The Struggle Continues: Deed Equity Means Closing the Racial Wealth Gap

The African-American and Hispanic homeownership rate has generally been below 50%. Now, there’s a group on a mission to include the “have nots” in the U.S. population of deed holders. It’s taking down hurdles to homeownership, like the need to amass money for down payments.

The Homeownership Council of America has debuted Equity DPA, a National DPA Solution. The goal: to boost underserved households’ capacity to build generational wealth.

Slipping Through the Cracks

Local down payment assistance (DPA) plans can be found all over. But they’re reserved for low-moderate income households — those earning under 80% of the area’s median income.

Many hopeful first-time buyers come from households making a little more than that, so they’re sidelined from the programs. Some of these people are in households where no one has ever bought a home. So their families lack the home equity wealth to support their goals.

For these folks who fall through the cracks, a down payment could be a major hurdle, even though monthly mortgage payments would not be. A new plan from the Homeownership Council of America (HCA) is designed just for these households.  

The HCA’s National Down Payment Assistance Solutions are available through the Council’s network of lending partners. These exist in multiple locations, in several states. The plan works with mortgages backed by the FHA, Freddie Mac and Fannie Mae, and non-qualifying alternatives (non-QM loans).

Applicants can have as much as 140% of the Area Median Income. Make that 200% in expensive cities.

This provides an answer to those left behind by existing programs. More than five million U.S. households are eligible to apply for the Council’s Equity DPA down payment assistance offering.

So, not only is HCA coming up with a much-needed financial tool; it’s also stepping up with answers to a national challenge. HCA has found that most underserved borrowers could take on loans that are available; they just need a delivery system. HCA’s success in filling this need has earned it a “Featured Innovator” award from The Brookings Institution, together with the Economic Architecture Project.

Most home buyers put less than 20% down. This means they pay mortgage insurance. Deed holders with “conventional” loans (those backed by Freddie Mac and Fannie Mae) can have their monthly mortgage insurance premiums stopped once their home equity adds up to 20%+. 

Innovating, So That People Can Simply Have the Homes They Need

The mortgage industry badly needs innovation. Traditional lenders tend to be scarce when hopeful buyers need down payment assistance. Lenders, HCA says, have an “ongoing misperception” that applicants with modest incomes are riskier borrowers. Statistics show that’s not true. Even lenders who “get it” still have to go out of their way to collaborate with the local organizations that can make funding available.

And by their nature, local programs have a whole lot of differences among them. Rather than get entangled with the various systems and requirements, a lender might simply stay out of the DPA business.

HCA takes this problem on, working directly with key mortgage companies to set up a system that works across the board. In fact, small mortgage brokers are now collaborating with HCA, increasing their approval rates and expanding their market scopes.

“Improved access to credit could result in a potential for increased loan volume by trillions of dollars,” HCA points out to lenders. And there just so happens to be a profit to be had from loans valued under $200K.  

All this means a growing number of hopeful buyers are in the position to obtain their own deeds. Music to our ears!

And HCA has the receipts to prove it. Its Equity DPA program has so far funded down payment support for more than 125 homebuyers in four states. (It’s aiming to cover needs in every state in the country.) Its financial boosts have enabled more than $41.5 million worth of real estate sales.

What Is the Homeownership Council of America (HCA)?

The HCA is a nonprofit. Donations are deductible under Section 501(c)(3) of the federal tax code.

Founded just 20 years ago, HCA is the sole national nonprofit devoted to closing U.S. wealth gaps through homebuying solutions. The wealth inequalities it tackles are based on class, race, ethnicity, and gender.

But what if there’s a recession? Not to make light of the possibility, but it might not be the worst thing for a first-time homebuyer.

Homeownership is attainable for many people who don’t realize it. Many have been raised in households in which renting is the norm, so they lack intergenerational knowledge of the process (although renting is often pricier than paying a mortgage). And many of these households have only limited access to borrowing channels. The borrowers HCA seeks to help are mainly minority, rural, and woman-led households. Successful participants are now accumulating home equity, often for the first time in their family histories. More than 80% are African Americans who’d been ignored by the mortgage industry.   

HCA works for “a future without wealth gaps for underserved people and where the American Dream of home and business ownership thrives for all people.” That dream keeps getting more elusive as people struggle with stalled wages and high costs of goods and services. In every part of the country, most of the hardest-working people would likely agree: HCA’s innovations couldn’t come soon enough.

What About Households Not Served by the HCA?

Most states and many local governments offer grants, as well as no-interest or low-interest loans (some are forgivable), to help with down payments and closing costs. Check Freddie Mac’s DPA One®, available in all states and the District of Columbia. Find out what’s available through your town and your county governments, and through your state housing finance agency. Once you know what’s out there, you’ll know what to ask mortgage companies, and which company is most open to lending to you.

You’ll still be vetted for the loan, of course. You may be asked to take an online home buyer’s course and be prepared to hold onto your deed for 5+ years.

Mortgage assistance often targets first-time buyers. Haven’t held a deed in your name in the past three years? You fall within the common definition of a first-time buyer.

Take heart. Loans are out there, even if the big lenders are missing the memo.  

Important notes: Applicants drawing on other benefit programs should call the agencies to know if they may accept home buying assistance without losing other benefits. Deeds.com is not affiliated with organizations named in this article. We do not offer financial or legal counsel.