Richard Ferguson, President, CBC Mortgage Agency
Q: The Urban Institute recently released a report entitled “Breaking Down the Black-White Homeownership Gap.” What is your key takeaway from the report?
A: The report brings into focus a huge racial disparity in homeownership, with nearly 72 percent of white adults owning property while less than 42 percent of black adults own their homes.
Q: What is the biggest factor in the disparity?
A: Income was identified as the biggest factor in the gap. Though the median income in the US for white households exceeds $61,000, the median income for black households was less than $39,000. If the disparity in income were eliminated, the homeownership gap would be slashed by 31 percent.
Q: Was income the only factor in the disparity?
A: No. The report also highlighted how black households are less likely to marry. If the marriage rate were the same between black and white consumers, then the homeownership gap would be cut by 27 percent.
Another factor is credit scores. More than half of white households have a FICO score higher than 700. But among black households, just 21 percent have credit scores of more than 700. In addition, more than a third of black households don’t have enough credit to generate a credit score, while that share is just 19 percent among white households. Without the credit score differences, the gap would be reduced by 22 percent.
Q: Are there any other factors impacting the homeownership disparity that aren’t mentioned in the report?
A: Definitely. One of the biggest factors is intergenerational family wealth. White families are far more likely to have the resources to help family members with a down payment for a home purchase. But that level of wealth is lacking among black families.
The lack of family wealth also plays a role in credit scores, since black families are less able to provide financial assistance to family members who are in distress.
Q: How does down payment assistance, such as the programs offered by CBC Mortgage Agency, impact homeownership disparity?
A: That’s a great question. Down payment assistance programs can have a huge positive effect on the ability of black households to transition from renters to homeowners because they help eliminate the gap created by the lack of intergenerational wealth.
Not only does it provide black families with the ability to make a down payment, but giving these families an ownership stake in their community makes the community itself better. That is because there is a newfound pride of ownership by these families, incenting them to take better care of their homes and play a bigger role in the welfare of the community.
Our own research has found that more than 90 percent of down payment assistance recipients would not have been able to purchase a home without such assistance.
Q: HUD has stated that down payment assistance has a negative impact on FHA performance. Is that an indication that down payment assistance will lead to more foreclosures?
A: No. It’s true that the FHA has suffered losses from down payment assistance in the past. But that was before the financial crisis, when home sellers indirectly provided the assistance and raised the price of the property to cover it.
Seller-funded assistance is no longer around, and today’s down payment assistance programs like CBCMA’s don’t have the same effect on FHA loan performance. This is supported by a report prepared for the Federal Reserve Bank of St. Louis by the Harvard University Joint Center for Housing Studies that indicated down payment assistance has no significant impact on loan performance.
HUD must consider this evidence — that down payment assistance does not have a harmful impact on FHA risk — and avoid tampering with these valuable programs that are successfully helping bridge the racial gap in U.S. homeownership and helping to make FHA a better option for all consumers.
Richard Ferguson is president of CBC Mortgage Agency, a nationally chartered housing finance agency and a leading source of down payment assistance that helps low-income consumers, often in minority neighborhoods, achieve the dream of homeownership. He can be reached at firstname.lastname@example.org.