A major American bank has launched a new program to help minority first-time buyers finance their home purchase with no down payment or closing fees. This is good news for buyers at a time when rising interest rates and declining home inventories are unfavorable.
It’s also the latest response to long-standing criticism that banks favor white borrowers.
Bank of America’s test plans have been rolled out in Los Angeles, Dallas, Detroit and Charlotte and are primarily targeted at minority neighborhoods in those cities. Offer loans to minority buyers without requiring a down payment, closing costs, or private his Mortgage Insurance (PMI), which are typical additional costs for a buyer who pays less than 20% of his home purchase price To do.
Importantly, this program also does not require a minimum credit score. Instead, it focuses on a solid track record of rent payments for renters and regular monthly bills such as utility bills and phone bills. Before applying, buyers must complete a homebuyer certification course that advises on ownership liability and other considerations.
But Bank of America (and other large lenders) has been criticized in the past for predatory lending practices, particularly lending to minority groups, so the move quickly sparked mixed reactions online. rice field.
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Financing comes at a critical time for buyers in Bank of America’s test cities.
Rising interest rates have made mortgages more expensive, creating downward pressure on lenders to ensure loans are as risk-averse as possible. Bank of America’s program aims to break through this by freeing eligible applicants from down payments, credit score criteria, and PMI costs.
This reduces many of the barriers to homeownership for buyers in communities battling institutional lending, which often favors white borrowers.
AJ Barkley, Head of Neighborhood and Community Lending at Bank of America, said:
According to the National Association of Realtors, 72.1% of white households own a home in 2020, compared to 51.1% for Hispanic households and 43.4% for black households.
And according to a recent report from LendingTree, black borrowers are twice as likely to be rejected as the overall borrower pool.
Bank of America’s plans include a $15 billion program to provide closing costs and down payment assistance to low-income buyers and a $15 billion mortgage loan to low- to moderate-income buyers through mid-2027. It is in addition to another initiative aimed at providing
Critics of the program, however, were quick to point out that it could backfire and harm the communities it was designed to help.
The 2008 housing crisis was largely driven by risky loans to ineligible buyers, and lenders who were stuck with foreclosed homes after buyers stopped paying for properties they couldn’t afford. Taught a tough lesson.
The results were devastating. Lenders inherited foreclosed homes and buyers saw their credit scores plummet.
At least some of Bank of America’s new program borrowers may be considered “subprime” under normal lending rules. For example, his credit company Experian considers borrowers with credit scores between 580 and 669 to be subprime.
And while credit scores are not always an accurate barometer of a buyer’s purchasing power or ability to make timely payments, proponents believe that the interest rates needed to compensate for the low standards set by lenders are a minority. We are concerned that this may lead to failure of the popular buyers.
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