‘New’ tech lending: Opening financial products to underserved communities
Like most Americans across the country, the Latino community and communities of color are ready to move on from the economic devastation of the COVID-19 pandemic. However, as the media has consistently reported, communities of color have felt the brunt of the pandemic and need immediate access to stimulus assistance and emergency financing.
For people who have lost their jobs and their small businesses, help in keeping the most important financial asset — the family home — is key in bringing back better our communities’ economic stability and prosperity. Economic policy aims should assure that current or new homeowners will have fair access to mortgage financing and that it will be available to communities who traditionally have been underserved by traditional banking.
This past year, the country has had to learn how to do work, study and access their money in new ways through the internet and financial applications. Businesses have also adapted and have sought banking and financial services from remote locations as their ability to be in person has been restricted. As the country slowly but steadily returns to normalcy, the financial technology (fintech) sector expansion made necessary during this time will be even more indispensable. Minority communities will need to have greater access to products that will help rebuild businesses and localities.
Our country’s ability to adapt to the challenges have spurred fintech innovation, leading this financial sector to offer lower cost products to consumers through healthy competition in our free market. One fintech area, however, will be particularly important in helping minority communities rise from the economic ruin of the pandemic: mortgage lending.
An Urban Institute report pointed out, “Hispanics are the fastest-growing U.S. demographic… accounting for 40.4 percent of growth in household formation” over the past 10 years. During the same time period, nearly 52 percent of homeowners in the U.S. were Hispanic. And, prior to the pandemic, a report from the National Community Reinvestment Coalition indicated that Latinos primarily sought loans to buy homes yet were underserved by banks.
The pandemic has disproportionately impacted the Latino economic health and the community will need public and private sector solutions to regain its economic stability. The goal after the pandemic is not just to avoid a housing crisis, but to expand financing option availability and eliminate mortgage financing disparities.
A robust mortgage lending marketplace will be essential to afford the Latino community the opportunity to be homeowners and home buyers. Yet, as the U.S. Census Bureau highlights in a quarterly report, while 74.5 percent of whites owned their homes in Q4 2020, just 49.1 percent of Hispanics did. Faring worse, only 44.1 percent of African Americans were homeowners during this period. Much more work remains to reach equity in homeownership and access to financing.
Like many sectors in our free market economy, there are many financing sector players seeking to offer their services to the American public. What we all need to watch for is that the zeal of these entities to reach the best potential clients does not create a situation impairing access like redlining, which led to the creation of the Community Reinvestment Act (CRA). The law was created to make sure that all populations had access to credit in their local communities.
Unfortunately, recent media reports indicate a potential conflict arising in the mortgage lending business which at first glance has anti-competitive characteristics. The times call for more offerings and more competition to offer the best products, not behavior that may threaten underserved communities’ and industry professionals’ access to housing loans.
Case in point is the recently reported clash between United Wholesale Mortgage (UWM) and Rocket Companies. The controversy stems from UWM’s CEO declaring to their brokers an either-or proposition: exclusivity with their company and stopping working with their competitors, Rocket Companies and Fairway Independent Mortgage Corporation, or not working with UWM. This is particularly shocking since, according to UWM’s CEO, approximately 25 percent of brokers work with all three of these lenders. In response, Rocket Companies’ CEO indicated that this move is an act of fear and that brokers need to consider how to best serve their clients.
Whether this battle rises to a market manipulation is unclear, but the bottomline concern is that anything which impacts ease and convenience to affordable products never ends well, particularly for communities of color. Other concerns with this exclusivity requirement include how it impacts brokers of color who serve particular communities and if it would drive more brokers of color out of the market, which are not acceptable outcomes.
Home buyers in underserved communities and minority mortgage brokers will ultimately pay the price of this new, anti-competitive “us or them” policy. By banning a lender from a broker’s call list, underserved communities will have even fewer options.
To further the nation’s economic recovery, access to new mortgages and varied choices in refinancing is critical. There are enough economic and health challenges ahead. Accessing and utilizing competition in the market that benefits Latino consumers should not be one of them.
Max J. Trujillo is a public policy professional and president of MJTPOLICY LLC, a government relations consulting firm.