The gap in homeownership rates between Blacks and non-Hispanic Whites is larger now than it was in 1934, the year of the enactment of the Federal Housing Administration. That's why we've made it our business to design anti-racism products for credit unions as part of a comprehensive DEI business strategy.

What are the underlying factors driving this, that credit unions can operationalize into solutions?

1. Increase debt-to-income (DTI) ratio to more than 45%. Debt-to-income ratio is the most common reason for denial reported for Black American applicants, according to the National Association of Real Estate Brokers' (NAREB) State of Housing in Black America. NAREB urged institutions to increase required debt-to-income ratios to more than 45%. Allowing for the higher DTI, coupled with debt consolidation to reduce payments, ensures the ability to repay by retaining household income lost to predatory consumer loan interest payments to unscrupulous lenders.

In December 2020, the CFPB issued a final rule eliminating DTI as a requirement for qualified mortgages. Until it goes into effect, credit unions with fewer than 500 mortgages financed annually are already exempt and can offer the higher DTI mortgages now, as can credit unions certified as Community Development Financial Institutions by the U.S. Treasury.

2. Accept rental history. Credit history is the second most prevalent reason for denials of Black applicants at 25%, according to NAREB's research. The Urban Institute's Black- White Homeownership Gap Report indicated that only 20.6% of black households have FICO scores higher than 700, and 33% of Black households with credit histories have insufficient credit and lack a credit score.

According to research by the Urban Institute, Black Americans' access to mortgage credit remains overly tight in part because we are not measuring the credit risk of renters appropriately, and African Americans are more likely to be renters than white Americans. The challenge to the borrowers, which is overlooked by other financial institutions, is that missed rent payments are reported to the credit bureaus while on-time payments generally are not. Credit unions can accept rental history in lieu of credit score as a more accurate predictor.

3. Offer down payment assistance. Black, Indigenous and people of color (BIPOC) families, on average, earn lower wages, have lower net worth and transfer less generational wealth. As a result, they have fewer financial resources to allocate to down payments. Broadening the reach of down payment assistance and low-down payment lending programs increases mortgage eligibility for millions of BIPOC households. Breaking down these barriers is critical in markets where homeownership is more affordable than rent.

Some credit unions are starting to offer 1% down payment options and even 100% loan-to-value mortgages. To mitigate risk, credit unions are requiring extensive financial counseling or referral by a community partner to assess and establish a track record for borrower character.

Credit unions, as representatives of democratic capitalism, have both the duty and privilege of ensuring the systemic wealth gap is closed. Homeownership is a large piece of that puzzle. Let's work together to eliminate policies that hold BIPOC community members back from reaching their American dream.

Ronaldo Hardy

Ronaldo Hardy is Chief Diversity & Inclusion Officer/Co-Owner for the Tacoma, Wash.-based CU Strategic Planning.