Bruce Schultz of Gateway First Bank: Promoting Affordable Homeownership in the Age of COVID
Bruce W. Schultz is Vice-President/CRA Officer with Gateway First Bank, Jenks, Okla.
The COVID-19 pandemic has accelerated the urgency to solve the nation’s affordable housing crisis. This past year has seen a deluge of affordability-related headlines such as CoreLogic’s Home Price Index report that home prices nationally increased in September by a staggering 18.1% annualized rate. Single-family housing remains in a solid “seller’s market” as the average number of days for active listings hovers near historic lows. How did we arrive at this juncture where homeownership seems to be falling further out of reach for more Americans? There are a multitude of factors that continue to contribute to the situation.
Like any other commodity, homes are priced based on available supply and demand. Increasing demand combined with a dwindling supply of housing inventory has created what seems like an ever-accelerating upward spiral of appreciation. Demand has surged over recent years, fueled by Millennials and the eldest of Gen-Z settling down to begin their own families. The lack of housing supply has multiple causes, including restrictive zoning laws, fewer builders in operation since the 2008 financial crisis, supply-chain problems delaying materials, and a shortage of skilled labor. Combined with an increasing number of Baby Boomers remaining in their homes, housing inventory has dwindled to record lows.
As there is no singular cause to the crisis, there is also no proverbial “silver bullet” to end it. Nevertheless, the crisis presents residential mortgage lenders with an opportunity to expand their role in a critically needed area of community development – advancing affordable homeownership. By actively supporting affordable homeownership as part of their overall business strategy, lenders will create greater economic opportunity for low-, moderate-, and middle-income consumers, as well as minorities and other historically underserved groups. A three-pronged approach concentrated on down payment assistance products, education, and promotion of mortgage payment assistance for existing homeowners provides a reliable roadmap for lenders eager to be part of solving the crisis
In an August survey by LendingTree , 54% of respondents indicated that down payment is the primary barrier they face to owning. Mortgage lenders can assist these potential borrowers with safe products designed to assist would-be borrowers overcome this hurdle. FHA’s 3.5% down has long been considered a staple product for buyers seeking to purchase their first home. The VA and USDA provide fixed-rate, zero-down programs for veterans and rural homebuyers. HUD’s Section 184 program for Native American tribal members also provides a safe, fixed-rate mortgage option with a small down payment requirement. Lenders already active in the agency space should consider Fannie Mae’s HomeReady® and Freddie Mac’s HomePossible® products. Both of these products allow down payments of only 3% from flexible sources beyond the borrower’s own funds, such as affordable second mortgages.
In addition to partnering with nonprofits offering down payment assistance programs, mortgage lenders should check with their state and local Housing Finance Agencies to see what programs they have available to help borrowers overcome the down payment hurdle. Creative options, such as individual development accounts and employer matched-savings programs that incentivize consumers to save towards their down payment, should also be explored.
The second area of focus for mortgage lenders is the delivery of financial educational resources throughout all communities, but especially targeted to individuals in underserved markets. Lenders can prepare individuals to realize the benefits of homeownership using the multitude of freely available resources from federal regulators like the FDIC and agency materials from Fannie Mae and Freddie Mac. An informed consumer is the best protected consumer, so providing information on topics such as building a credit score, creating savings, and avoiding the traps presented by payday lenders and other financial predators, is an effective method to increase greater overall community financial resilience. The Consumer Financial Protection Bureau’s 2020 Financial Literacy Annual Report states that the results of their study “suggest that financial educators can support day-to-day money management, planning, and a habit of savings to help people achieve better financial outcomes within the context of their circumstances.”
Finally, for mortgage servicers, there’s an opportunity to help keep housing affordable by delivering information to borrowers on mortgage assistance programs presently being rolled out across the country under “ARPA,” the “American Rescue Plan Act of 2021. APRA authorizes the U.S. Treasury to provide nearly $10 billion in assistance to help homeowners keep their homes. The Homeowner Assistance Fund or “HAF,” is being handled by different state and tribal authorities and agencies across the country. For those homeowners most impacted by the COVID-19 pandemic, connecting them with a source of cash assistance may be just the little extra push needed to get over the challenging financial hill on which they’ve found themselves.
With the right focus on down payment assistance products, financial education and mortgage assistance programs, there is ample opportunity for mortgage lenders to partner with nonprofits, community development organizations, and other stakeholders to keep homeownership affordable. LendingTree’s survey indicated that 88% of Americans and 76% of renters would rather own than rent. Those figures prove that many still believe one of the most important components of the American Dream is the opportunity to own one’s home. Through decided and intentional action, mortgage lenders can help secure that opportunity for generations to come.
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