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Racial homeownership gap is at a record. New rules would make it worse.


Banks are facing tougher capital requirements — which will probably make mortgages pricier for cash-poor buyers

Marsheila Caldwell, 49, decorates the family Christmas tree with sons DaySean Sims, 22, and DeAngelo Caldwell, 11, in their apartment in Cincinnati on Saturday. (Madeleine Hordinski for The Washington Post)

Marsheila Caldwell wants to celebrate her upcoming 50th birthday by buying a home in a neighborhood safe enough for her 11-year-old son to play outside.

The Cincinnati social worker is gearing up to restart a search she had abandoned out of frustration three times in recent years because she couldn’t find an affordable house that met her needs. But she also knows the market has only gotten more difficult, with home prices hitting record levels and interest rates hovering at two-decade highs.

“I’m just praying that somewhere I can find what I’m looking for,” Caldwell said.

Finding a home she can afford could get harder if regulators get their way. An unusual alliance of big banks and some housing affordability advocates is arguing that a proposal meant to boost the financial stability of banks would make mortgages more expensive for cash-poor home buyers — disproportionately people of color.

“This is an all-hands-on-deck moment,” said Odette Williamson, a senior attorney with the National Consumer Law Center.

The proposed rule change would force banks to hold on to more capital for residential mortgages with smaller down payments. The logic is that such loans are riskier, so banks should keep more in reserve against defaults.

The practical effect: To afford that bigger cushion, banks will demand higher mortgage rates for borrowers who can afford only a small down payment.

Despite narrowing during the pandemic — helped by low interest rates and government stimulus programs — the racial homeownership gap has been widening more recently and now stands at 29 percentage points, its widest in a decade, according to the National Association of Realtors. And working-class minorities hoping to buy their first home — a critical tool for building wealth that many have been systematically denied — have been facing new obstacles in recent years.

Borrowing costs for mortgages have more than doubled over the last two years as the Federal Reserve has battled inflation by hiking interest rates, which hit a 22-year high earlier this year. That has compelled current homeowners to hold off from selling and instead stay put until rates cool — choking off supply and locking in prices that rocketed during a pandemic-fueled buying spree.

A problem for the housing market: People won’t quit their cheap mortgages

Higher financing costs already have put homeownership out of reach for most of these borrowers who qualified just two years ago: Before the Fed started raising interest rates, 3.4 million Black Americans were deemed “mortgage ready” based on their credit history and income, according to research by Freddie Mac. Thanks to the higher cost of financing, that number stands at less than 1 million now, the National Fair Housing Alliance found in a follow-up analysis based on traditional underwriting standards.

Meanwhile, Black home loan applicants in the 50 largest U.S. metropolitan markets are 1.6 times more likely to be denied than the overall population, a recent study by LendingTree found.

“That just shows you what happens with this wealth divide,” National Fair Housing Alliance CEO Lisa Rice said. “When you don’t have family members that you can lean on because they weren’t able to build wealth to help with a down payment, these higher interest rates have a devastating impact.”

These concerns prompted regulators and industry executives a few years ago to make home-buying easier for underserved borrowers. After George Floyd’s murder ignited nationwide protests in the summer of 2020, corporations across the economy committed to projects aimed at battling systemic racism. Mortgage lenders pledged to work with financial regulators to provide credit to more minority borrowers.

Yet only a handful of companies followed through. While a number of mortgage lenders have launched pilot programs over the past year that collectively pledge to initiate tens of thousands of home loans, those efforts will barely make a dent in the racial homeownership gap at their current scale: Closing it would require 4.5 million more Black Americans buying homes, according to the Urban Institute.

More broadly, big financial institutions have retreated from lending to economically disadvantaged mortgage borrowers. Three of the largest banks for mortgage lending — Bank of America, JPMorgan and Wells Fargo — cut the share of…



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