It is difficult for any homeowner who doesnt have pristine credit these days to get a mortgage," Federal Reserve Chair Janet Yellen said at the Fed's quarterly press conference in June. As pastors and leaders of major Black and Latino church movements throughout the nation, we offer a strong Amen.
Over the last six years, more than half of all Black and Latino wealth has been lost because of the housing crisis. As a result, few Black and Latino families have perfect credit. This problem is likely to continue for some time, given that the credit scores of many well-educated Black and Latino millennials have been or will be impacted by student loan burdens that often exceed $100,000.
No major economic recovery will occur until our country rectifies the artificial credit problems faced by 130 million minorities and the vast majority of millennials overburdened by student debt. The fault for these declining homeownership opportunities may lie not with financial institutions, but with excessive regulatory requirements that are out of touch with reality and offer few options for potential homebuyers who lack perfect credit.
Of course, no responsible businessand no responsible churchshould promote loans that are unsafe to either the borrower or the lender. But pristine credit standards are often artificially defined.
For example, even if a Black family made all of its mortgage payments on time over twenty consecutive years and paid all credit card and utility bills in a timely fashion, the family's credit score would be severely damaged by a recent home foreclosure. But this fails to take into account the reality that the vast majority of foreclosures among minority families have occurred as a result of major declines in home values in their neighborhoodsa factor outside their control.
Credit scores also generally do not reflect borrowers' records of on-time rental and utility payments, the inclusion of which could significantly improve their numbers. Eighty percent of renters with a subpar credit score would receive an immediate boost with just one month of timely rental payment information included in their reports, according to recent research by one of the major credit bureaus, TransUnion.
Borrowers who lack an artificially pristine credit score should not be barred from securing a 30-year, fixed-rate qualified mortgage. One solution could be to offer such loans to otherwise qualified borrowers who agree to commit to a mandatory financial education and credit counseling program. This program could be offered with the financial support of financial institutions and could be provided by non-profits, including appropriate faith-based institutions.
Many Americans recall that returning veterans from the Second World War were not subject to credit scoring as a condition for purchasing a home. Despite this lack of credit scoring, very few veterans defaulted. In fact, the economy boomed and millions of well-paying jobs were created largely as a result of this major expansion of homeownership.
As Americas greatest leaders have recognized throughout history, the growth of the economy is far more damaged by inaction than by having faith in the American entrepreneurial spirit, including the dream of homeownership.
On October 3rd, Consumer Financial Protection Bureau Director Richard Cordray will be the confirmed keynote speaker at a major Black and Latino church celebration of the 50th anniversary of the War on Poverty and the Civil Rights Act of 1964. Hopefully, the issue of credit scores and qualified mortgages will be a major focus of Mr. Cordrays speech.
In light of Chairwoman Yellens comments and the Federal Reserve's recently published report on the precipitous decline in homeownership opportunities for Blacks and Latinos, we also plan to invite her to this civil rights conference to share her thoughts on how greater homeownership opportunities for minorities, millennials and all Americans could reignite the economic recovery.
Pastor Mark Whitlock is the senior minister of the largest Black church in Orange County and the director of corporate partnerships for the 5,000 African Methodist Episcopal churches in the U.S. Pastor Sam Rodriguez is the president of the National Hispanic Christian Leadership Conference, which consists of 40,000 Latino evangelical churches across the nation.