Bank of America’s Loan Program for Black and Latino Neighborhoods Isn’t ‘Explicitly Racist’
Bank of America is causing a stir with the launch of a new program that provides loans to “low-income” first-time homebuyers in select cities and, in particular, black and Latino neighborhoods in those markets.
The company launched its Community Affordable Loan Solution program earlier this week. It will offer mortgages that require no down payment, closing costs or minimum credit score. The lender, by Bloomberg, would also provide down payment grants of up to $15,000. These loans will go to home buyers in Dallas; Los Angeles; Charlotte, North Carolina; Detroit; and the Miami metropolitan areas.
The announcement sparked a backlash from mostly right-wing Twitter users and news sources who said the new program “explicitly racist“, probably illegal, and a certainly reckless expansion of credit to unqualified borrowers.
First of all, it seems a bit illegal.
But theoretically, will Pantone samples be involved? “It must be so dark to apply. »
How many quanta of blood are we talking about? ‘A decrease’? Quadroon? October ?
– Kmele???? (@kmele) September 1, 2022
Seems illegal. https://t.co/oAY9anOgPD
— Cernovich (@Cernovich) September 1, 2022
What about middle-class white families? https://t.co/KMbrcEB3jo
— Brigitte Gabriel (@ACTBrigitte) September 1, 2022
Donald Trump’s former adviser, Stephen Miller, has even raised the possibility of his public interest law firm, America First Legal, taking legal action over the new scheme.
—Stephen Miller (@StephenM) September 1, 2022
Feeding this backlash is a useless and modified title for many years. BNC News stating that the Bank of America program would provide loans to black and Hispanic homeowners – the easy implication being that you must be black or Hispanic to qualify for a loan.
This is not the case. A Bank of America spokesperson said Raison that an applicant does not have to be black or Hispanic to obtain one of these installment loans or grants. A Bank of America executive also Told Bloomberg that applicants would not have to disclose their race, and that U.S. Census Bureau data would be used to determine which black and Hispanic neighborhoods would receive loans.
This would seem to absolve him of the accusation that he is “explicitly” racist. His targeting of neighborhoods based on their racial makeup is also, perhaps surprisingly, likely based on a solid legal basis.
While the federal Fair Housing Act generally prohibits discrimination in housing on the basis of race, sex, national origin, age, and disability, other federal laws and regulations allow financial institutions to administer race-based loan programs under certain conditions.
These are known as Special Purpose Credit Programs (SPCP) first created under the Equal Credit Opportunity Act. This law, and subsequent regulations implementing it, allow banks to establish credit programs that require eligible recipients to have “one or more common characteristics (for example, race, national origin, or gender)” provided the program is used to extend credit to previously excluded groups.
Bank of America’s new loan program is a special purpose credit program.
It is reasonable to fear that extending easy credit to homebuyers will seal people in with unaffordable loans. Loans with no down payment are generally less efficient. Borrowers lack equity in their homes and therefore have more incentive to leave when prices fall. Bank of America down payment grants are meant to mitigate this risk.
Legal and credit risk issues aside, a major problem with the program as it is designed seems to be that it would be a gentrification-accelerating machine that would run counter to the stated goal of bringing low-income people in neighborhoods long discriminated against by the financial system toward home ownership.
For starters, anyone with an income of 150% of a region’s median income would qualify for the Bank of America program.
Typically, housing affordability programs require “low income” people to have an income of 80 percent of the region’s median income or less. But Bank of America’s Community Affordable Loan Solution program will go to people who earn almost double that. In a place like Los Angeles, the most expensive city where Bank of America is testing its program, a single-person household earning just under $100,000 a year could participate.
Chances are, Bank of America loans will generally go to people who are at the upper end of its income limit, as they are the ones who can afford a larger loan and will be more likely to qualify for it. a credit. (Bank of America says it will review applicants, not on their credit score, but on certain non-traditional credit-scoring characteristics, such as their rent history, utility bill history, phone and timely car insurance payments.)
We have evidence of the gentrification-accelerating effects of other banks’ lending programs that target low-income areas.
The federal Community Reinvestment Act (CRA) gives banks credit for lending to low-income neighborhoods. These credits are then considered by banking regulators when assessing banks’ requests to open new branches or merge with other banks.
To research by Diego Zuluaga of the Cato Institute showed that this configuration incentivizes banks to lend to the most qualified buyers in these neighborhoods, who are typically high-income people moving to low-income neighborhoods. It is an effective subsidy for gentrification.
Banks vowed to expand special-purpose credit programs when seeking regulatory approval for mergers in the old days. Bank of America’s new program also follows the federal government’s explicit urge to banks to create special purpose credit programs. The various federal credit regulatory entities issued joint regulatory guidance in February this year, encouraging the use of SPCPs to meet the needs of “underserved communities”.
So while Bank of America’s new lending program is not “explicitly racist” or illegal, it is downwind of federal regulatory incentives that have helped subsidize gentrification. We can expect similar results here.