Are Biden's Housing Regulators Failing Black Homeowners?
There was great optimism amongst community advocates when the Biden Administration made equality in homeownership a cornerstone of its fiscal policy. However, over the past two years, the homeownership gap between Black and White Americans has widened. Today, this racial homeownership gap is wider than it was during the Jim Crow era, when explicit redlining was legal.
For the first time ever, to combat racial inequalities in housing, the Biden Administration staffed four key leadership positions at entities responsible for America's homeownership financing policy with Black women: Marcia Fudge (Secretary, Housing and Urban Development); Sandra L. Thompson (Director, Federal Housing Finance Agency) ("FHFA"); Jodie Harris (Director, Community Development Financial Institutions Fund) ("CDFI Fund"); and Theresa Bazemore (President & CEO, Federal Home Loan Bank of San Francisco) ("FHLB-SF").
Before even taking office, these leaders spoke of the structural inequalities and even racism in housing. For instance, Sandra Thompson said at her confirmation hearing that under her leadership the FHFA would be, "…taking steps to expand access to quality, affordable housing for minority and underserved communities. Years ago, many families were unable to purchase a home due to redlining, which often divided neighborhoods along racial lines. The racial homeownership gap between Black and White families is higher today than when the Fair Housing Act was passed." Each of these leaders have spoken passionately about leveling the playing field for Black homeowners, increasing capital to Community Development Financial Institutions ("CDFIs") and Minority Depository Institutions ("MDI's"), reducing the regulatory policies that had a disparate impact on minority borrowers, and increasing the flow of capital to underserved borrowers and communities.
Despite the Biden Administration's leadership appointments, it has been hard to find any signs of true progress in home lending. Let's look at how America is failing to overcome the inequities in the system.
Bazemore leads the most important bank in the Federal Home Loan Banking System when it comes to home lending. The FHLB-SF claims to, "partner with our members to promote homeownership, affordable housing, and economic development." Bazemore has grown the FHLB-SF's balance sheet by over $100 billion by lending to banks on the cusp of bankruptcy led by management teams who disproportionately serve White borrowers in wealthier, whiter communities. Meanwhile, Bazemore's FHLB-SF has refused to grant membership to investment grade rated CDFIs who primarily serve Black, Latino and Low-Income Borrowers. Bazemore's accomplishments include less CDFI participation in the FHLB System, higher haircuts for loans pledged by CDFI members, and a lower percent of loans financed to Black homeowners. Bazemore's FHLB-SF has yet to recognize the value of CDFI loan underwriting and has refused to allow many of its Bank members to even pledge loans underwritten by CDFIs on the same terms as loans pledged by Bank members. In short, instead of breaking down the structural inequities that existed at the FHLB-SF before Bazemore's arrival, Bazemore's FHLB-SF has compounded the systemic racism by "blacklisting" CDFIs. As of March 30, 2023, Bazemore's FHLB-SF has made less than 0.01% of its loans to CDFIs. Meanwhile, over 50% of its loans were to distressed banks who have now failed or are at risk of failure.
Director Jodie Harris oversaw the United States Department of the Treasury's CDFI Fund. As Director, Harris was charged with overseeing the certification of new CDFIs, the recertification of existing CDFIs, and the allocation of government programs to CDFIs. In all three areas, she failed. The CDFI Fund, under Harris' leadership, placed a moratorium on new CDFIs, attempted to create rulemaking to reduce home lending to Black and other minority borrowers, failed to allocate funds designated by Congress for CDFIs, and has proposed a catastrophic policy that would decertify all CDFIs and require them to re-apply for membership under new rules. The CDFI Fund has failed to allocate approximately $1 billion of Congressionally approved funds to CDFIs under the CDFI Bond Guarantee Program over the past three years. These funds would have supported over $3 billion of new lending to Black, Latino, and Low-Income borrowers. This failure to allocate budgeted capital came during COVID – when underbanked borrowers were most in need of financing. Harris has recently resigned from her position, presumably not by choice. Unfortunately, before her departure, the CDFI Fund was burdened with a raft of destructive policy proposals that Harris made as Director.
Director Sandra Thompson heads the FHFA which regulates the FHLB Banks and the GSEs (i.e., Fannie Mae and Freddie Mac). Thompson's appointment holds considerable promise for underserved homeowners and the CDFIs who serve them. To date, Thompson has made bold speeches about closing the racial homeownership gap, but the FHFA has taken little action. Thompson has spoken up on the need for the GSEs to use Special Purpose Credit Programs ("SPCPs") to address the systemic inequities in home lending, but GSE use of SPCPs has been marginal, at best. Thompson has also raised serious concerns about the failure of the FHLB banks to meet their housing mission, but the FHLB Banks have yet to face regulatory consequences for their actions (or lack of actions). The FHFA continues to allow FHLB Banks to lend to bitcoin banks and distressed institutions while starving community and minority lenders of financing.
Thus far, Thompson hasn't used her position to create permanent, positive change in America.
Thompson has allowed her staff and attorneys to defend the indefensible actions of former FHFA Director Calabria against America's largest CDFI lender instead of doing right by Black homeowners in the future. Thompson has even allowed the FHFA to take legal action to defend the processes the FHLB-SF is using to continue to exclude and minimize CDFI lending.
Time will tell if Thompson can take stronger, more pro-active steps to eliminate the systemic issues that she inherited at the FHFA.
Secretary Marcia Fudge oversees the U.S. Department of Housing and Urban Development and its Federal Housing Administration ("FHA"). The FHA is the largest lender of government guaranteed loans. Fudge has made important and meaningful changes to certain regulations including those relating to SPCPs, but they have been at the margins. She has yet to make any attempt to address the biggest non-credit, non-economic reasons Black homeowners are denied loans. These include volatile income, differences between taxable income and actual income, and disqualified income. To address this, the FHA would need to allow for more flexibility with underwriting and documentation for borrowers in exchange for lower loan-to-value ratios ("LTVs"), higher FICO credit scores, and more liquid reserves. The Consumer Financial Protection Bureau ("CFPB") has identified that the lack of an underwritten debt-to-income ("DTI") ratio (or a "high DTI") among borrowers can be mitigated through lower LTVs (e.g., a 10% reduction in LTV for a borrower with negative taxable income). Despite this, the FHA has not been willing to entertain such changes to its underwriting guidelines. The FHA has failed to serve additional Black and minority borrowers by allowing more flexibility with lower LTV loans. Fudge hasn't made meaningful efforts to develop solutions for borrowers with volatile income – such as contractors and gig economy workers.
Biden's housing regulators have not had the impact that Biden promised or that America has sought: to bring equal access to capital for Black homeownership. It is far past time for more talk. It is time for action. Leaders must cease making apologies for their predecessors' actions and must not only use words and speeches when bold action is necessary. Leaders need to recognize when systemic issues exist in their organizations and new policymaking is necessary to stamp out longstanding issues. Leaders need to make the changes necessary to end systemic racism in home lending in America.
Let us pray that Biden's regulatory leaders will step up to the challenge and take all necessary actions necessary to cure the systemic racial issues that continue to result in a widening racial homeownership gap in America.There was great optimism amongst community advocates when the Biden Administration made equality in homeownership a cornerstone of its fiscal policy. However, over the past two years, the homeownership gap between Black and White Americans has widened. Today, this racial homeownership gap is wider than it was during the Jim Crow era, when explicit redlining was legal.
Steven A. Sugarman – Founder, The Change Company CDFI LLC
Reverend Everett Bell, Jr – Chair of The Change Company CDFI, LLC Community Advisory Board