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Barriers to Minority Homeownership
The Department of Housing and Urban Development (HUD) has reviewed updated statistics issued by the U.S. Census Bureau on the homeownership rates of minority households. Despite increases in the number of minority families that became homeowners, the census figures show that large differences in rates of homeownership between minority and white households remain and have narrowed only slightly.
According to an analysis of these numbers by HUD, the minority homeownership rate was 26.8 percentage points below the rate for white households in 1994. The black homeownership rate was 27.5 percentage points below the white rate, and the Hispanic rate was 28.8 percentage points below the rate of whites in 1994. By 2001, the gap had been reduced by only 1.5 percentage points for all minorities, 1.6 percentage points for African-Americans, and 1.8 percentage points for Hispanic households.¹
Barriers to Homeownership
Increases in minority homeownership have occurred recently in an extremely positive low-interest-rate, low-unemployment economic environment. Moreover, during the 1990s the conventional mortgage industry began offering a wider range of affordable lending programs. This is good, but not enough to close the homeownership gap. This initial increase of innovation in the conventional market has already reached many of those that were poised to become homeowners. And because future economic conditions are unpredictable, a reduction of the gap in homeownership levels of non-Hispanic whites and minority families is not a foregone conclusion and cannot be assumed. If the persistent gaps in minority homeownership are to be substantially narrowed, the structural barriers faced by minority families, or those that have a pronounced effect on minority communities, must be eliminated.
There are multiple barriers that prevent minority families from becoming homeowners. Those barriers include:
1. Lack of Capital for Down Payment and Closing Costs:
2. Lack of Access to Credit and Poor Credit History
3. Lack of Understanding and Information about the Homebuying Process
4. Regulatory Burdens
5. Continued Housing Discrimination
Overcoming Barriers to Homeownership: Administration Actions
Down payment costs - including closing costs - remain the most significant single barrier to homeownership, especially for low- to moderate-income households. The American Dream Downpayment Fund proposed in the FY2003 budget at $200 million will set 130,000 first-time homebuyers on the path to owning their own home.
The Administration has also proposed to provide thousands of low-income Americans the opportunity to move into their own homes with the help of HUD's Section 8 Housing Choice Voucher Program. The new plan, part of the Administration's FY2003 budget, allows local housing officials to provide families with up to one-year's worth of housing voucher payments to be used toward the down payment on a home. Prospective homebuyers would have the choice of using their vouchers for down payment assistance or mortgage expenses.
The Administration has two major initiatives designed to address the lack of understanding about the homebuying process that presents a significant barrier to many minority families. Housing counseling is an invaluable tool for prospective homebuyers. Research has demonstrated that counseling can be effective in reducing mortgage delinquency. The Administration has proposed for FY2003 the establishment of a separate housing counseling program with a 75 percent increase in funding to $35 million to complement the Department's array of new homeownership initiatives. In particular, the additional funding will enable counseling agencies across the country to hire and train bilingual counselors and also produce written materials in multiple languages to reach out to minority households. Housing counseling can also be a financial literacy and credit rehabilitation tool for families with poor credit histories.
The Administration has proposed a number of other initiatives to encourage homeownership, including a proposed tripling of the funds for the Self-Help Homeownership Opportunity Program (SHOP) to $65 million. SHOP benefits faith-based and other community organizations, like Habitat for Humanity, dedicated to turning low-income Americans into homeowners. This program expansion will help support the construction of 3,800 homes, fueled in part by the "sweat equity" of participating families.
In addition, the Administration has proposed a $2.4 billion Single-Family Affordable Tax Credit that will help develop and rehabilitate single-family homes. This investor-based tax credit will encourage developers and non-profit organizations to build new single-family affordable houses or rehabilitate existing ones, and will result in an additional 200,000 homes becoming available for purchase in low-income neighborhoods.
Private Sector Involvement and Commitment
Despite the Administration's actions, it is clear that continuation of the increases in minority homeownership that occurred during the economic environment of the 1990s is not assured for the future. Private sector actors involved in the real estate and mortgage lending industries will need to increase their levels of product innovation and marketing to minority families in order to sustain these growth rates.
Content Archived: April 9, 2010