Homing in on Homeownership
The month of June is many things. The beginning of summer…the end of the school year, Pride Month, and not many know that it is also National Homeownership Month.
Indeed, earlier this month President Biden issued a proclamation stating that:
“The aspiration to own a home is connected deeply to the American dream. It has driven generations of Americans, in search of a place to call one’s own.
Today, for people across the United States, the desire to own a home burns as brightly as it ever has. Yet the stark reality is that, for too many, the dream of homeownership is becoming more difficult to realize and sustain. This is especially true in the wake of the economic devastation inflicted by the COVID-19 pandemic.”
The President’s statements are certainly backed up by data. Recently VantageScore and Morgan Stanley co-presented a webinar titled: “Credit Invisible No Longer: Racial Disparities in Lending.” The playback is actually now available here.
Unfortunately, the data presented by Morgan Stanley paints a grim picture. Consider these statistics:
Since 2010, the Black-White homeownership gap not only has persisted, but has widened, increasing from 28.5% in 2010 to 30.3% in 2018.
Here’s the 2018 homeownership rates by race:
• White: 72%
• Asian: 59%
• Hispanic: 42%
• Black: 39%
Ultimately, this trend contributes to the racial wealth gap. According to the Brookings Institute, the median White family has nearly eight times the net worth and more than two times the home equity of the median Black family.
Black borrowers also are denied a mortgage at a disproportionate rate even when you control for income and credit quality.
What’s going on here? We, as an industry, need to focus our attention on this disparity. Part of the issue, we would argue, is the number of consumers who are conventionally unscoreable and the disproportionate number of those who fit that profile in communities of color.
Our data shows there is a strong association between income and score-ability through conventional models*, with African American populations experiencing the most impact. For example, 60% of areas with higher percentages of African American consumers are low income and have low rates of score-ability through conventional models (compared to 32% of areas with lower African American populations).
Not being scored by the credit scoring models that the mortgage industry continues to rely upon is one of many issues that are contributing to these trends.
There is a distinct opportunity to change this. According to Morgan Stanly closing the homeownership gap would result in ~4.9 million new ownership households. The broader impact of that is estimated at 490,000 - 784,000 jobs with 10-years' worth of steady employment, which would generate $284-397 billion in tax revenues, and significantly boost spending.
This can be accomplished without returning to the inappropriate and inaccurate lending practices that led to the Great Recession. And of course there are other major hurdles including the lack of inventory of single family homes for purchase.
But closing the homeownership gap deserves our attention. And while during the month of June we pay special attention to these issues, it will require much more creative solutions and leadership throughout the year.
CEO and President, VantageScore Solutions
*Unlike VantageScore models, “conventional models” limit the scoreable population by employing a chosen, minimum scoring criteria, which is defined as requiring: (1) at least one tradeline/account to be open and reported to the credit bureaus for six months or more; and (2) at least one tradeline/account that has been reported to a credit bureau within the past six months.