Direct from Dave: Putting a Spotlight on Diversity & Inclusion
By David Stevens, CMB
July 20, 2017
(Direct from Dave is written by MBA President and CEO David Stevens, CMB. It appears periodically in MBA Insights.)
The United States is becoming a "plurality nation" of racial ethnic groups, according to a 2014 U.S. Census Bureau report.
More than half of the nation's children are expected to be part of a minority race or ethnic group by 2020. The minority population is expected to rise to 56 percent of the total population in 2060, compared to 38 percent last year. The minority-majority we've been discussing for years has arrived.
And yet minority homeownership rates currently remain far behind whites. For minority communities, who were the most impacted by the financial crisis, the homeownership rate is 47 percent for Hispanic households and 43 percent for African American households, compared to 72 percent for white households.
This issue dramatically impacts all of us, from the way we serve current and future borrowers to the way we run our daily business operations. As our population evolves, it presents a world of opportunity; but, if we do not address the realities of demographics, income, credit and savings, then we will not be successful in eliminating barriers to affordable homes.
Addressing the minority homeownership rate gap presents three fundamental challenges for lenders: wages and unemployment; credit score models and underwriting regulations; and savings patterns of minorities to meet down payment requirements. These same factors also affect access to affordable rental properties.
For the purposes of this brief column, I'll explore just one demographic. Here are some interesting items to consider:
Wages. African American versus white wage differences are significant. The average difference in 2016 was about $7 per hour. Obviously wages translate into savings and qualifying power. Higher wages and diversity hiring and employee development are key opportunities here.
On average, African-American borrowers have an average FICO credit score of 677 versus 701 for whites and over 720 for Asians. For anyone whose credit score is below 620, their opportunity for a loan approval gets much harder at the market rates. As I've stated before, credit scores alone are not always indicative of a qualified borrower. The real estate community and housing stakeholders need to continue talking about this in order to make the case for how to better measure credit behaviors.
Finally the net worth of whites is, on average, $100k more than African Americans. This is why developing responsible loan products that allow and support sustainable low and no down payment loans for qualified borrowers is critical to advancing opportunities for minorities to become homeowners.
Because FHA is the pathway to homeownership for many minorities, MBA is discussing clarifications and fixes to FHA regulations such as the False Claims concerns and loan-level certifications. More than 36 percent of FHA purchase endorsements were to minority borrowers in fiscal year 2017 to date, according to data from HUD. Among all African-American borrowers who obtained a purchase mortgage in 2015, 47 percent of them got an FHA loan and for Hispanic borrowers, 50 percent of them purchase a home with an FHA loan.
We're also working with policymakers to address manual underwriting standards and the complexity of Fannie Mae and Freddie Mac's 97% LTV programs.
These are the kinds of issues that our industry can bring thought leadership to and begin serious work in making changes with regulator support. Because diverse groups make better decisions than homogenous ones, MBA has established a Diversity Committee and an annual Diversity Summit to consider the issues I have outlined above, as well as a number of other topics impacting minority housing opportunities.
Additionally, the MBA D&I Residential Leadership Awards celebrate and recognize MBA member companies for their work and dedication in supporting diversity and inclusion as it pertains to hiring, lending and outreach. These awards recognize MBA member companies that have developed innovative ways to foster diversity and inclusion in the industry. (For more information, click https://www.mba.org/who-we-are/mbas-diversity-and-inclusion-initiative/mba-diversity-and-inclusion-residential-leadership-awards?utm_source=Informz&utm_medium=Email&utm_campaign=mba.org&_zs=mW0xL1&_zl=5g6u3.).
As an industry, we have kick started the discussion within our membership, but we need to do more. We need to utilize our own diverse experiences and backgrounds to put words into action. Join us for the Summit on Diversity and Inclusion in December in Washington, D.C. Participate in creating real solutions for barriers to affordable homes, marketing strategies to reach new consumers, and employment outreach goals to attract a more diverse workforce.
This is about math. Two-thirds of all new household formations over the next decade will be minority (rental and owned)--a mirror opposite to the pre-recession decade. If we do not start thinking outside of the box about sustainable products, tools, and programs for these diverse households, we will see the industry models of the past negatively impact home ownership rates and rental affordability.