Black homeowners pay more than white residents when purchasing a home and face other financial challenges that have been exacerbated by the COVID-19 pandemic, a new report found.
Black homeowners pay more than white residents when purchasing a home in New York City, and face other financial challenges that have been exacerbated by the COVID-19 pandemic, a new report found.
The Center for NYC Neighborhoods surveyed dozens of homeowners, housing counselors and program practitioners over the last year to understand and resolve some of the challenges to Black homeownership, which has declined in the city by 13 percent over the last two decades and worsened under the pandemic, the group says. The report’s findings are part of research from the Black Homeownership Project, an initiative founded by the Center to examine how the 2008 foreclosure crisis and systemic issues have impacted Black homeowners. Work on the survey began in 2019, before the pandemic struck.
The new findings show that the average Black homebuyer in the city pays $7,000 more in closing costs and higher interest rates when compared to white buyers. The findings saw this pattern of higher costs for both conventional mortgages, where a buyer must have a certain percentage of a down payment and a good credit score to qualify, and with Federal Housing Administration (FHA) mortgage loans — federally-insured loans originated by approved lenders, where a buyer can qualify for a mortgage even with a lower credit score and down payment, but faces a higher interest rate and insurance on that loan. But the Center for NYC Neighborhoods says the discrepancy between racial groups cannot be explained by looking at the type of loan alone.
“We know that people that use FHA loans are probably going to pay more because by definition an FHA loan is more expensive. But we were surprised to see that the pattern also held with conventional loans,” says Ivy Perez, policy and research manager for the group.
One of the contributing reasons Black homebuyers pay more in closing costs is typically due to lower credit scores or receiving less in down payment assistance, Perez says. However during their research, they found that those typical contributing factors were not always the case—some higher income homebuyers of color were still paying more, according to Perez. But without access to loan application specifics, the Center was not able to definitively determine whether or not discriminatory practices were at play.
“Maybe it could be as simple as a mortgage broker is telling you to take an FHA loan, even though you qualify for a conventional loan, because you’re a person of color and five people of color just came in and took FHA loans, and maybe you steer them in that direction,” she says. “So we can’t answer why it’s happening, but it’s alarming and it’s happening across all of these different types of loans and not just where we expect to see it.”
Earlier findings from the Center for NYC Neighborhoods reported the number of New York’s Black homeowners declined by 13 percent over the last two decades due to a combination of existing systemic issues, the impact of the 2008 foreclosure crisis and soaring prices.
Black homebuyers face other challenges: Out of the dozens interviewed for the survey, an estimated 80 percent said they faced difficulties financing home repairs and finding trustworthy contractors to maintain their homes, according to the findings.
The Center for NYC Neighborhoods used the research results to craft five recommended pilot programs that would address some of the challenges Black homeowners face. The Center would like to see the creation of a Down Payment Assistance Navigator—a digital resource for potential homebuyers and pre-purchase counselors, which could assist in the loan process and connect potential buyers with existing lender resources. Another suggested pilot, called the Savings Accelerator, would be a matched savings program to aid potential and existing homeowners with their financing goals.
The Center also wants to address challenges many “mom and pop” landlords face, such as in Southeast Queens, where there are many single- to two-family homes. They propose aiding those small landlords through a Homeowner Landlord Service, which would help connect owners with city agencies, trusted lenders and contractors for repairs and support, and provide them with support in preserving affordable rentals and tenant mediation.
Another program recommendation, called “Generation 2 Generation” Estate Planning, would aid Black homeowner households in preserving their generational wealth by protecting their assets from deed theft, predatory lending, tax liens and other inherited debts through estate planning services and community engagement. The Center also wants to create more opportunities for tenants to become homeowners through a program it’s calling Pathways to Tenant Purchase, which would support the creation of co-ops and services that support the conversion of a tenant building into limited equity co-operative.