Numerous low- to middle-income consumers constitute an untapped customer base for the mortgage industry, but the lack of clear strategies for reaching them results in both sides missing out on benefits.
In a market where the next cohort of new first-time home buyers is expected to be a 44% minority – as well as 70% of net new home builds over the next decade – reaching out to these communities should be a priority, according to Anthony Weekly, Chief Community Reinvestment Act Officer at Truist. The average net wealth of white households is nearly five times higher than that of black and Hispanic families, according to the Federal Reserve's 2019 Survey of Consumer Finances.
"You all need to know and understand that this is a business need," he said at the Mortgage Bankers Association convention. "If you don't get it right, you will at least lose market share and possibly be out of business."
While numerous programs exist to assist potential LMI buyers, many are unaware that they may already be eligible for a mortgage or down payment. Approximately 32 million renters under the age of 45 are ready for mortgages but think that buying a home will be more than money.
"There's also a group of people who are potentially mortgage ready, or could be mortgage ready with a little help, and they don't want to own a home because it just wasn't on their radar," said Robert Chrane, CEO of Down Payment Resource.
Changing the mindset of this segment of consumers is an important first step on the road to home ownership and reducing current wealth differentials, according to the MBA conference panel. Getting them to view it as a viable financial goal is an essential first hurdle to overcome.
TransUnion's Consumer Pulse Survey results, released this week, showed that nearly half of consumers with credit scores in the 601-660 range mistakenly assumed that their ratings were too low to qualify for a mortgage . Many would likely be eligible for a loan sponsored by the Federal Housing Authority or supported by government sponsored companies. And 50 million LMI consumers have a credit score of over 680, while 25 million are between 620 and 679.
Around 120 million consumers – around 50% of the country's credit active population – are considered to be low to middle income consumers. Three of the four most populous states, California, Texas, and New York, also have low- to middle-income majority communities.
But some assume that low income levels are an automatic deal breaker. "It is amazing how traumatic an individual's circumstances can be, especially through poverty, to the point where things that we regard only as general financial goals just seem too big to imagine," said Sonja Nelson , Vice President, Resident Initiatives, Columbus Metropolitan Housing Authority. The organization supports home buyers with the voucher program of the Ministry of Housing and Urban Development.
“And so we start having this basic conversation, 'Well, what's your goal?' Usually, when we have the target conversation, they are comfortable going to share the home at some point, but it seems so big that they are almost embarrassed even say that this is an option. "
Reaching these potential new customers also requires the willingness of lenders and companies to change their mindset and perhaps even parts of their business model in order to develop solution-oriented approaches.
"There's a trend toward speed," said Chrane. It is driven by consumer demand. It is driven by economics of cost efficiency and enabled by technology. But this acceleration, scaling and standardization doesn't necessarily work for some of these new populations we're talking about. "
While the positive financial results of caring for LMI borrowers may take more time for lenders, the relationships will bear fruit in the longer term, especially for those companies that offer products that go beyond mortgages, Nelson said.
"While home ownership to these groups doesn't primarily look like there isn't enough skin involved for some lenders to actually participate, this borrower's relationship – at the time – is a long one," said Nelson, referring to her own experience.
“They will keep growing and their incomes will increase. And with their higher income they will be able to make financial decisions and they will look back to say who supported me back then, ”she said.
According to the Weekly, the economic effects of higher home ownership rates across all income levels would also be felt far beyond the housing industry. The latest U.S. home ownership rates Census Bureau show that the white population is 74%, Hispanics 49% and Blacks around 45%.
"We need a marketing campaign that goes across this country and talks about home ownership because if minorities get the same rate as Caucasian home ownership, we're a better country," said Weekly. "They would have money to run their small businesses, send their kids to college, and get their education."