Many “first-generation” homebuyers, whose family members have always been renters, aren’t able to access the kind of financial help from parents and grandparents that those with greater generational wealth can.
From Boston’s mayoral race to the Biden administration’s Build Back Better agenda, boosting homeownership rates is being held up as the most important solution to reducing the wealth gap between white households and people of color.
In the 2021 Greater Boston Housing Report Card, researchers with the Massachusetts Housing Partnership Center for Housing Data and the University of Massachusetts Donahue Institute found that 66 percent of white households in the region own their homes, compared to just 35 percent of Black and 30 percent of Hispanic and Latinx households.
The pandemic has helped to highlight the consequences of wealth and housing inequalities. Discussions about reducing the gaps have included potential funding opportunities focusing on first-generation homebuyers, a relatively new concept in housing.
“Up until a couple of years ago, the sub-definition of ‘first generation’ within the first-time homebuyer category was not a thing in the housing world,” said Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance (MAHA) for the past 30 years. “Colleges have been talking about first-gen college students for years now, and we borrowed that concept.”
Legislative efforts on the state and federal level could result in significant funding for programs that support first-generation homebuyers, including one managed by MAHA, bringing opportunities for lenders to work with this demographic and help reduce the gap. But with low inventory and rising home prices in Greater Boston, progress could be slow.
Low Incomes, Higher Credit Scores Not Uncommon
Mortgage lenders likely already have untapped opportunities to work with low- to moderate-income consumers, according to a recent study from the credit reporting agency TransUnion. The study found that the U.S. has approximately 50 million low- to moderate-income consumers with credit scores of 680 or higher and another 25 million with scores between 620 and 679, all borrowers who could be eligible for loans through Fannie Mae and Freddie Mac.
TransUnion in a statement said that almost half of consumers surveyed with credit scores between 601 and 660 assumed their scores would be too low to qualify for a mortgage, even though many would likely be eligible. The study also found that LMI applicants who did apply for loans were 38 percent less likely to get a purchase mortgage funded than the non-LMI group, a discrepancy TransUnion said could stem from consumers being unprepared to navigate the mortgage process.
Political momentum to increase homeownership and reduce wealth gaps has been building in Boston and Washington, D.C.
In Boston, both mayoral candidates, Annissa Essaibi George and Michelle Wu, have talked about addressing the wealth gap and boosting homeownership. In her interview with Banker & Tradesman’s editorial board, Essaibi George promised a strong push to grow support for first-generation homebuyers.
“Families that have been in our city for multiple generations and have only ever been tenants, supporting them in their first-time homebuying for their family, forever, of all time – that’s what first-generation homebuyer means to me,” Essaibi George said. “But also making sure that there are technical assistance supports in place to help that buyer in particular through the process of not just becoming a homebuyer but also owning a home.”
The Massachusetts legislature has proposed $100 million for down payment assistance and similar programs, part of a spending package using federal stimulus funds allocated to the state by American Rescue Plan Act. President Joe Biden’s Build Back Better agenda currently proposes $10 billion to provide down payment assistance nationwide for first generation homebuyers.
STASH Goes National
Another federal bill, known as the Downpayment Toward Equity Act and co-sponsored by Boston Congresswoman Ayanna Pressley, was modeled after a pilot program MAHA established in 2019 called STASH, or Saving Toward Affordable Sustainable Homeownership.
Symone Crawford, who directs MAHA’s homeownership programs and will become the organization’s next executive director when Callahan retires at the end of the year, has worked with Rep. Maxine Water’s staff on the bill and testified in October before the U.S. House Committee on Financial Services to support the bill.
STASH was started with grant money from Boston Children’s Hospital Collaboration for Community Health, with additional funding later provided by the city of Boston. Participants in the program go through training and begin saving toward a down payment. STASH will then match up to $2,500 of the savings. Crawford said STASH and the nationwide funding being considered in Washington help address a barrier faced by first-generation homebuyers.
“The down payment portion helps to break down that barrier that those with intergenerational wealth or those that have the bank of mom and dad actually have that leg up,” Crawford said. “These first generation buyers do not have that leg up, and this down-payment and closing-costs assistance program would give them that leg up that they need.”
While STASH is open to any first-generation homebuyer, Crawford said it was designed as a race-conscious program targeting people of color because they represented most of those who qualify for the program.
Crawford said she would like to see the program receive funding through ARPA so the program could be rolled out across the state while also increasing to a 10-to-1 match. So far 90 percent of the participants have been Boston residents, with 97 percent people of color.
So far 64 of the participants have met STASH’s educational and savings goals, and 28 have purchased homes. Crawford said one homebuyer was outbid by cash offers five times before finding a home.
Key Part of Merger Benefits Deals
Lenders like Rockland Trust have also taken steps to expand work with first-generation homebuyers to help reduce the wealth gap. The bank recently hired Karen Rebaza for a new role as vice president and residential community development officer. Rebaza had previously worked as a loan officer at Rockland Trust before spending two years working for the city of Boston in a homebuyer assistance program. Rockland Trust will soon be joining the Massachusetts Housing Partnership’s ONE+Boston mortgage program. Rockland is waiting on regulatory approval to buy East Boston Savings Bank.
Rebaza said access to down payment assistance and finding affordable opportunities are keys to narrowing the homeownership gap, along with educating prospective buyers. She said she has seen attendance grow at homeownership workshops since the start of the pandemic.
While the lack of inventory is a barrier for some first-generation buyers, Rebaza said she advises them to be patient but prepared, ready to act once they find a home.
Diane McLaughlin
“The lack of inventory is not really going to slow down our momentum,” Rebaza said. “We are strong advocates of affordable homeownership.”
MAHA’s Callahan said Boston in particular has seen an imbalance in recent years in the number of rental units being built compared to affordable options for homebuyers. He would like to see the city address this imbalance and create more opportunities for homeownership construction.
Callahan also wants to see lenders increase the volume of loans to people of color, including through the state’s mortgage programs for first-time homebuyers. He pointed to Silicon Valley Bank’s commitment to more than double Boston Private’s lending to 100 loans annually for five years. SVB bought Boston Private in July and made the pledge as part of an $11.2 billion community benefits plan.
“That’s the type of commitment we need from all the banks,” Callahan said. “Whether they are going through a merger or not, to say, ‘Ok, we’re going to meet this moment by taking our best products, our products that best reach, most responsibly reach, households of color and redoubling our efforts to do loans in those programs.’”
