Bank of America is offering mortgages for first-time homeowners that do not require down payments, minimum credit scores or closing costs in a program that aims to boost homeownership rates among first-time Black and Latino buyers.
Under the trial program, which was announced on Tuesday, Bank of America will offer loans to people in certain predominantly Black and Hispanic neighborhoods in Charlotte, N.C.; Dallas; Detroit; Los Angeles and Miami. Eligibility for the program, which is called the Community Affordable Loan Solution, is based on income and location, and requires no mortgage insurance.
AJ Barkley, the head of neighborhood and community lending for Bank of America, said the goal of the program was to help individuals and families, particularly Black and Hispanic people, build wealth over time.
“It allows us to revitalize minority communities,” she said in an interview, noting that anyone looking to buy a home in one of the designated neighborhoods could apply for a loan under the program. She said that the bank aimed to expand the program to other cities in the future, and that it was also offering educational resources to help buyers navigate the process.
Black and Hispanic homeowners face a number of additional obstacles when buying homes compared with white homeowners. According to U.S. Census Bureau data for the second quarter of this year, the national Black homeownership rate was at 45 percent, while the rate of white homeownership reached 75 percent.
Rashawn Ray, a senior fellow at the Brookings Institution, said Bank of America was taking a big step in the right direction.
“This is forward thinking, and something that’s important to do,” he said. The bank’s decision to not require a minimum credit score was also key, Dr. Ray said, since Black people have been excluded from some credit-building opportunities. It was also critical that Bank of America was not requiring down payments, which can be a major barrier for Black buyers, who are less likely to have help from their families or other means, such as proceeds from the sale of another property.
Banks have contributed to racial gaps in homeownership rates by approving fewer loans with less favorable terms for Black applicants than for white borrowers with similar credit profiles, Dr. Ray said. It’s important, he added, that more financial institutions take steps like the one Bank of America has announced to correct the inequalities of the past and to be part of the solution.
Analysis: Bank of Americas business plan to offer no-down-payment mortgages in Black and Hispanic neighborhoods is an innovative way to begin correcting banking wrongs of the past. By allowing credit-building opportunities for minority communities, the bank will expand upon its customer, while improving the customer quality of life. Although impact articles have yet to be published on this business model, I think it is a fantastic example of rewriting banking rules and personalizing customer experience. It goes beyond banking issues to address bigger injustices, such as redlining and housing discrimination. I question the other ways banking businesses could look to improve quality of life for their customers and make their business more inclusive. What if in addition to offering credit-building opportunities, Bank of America or other commercial banks offered financial literacy courses and services that help customers learn to better save and budget their money? How can banks utilize data collecting technology to understand more about their customer and their needs, along with the gaps of representation in their customer?
Citation:
Gross, J. (2022, September 1). Bank of America tests no-down-payment mortgages in black and Hispanic neighborhoods. The New York Times. https://www.nytimes.com/2022/09/01/business/zero-down-payment-mortgages.html?login=smartlock&auth=login-smartlock
