Closing the Lending Gap for Borrowers of Color

Jun 28, 2022 | Blog, Mortgage

EPM
There is a historical lending gap between different kinds of borrowers, and unfortunately, borrowers of color are not getting approved for loans as much as white borrowers.

As you work to help more borrowers of color achieve their dreams of homeownership, how can you ensure they get the best possible loan terms for their situation? Here are some steps you can take.

Get Familiar with Nontraditional Lenders

Although you may not have worked with non-bank lenders in the past, they are a solid option for some of the borrowers you serve. Many have been in business for a long time and have greater flexibility that can help borrowers who need lower down payments or have a less traditional credit history. You can help guide borrowers of color to the best loans for their needs by understanding when a non-bank lender is the best option and who offers the best loans to borrowers like yours.

Look for Lenders That Offer Multiple Types of Loans

Particular loan types, such as USDA and FHA loans, might be a better option for some borrowers of color. You should be familiar with these and other loan programs outside the traditional conforming loan box. Then, you can advise your borrowers to work with the lenders that offer the types of loans that will best serve their needs and have a solid reputation for treating borrowers well.

Compare Terms across Loans

Although each mortgage is different, you will see the common loan terms for each type of lender over time. If you see loan terms that differ from the norm for your borrowers of color, push back with the lender to ensure they are not making allowances based on race. If the lender isn’t willing to provide more appropriate terms, consider not working with that lender as much or at all in the future. When we work with lenders that offer equitable treatment of all borrowers, we improve the industry as a whole.

Help Borrowers of Color Prepare

One of the reasons banks give for their higher rates of denial for borrowers is a lack of credit history. If someone comes to you looking for help planning to buy a home in the future, you can advise them to start building credit now. Getting a credit card and an auto loan can give them the positive credit history they need to qualify for a conventional mortgage. They may also use services that add their rental or utility history to their credit report.

Taking small steps before it’s time to buy a house can make all the difference for a borrower that has been historically shut out of the housing market. And as a mortgage broker, you are in a position in which you can help ensure all your borrowers are treated fairly and with respect.

Sources

“Who Serves More People of Color in Mortgage Lending: Banks or Nonbanks,” The Urban Institute, https://www.urban.org/urban-wire/who-serves-more-people-color-mortgage-lending-banks-or-nonbanks

“Lack of credit has been a huge obstacle to Black home buyers. Now some lenders are trying to fix that,” Washington Post, https://www.washingtonpost.com/business/2022/02/17/lack-credit-has-been-huge-obstacle-black-home-buyers-now-some-lenders-are-trying-fix-that/

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