The dawn of a new presidency brings new hope and new promise to the leadership of our country. President Biden’s housing is the catalyst for that optimism for many plan to bridge the racial wealth and homeownership divide in the United States
While many Americans are encouraged by the recent executive order turn around our nation – and the federal government –historic discriminatory housing policies, it’s time for us to reflect on the racist homeownership policies that got us here in the first place.
In 1934, Congress and President Franklin D. Roosevelt enacted the National Housing Act and in doing so established the Federal Housing Administration. At the time, the goal of the FHA was to provide federally funded mortgage insurance to expand homeownership opportunities for Americans.
While on the surface, the FHA appeared to be acting in the best interests of all Americans, in reality, it was preventing African Americans and other non-whites from equal access to its insurance programs and, subsequently, to home ownership.
For decades, FHA regulations have encouraged and mandated segregationist policies prohibiting African Americans from enjoying the same homeownership rights and opportunities as their white counterparts. Over time, the results of these policies have been devastating. White Americans have benefited from multigenerational wealth transfers through home equity, resulting in large disparities in wealth and perpetuating African Americans living in substandard housing and high density rental housing.
In recent years, the number of existing single family homes for sale has declined. But house prices have gone up. To make home ownership a possibility for everyone, more affordable housing is needed.
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Later, the enactments of the Civil Rights Act (1964) and the Fair Housing Act (1968), the policies of the FHA under the same pretext of fairness and justice, further alienated African Americans from accession to property. While African Americans had access to the same FHA insured mortgages as their white counterparts, whites and blacks were not on an equal footing given historical disparities. This fundamental difference concerned the main qualifying element for an FHA insured mortgage – the down payment.
For most homes purchased with FHA financing, the FHA insures 96.5% of the loan, with the remaining 3.5% required for the borrower’s down payment. Current FHA regulations allow borrowers to receive a cash gift from family members to meet down payment requirements.
For many Americans who enjoy generational wealth, receiving a family gift to cover the 3.5% down payment is a rite of passage, advancing fairness through the generations. However, due to the lack of inherited or generational wealth within the African American community, a gifted family down payment is often not possible. Hence, it perpetuates inequitable access to homeownership and further widens the racial wealth gap.
In some ways, this disparity is analogous to “legacy” programs that give family members preferential treatment upon university admissions. This “inherited” FHA amendment also gives a much higher percentage of white Americans access to FHA insured mortgages and therefore homeownership than others – notably Afro-. Americans.
Fortunately, African Americans still have the opportunity to participate in the American dream of homeownership. The FHA allows government sponsored programs to provide down payments to borrowers who do not have enough savings or a family gift.
The program has strict overlay requirements primarily used by minority borrowers, including income limits and credit score requirements above standard FHA guidelines. However, unlike family donation, which is statutory, these government programs are subject to regulatory changes depending on HUD administration. This political dynamic creates uncertainty for borrowers and mortgage lenders subject to sweeping program changes based solely on the political whims of the current administration.
Given the history of the FHA and the resulting inequitable access to property for the African American community, there is no rational basis for the beneficiaries of the “down payment” to benefit from it. legal protection – or a preference – over those in need of government agencies.
While some in the mortgage industry have expressed concerns about the loan performance of borrowers receiving down payment assistance from the government versus family donations, the claims are unfounded. The FHA annual performance report indicates that the default rate for government-funded down payment assistance is lower than for loans where the down payment is provided by a family donation.
After 85 years of racist history and 25 years of installment law, the bottom line is that it’s time for all Americans to have truly equitable homeownership, regardless of race, creed. or their socio-economic status.
We need to make sure that hardworking, creditworthy Americans who need a down payment access it by law. If a family gift is statutory, the onus is on the FHA to provide those same protections to Americans who need government-funded down payment assistance to become homeowners.
After all, the American dream of homeownership should be available to all Americans – not just those with family fortunes.
This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.
To contact the author of this story:
Timothy Wright at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]