How Mortgage Lenders Can Close The Gap for Underserved Markets

How Mortgage Lenders Can Close The Gap for Underserved Markets

January 24, 2023
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Certified Credit

A family home is a place where loved ones can come together and make long-lasting memories. Homeownership also helps families pass on their wealth from generation to generation.

Unfortunately, homeownership has historically been out of reach for many underserved communities, or unserved communities.[i] To explore the reasons behind this issue, we invited several mortgage and housing experts onto a panel on our Talk Data to Me podcast, including:

    • Phyllis Robinson from Convergence Memphis
    • Wonda McGowan from the National Association of Real Estate Brokers
    • Ella Harris from Memphis Impact Committee
    • Laird Nossuli from iEmergent
    • Gabe del Rio from the Homeownership Council of America
    • Marisol Pintado from Certified Credit

In this article, we’ll break down what these experts had to say about homeownership gaps. We’ll also explain how mortgage lenders can help borrowers overcome common barriers of entry to homeownership.

The Three Categories of Underserved Communities

Inequality has been a pervasive issue in the housing industry for many decades. Unfortunately, the pandemic has only exacerbated these inequalities.[ii]

To kick off our discussion, Gabe del Rio explained that underserved communities typically fall into one of three categories:

    • Low-income – Low-income earners may struggle to find homes they can afford. They may also require smaller loans and more credit assistance.
    • Rural – People living in rural areas may not have access to the same amount of housing programs or financial service providers as aspiring homeowners located in cities or suburbs.
    • Black, Indigenous, and People of Color (BIPOC) – BIPOC individuals face homeownership gaps that persist across income level and location. These gaps are the result of language barriers, housing discrimination, regulatory burdens, and a lack of knowledge of the home-buying process.[iii]

While these underserved groups face unique and distinct challenges, they can all benefit from more support from mortgage professionals.

Gaps in Homeownership: By the Numbers

When reviewing data about homeownership rates in the United States, one thing is clear—some of the most notable gaps exist across racial lines. These gaps are due to long-standing historical and political issues.

According to a recent iEmergent report, American homeownership rates are as follows:[iv]

  • Non-Hispanic White – 74.6%
  • Overall – 65.8%
  • Asian and Pacific Islander – 61%
  • Other – 57.3%
  • Hispanic – 48%
  • Black – 45.3%

As you can see, all minority groups’ homeownership rates fall behind that of non-Hispanic white people. However, the black community faces the largest gap of 29%.

These racial homeownership gaps can be found throughout housing markets across the country. Of the top 75 metropolitan housing markets, all of them have Black homeownership gaps—the narrowest gap is in Charlotte, Carolina (18.2%), while the largest gap is in Pittsburgh, Pennsylvania (36.6%).[v]

See the data behind the gap in homeownership equality from iEmergent.

These Gaps Are Growth Opportunities For Lenders

While these gaps in homeownership are problematic, they present lenders with a unique opportunity to grow in the coming years. That’s because over 77% of all net household growth is projected to come from households of color in the next decade.[vi]

Even if these homeownership gaps persist, minority borrowers will bring an estimated $2.8 trillion of purchase opportunity to the housing market in the next five years. If these gaps narrow even slightly, that projected purchasing opportunity may rise above $3.5 trillion.[vii]

Mortgage lenders that tailor their strategies to better serve these communities will be most likely to win over this avalanche of business.

How Can Mortgage Lenders Capitalize On These Growth Opportunities?

If you want to do your part to help close homeownership gaps and gain more business, here are a few tactics you can employ:

#1 Focus On Borrower Education

As we mentioned earlier, some homeownership gaps persist despite people earning high incomes. Thus, the cause of these gaps isn’t simply financial.

For many people, homeownership may feel out of reach due to a lack of financial education or trust in lending institutions. Mortgage lenders can tackle both of these issues by educating potential borrowers within underserved communities.

For example, you can:

      • Create helpful content online – One simple way to promote stronger financial literacy is to produce educational content online. Some mediums you can explore include blog articles, podcasts, Youtube videos, webinars, TikTok reels, and more.As you develop your content strategy, think about the questions and concerns that your target audience (underserved communities) will research online. For example, a young Hispanic family who recently immigrated to the United States may be wondering how they can build their credit scores from scratch.

Not only can your educational content add to important online conversations, but it can also enhance your reputation amongst prospective borrowers as a trustworthy resource and go-to lender for minority borrowers.

      • Break down the evolving market conditions – While many people lack basic education about credit scores and mortgages, even more people find it hard to keep up with the housing market’s fluctuations. For instance, this year’s homebuyers may face severe sticker shock with the current home prices and rates, especially if they browsed around back in 2021.Your professional expertise can give these dubious homebuyers more confidence in their decision to enter the market now. As Ella Harris pointed out in our podcast, interest rates have always changed over time. Even so, there’s no time like the present to start building equity in a home.

You can help aspiring homeowners make smart buying decisions by breaking down the current market conditions. Your market analyses can help hesitant homebuyers feel more confident in their real estate investments and more eager to work with you when they’re ready to take the plunge.

      • Host and attend in-person events – If you want to establish strong relationships with prospective homebuyers from underserved communities, there’s no better way than going to those communities and forging connections in person. You can do so by:
        • Meeting with local real estate agents
        • Hosting educational seminars at popular community centers
        • Getting involved in local housing finance agencies and faith-based institutions

As you engage with these communities, you can develop a better understanding of their needs and come up with tailored solutions to meet them where they’re at.

By addressing the needs of these communities now, you can prepare them for homeownership in the near future and position yourself as a lender they can trust.

      • Offer customized credit building tips – If any aspiring homeowners apply for prequalification with you, you can take your education to the next level with the help of Certified Credit’s credit score improvement tools.These tools enable you to give your borrowers customized tips to increase their credit scores before they formally apply for a mortgage. By guiding them along their path toward better credit, you can win over their trust, loyalty, and business.

#2 Discuss Special Housing Programs With Local Real Estate Agents

Real estate agents are another group that can benefit from mortgage education. Most notably, you may want to alert your local agents to the growing list of Down Payment Assistance Programs (DPAs) and Special Purpose Credit Programs (SPCPs) available to borrowers.

So, what are DPAs and SPCPs?

      • DPAs – DPAs provide borrowers with funding that can be used to pay for their down payment and closing costs. Some first-time homeowners receive financial assistance for these costs from their parents or grandparents, but people from underserved communities may not have access to this type of generational wealth. In turn, DPAs can help fill this gap.
      • SPCPs – SPCPs allow lenders to extend credit to people who may otherwise not meet their lending criteria. The primary purpose of SPCPs is to elevate communities of color.[viii]

While these types of programs can do wonders for people trying to enter the housing market, they aren’t of much use if real estate agents don’t know about them. Thus, expanding your local real estate agents’ understanding of these programs can help more underserved borrowers get into homes.

#3 Diversify Your Team

Next, it’s important to recognize that homeownership gaps don’t exist in a vacuum. A lack of diversity within the housing industry is also a contributing factor.

People from underserved communities often come from generations of families who never owned their homes. They may also come from communities where very few people work within the mortgage or real estate industry.

Cultivating a more diverse team at your mortgage lending business can give underserved communities more representation within the industry, and in turn, expedite the process of solving the pervasive gaps in homeownership.

#4 Be Willing to Play the Long Game

Elevating underserved communities today won’t necessarily lead to an uptick in business tomorrow. However, it can set the stage for long-term growth over the coming years.

Since business is slower right now, it’s the perfect time to start generating educational content, forming relationships in underserved communities, and enhancing your company’s diversity initiatives.

Certified Credit: Collaborative Lending Solutions For Underserved Markets

At Certified Credit, we strongly believe that uplifting underserved communities uplifts everyone. That’s why we’re committed to doing our part.

By partnering with Certified Credit, we can help you hone your lending strategy to support underserved communities in the coming years. We can also help you optimize the efficiency of your workflows so you can devote more of your time to providing excellent customer service. Some of our products and services include:

  • Automated loan manufacturing solutions
  • Credit score improvement tools
  • Lead generation tools
  • Affordable credit reports
  • Flood zone determinations
  • Fraud and risk support
  • Settlement services

Want to find out how Certified Credit can support your growth goals in 2023? Schedule a credit consultation with our team today.

 

Sources:

[i] HUD. Barriers to Minority Homeownership.

https://archives.hud.gov/reports/barriers.cfm

[ii] Brookings. Housing inequality gets worse as the COVID-19 pandemic is prolonged.

https://www.brookings.edu/blog/up-front/2020/12/18/housing-inequality-gets-worse-as-the-covid-19-pandemic-is-prolonged/

[iii] HUD. Barriers to Minority Homeownership.

https://archives.hud.gov/reports/barriers.cfm

[iv] iEmergent. Grow Your Business By Closing The Gap.

https://www.certifiedcredit.com/wp-content/uploads/2022/12/Quantifying-the-HO-Gap-and-Opportunity.pdf

[v] iEmergent. Grow Your Business By Closing The Gap.

https://www.certifiedcredit.com/wp-content/uploads/2022/12/Quantifying-the-HO-Gap-and-Opportunity.pdf

[vi] iEmergent. Grow Your Business By Closing The Gap.

https://www.certifiedcredit.com/wp-content/uploads/2022/12/Quantifying-the-HO-Gap-and-Opportunity.pdf

[vii] iEmergent. Grow Your Business By Closing The Gap.

https://www.certifiedcredit.com/wp-content/uploads/2022/12/Quantifying-the-HO-Gap-and-Opportunity.pdf

[viii] CFPB. Using special purpose credit programs to serve unmet credit needs.

https://www.consumerfinance.gov/about-us/blog/using-special-purpose-credit-programs-to-serve-unmet-credit-needs/