Today’s skyrocketing house prices, coupled with the uneven economic recovery from the COVID-19 pandemic, are driving America’s possessions and have-nots further and further apart. And unfortunately, the pandemic only made it worse – especially for minority communities. When we get out of the pandemic fog, these groups face a particular challenge in realizing the American dream of owning a home: the lack of intergenerational wealth to help them with a down payment.
Current home ownership rates reflect a deep and growing inequality between black and white families who eerily similar to what we saw at the height of the civil rights debate and the passage of the Fair Housing Act in 1968. Without the state down payment assistance, the road to owning a home would be even steeper for many borrowers. While some can rely on family members to make their down payments, such gifts are not available to all borrowers, especially those who do not have access to intergenerational wealth that includes many minorities.
DPA programs are a straightforward answer to bridging the gap between the haves and the haves. Early in my career, I tried to help potential buyers qualify for a home mortgage through DPA. We haven’t always got it right. The practice began in the early 2000s of allowing someone selling a home to contribute to the buyer’s down payment to help families out. This method of helping borrowers became known as seller-funded down payment help. SFDPA providers had no interest in the underlying first mortgage – almost always a Federal Housing Administration insured loan. As a result, many SFDPA providers have not taken steps to ensure that the underlying FHA mortgages are performing well or that borrowers are getting the assistance they need.
To protect borrowers and ensure that the underlying FHA mortgages were performing well, I co-founded an industry association called HAND in 2002 whose mission was to educate the mortgage industry on the proper use of SFDPA and to limit risky practices. Unfortunately, the speculative buying hysteria that led to the property crash in 2008 ruined all efforts to introduce appropriate underwriting controls. Additionally, regulatory flaws allowed many appraisers to artificially inflate property valuations to cover the down payment assistance, driving property prices to unsustainable highs from which they eventually plummeted.
While unable to address the overrated issues, the SFDPA providers failed to adequately support borrowers or impose adequate credit standards that would create sustainable home ownership and acceptable credit performance. Ultimately, SFDPA was abolished with the Housing and Economic Recovery Act of 2008, and two years later the Dodd-Frank Act dealt with many valuation issues and eliminated unsustainable loan programs like subprime mortgages, income-free verification loans, interest-free mortgages, and other products deceptively low initial payments that burned so many homebuyers.
Senator Pat Toomey, a Republican from Pennsylvania, sent one last month letter to Marcia Fudge, the new secretary of the Department of Housing and Urban Development, who is in favor of extending the SFDPA ban all existing DPA programs – a position which, if adopted, would drastically limit access to affordable housing for minorities.
Given that Congress abolished SFDPA more than a decade ago, Toomey’s letter creates unnecessary confusion by making inaccurate comparisons with SFDPA, which is now banned, and government-provided DPA operating within the boundaries of the law . Additionally, the HUD has repeatedly declined requests to interpret existing federal law to prohibit government-provided data protection agencies, a fact that Toomey must have overlooked.
Today’s DPA programs are nothing like SFDPA programs. On the contrary, the performance of the underlying FHA first mortgage is critical to the long-term success of these programs.
The Chenoa Fund is one such down payment program that I helped create and manage and that is funded by the CBC Mortgage Agency, the Cedar Band of Paiutes’ housing finance agency. Using past experience, I have endeavored to develop the program to encourage long term home ownership and sustainable, high performing mortgage loans. The Chenoa Fund program innovations include several specifically designed to encourage and assist borrowers in paying their mortgages. For example, some borrowers qualify for a down payment loan that can be granted if they repay their FHA mortgage on time.
In addition, borrowers are offered extensive financial education to help them stay current with their mortgage, including 18 months of post-purchase advice – a benefit that was particularly important last year as a borrower with the pandemic, too had to fight. We have developed a safe way to provide the much-needed DPA to worthy borrowers by learning the lessons of the past.
Today we face a major racial homeownership gap and a blatant need for those without inheritance to receive the down payment required to buy a home. We need to protect the avenues that have evolved to support these homebuyers, especially programs offered by government agencies that help a large percentage of minority borrowers. I take pride in the fact that over half of the borrowers CBCMA has helped over the past year have been minorities, with 1 in 3 representing the first generation of their families to own a home.
Bottom Line: The state’s data protection agency responsibly helps borrowers become long-term homeowners without having to wait many years just because they lack generations in inheritance. It brings scalability and capacity with the ability to support a significant change in home ownership outcomes. It’s a proven system that works – and it’s essential to helping people make the American Dream come true.
Richard Ferguson is the manager of the CBC mortgage agency.