive land use and zoning
regulations often have affordable housing shortages.
- Affordability often hits minority home-seekers hardest, particularly
in urban centers where the housing stock has deteriorated. The
overall homeownership rate for these central cities is only 51.5
percent.
5. Continued Housing Discrimination
- Americans are too often denied access to a suitable living
environment based on race, color, national origin, religion, gender,
familial status, or disability.
- A variant on discrimination can be exclusionary zoning spawned
by the "Not In My Back Yard" syndrome; this can lead communities
to fear that affordable housing may result in lower land values;
suburban areas sometimes erect impediments, such as requiring
large lots, to discourage all but a few households who can afford
them; if development controls and regulations fail to address
equitably the needs of citizens, they result in an especially
pernicious form of discrimination.
- Barriers to homeownership faced by African-Americans, Hispanics,
Asian-Americans, and other minorities will differ depending on
where they may live.
Overcoming Barriers to Homeownership: Administration Actions
Down payment costs - including closing costs - remain
the most significant single barrier to homeownership, especially
for low- to moderate-income households. The American Dream Downpayment
Fund proposed in the FY2003 budget at $200 million will set 130,000
first-time homebuyers on the path to owning their own home.
The Administration has also proposed to provide thousands of low-income
Americans the opportunity to move into their own homes with the
help of HUD's Section 8 Housing Choice Voucher Program. The new
plan, part of the Administration's FY2003 budget, allows local housing
officials to provide families with up to one-year's worth of housing
voucher payments to be used toward the down payment on a home. Prospective
homebuyers would have the choice of using their vouchers for down
payment assistance or mortgage expenses.
The Administration has two major initiatives designed to address
the lack of understanding about the homebuying process that presents
a significant barrier to many minority families. Housing counseling
is an invaluable tool for prospective homebuyers. Research has demonstrated
that counseling can be effective in reducing mortgage delinquency.
The Administration has proposed for FY2003 the establishment of
a separate housing counseling program with a 75 percent increase
in funding to $35 million to complement the Department's array of
new homeownership initiatives. In particular, the additional funding
will enable counseling agencies across the country to hire and train
bilingual counselors and also produce written materials in multiple
languages to reach out to minority households. Housing counseling
can also be a financial literacy and credit rehabilitation tool
for families with poor credit histories.
The Administration has proposed a number of other initiatives to
encourage homeownership, including a proposed tripling of the funds
for the Self-Help Homeownership Opportunity Program (SHOP) to $65
million. SHOP benefits faith-based and other community organizations,
like Habitat for Humanity, dedicated to turning low-income Americans
into homeowners. This program expansion will help support the construction
of 3,800 homes, fueled in part by the "sweat equity" of participating
families.
In addition, the Administration has proposed a $2.4 billion Single-Family
Affordable Tax Credit that will help develop and rehabilitate single-family
homes. This investor-based tax credit will encourage developers
and non-profit organizations to build new single-family affordable
houses or rehabilitate existing ones, and will result in an additional
200,000 homes becoming available for purchase in low-income neighborhoods.
Private Sector Involvement and Commitment
Despite the Administration's actions, it is clear that continuation
of the increases in minority homeownership that occurred during
the economic environment of the 1990s is not assured for the future.
Private sector actors involved in the real estate and mortgage lending
industries will need to increase their levels of product innovation
and marketing to minority families in order to sustain these growth
rates.
¹Homeownership rates
used for white and African-American households exclude Hispanic
households.
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