Bank of America to Give Away Zero-Down-Payment Mortgages for Minority Homebuyers

Bank of America to Give Away Zero-Down-Payment Mortgages for Minority Homebuyers
A Bank of America logo is pictured in the Manhattan borough of New York City on Jan. 30, 2019. (Carlo Allegri/ Reuters)
Bryan Jung
Bank of America (BoA) announced a new trial program that will offer first-time minority homebuyers mortgages that will not require down payments, closing cost mortgages, or minimum credit score checks, it said in a statement on Aug. 30.

Minority activist groups have called these long-standing criterions obstacles to minority homeownership.

The bank has yet to disclose the size of the effort, which may soon be expanded to other cities, as part of its existing $15 billion Community Homeownership Commitment project.

“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” said AJ Barkley, head of neighborhood and community lending for Bank of America in a press release.

“Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more black and Hispanic families, and it is part of our broader commitment to the communities that we serve.”

This move comes at a time when homeownership in the United States is becoming increasingly unaffordable for many families across the board due to high mortgage rates and housing prices.

Applicants will be evaluated for a home loan without credit score inspections, factors such as history of making rent, utility, phone, and auto-insurance payments on time, will be seen as satisfactory by BoA.

The new loan program also requires no mortgage insurance, which is typically charged to buyers who put down less than 20 percent of the purchase price.

No Minimum or Maximum

There will be no minimum or maximum loan size for the offering, which the bank claims is qualified as a Federal Deposit Insurance Corporation “special purpose credit program.”

Barkley said that BoA will ignore credit scores so “people can use other mechanisms to define their creditworthiness, buy a home and build their wealth,” in an interview with Bloomberg.

The program will be launched in predominately black and Hispanic areas of Dallas, Detroit, Los Angeles, Miami, and Charlotte, North Carolina.

During the massive home buying boom at the height of the pandemic, homeownership for blacks and Hispanics remained below what it had been before the Great Recession, according to the National Association of Realtors (NAR).
"During the pandemic, rising home prices and low housing supply have disproportionally impacted Black households more than any other race/ethnic group," said the NAR.

Predatory Lending's Effect on Minority Homeownership

Homeownership rates for white households in 2020 was at 72.1 percent, compared with 51.1 percent for Hispanics and 43.4 percent for blacks, while minorities were more likely to be rejected for mortgages than white buyers.

BofA's approval rates in 2020 for homeowners attempting to refinance their loans, stood at 78 percent of white applicants and 66 percent of black applicants, according to Bloomberg.

The Justice Department has long accused banks of past practices that discriminated against minorities seeking loans and since the unrest and violence in 2020 many lenders have promised to do more to combat racial inequality.

Countrywide Financial, a subprime lender owned by BoA, was fined $335 million by the Obama administration in 2011, over claims that it charged minority homebuyers higher interest rates than white applicants.

The test program will make prospective buyers take a homebuyer certification course provided by BoA and meet with federally approved housing counselors before they apply for the loan program.

The $15 billion Community Homeownership Commitment program was initially set up to provide down payment and closing cost assistance to 60,000 low-income customers by 2025.

In addition to the extension of the program to minority homebuyers, BoA has another $15 billion program with the Neighborhood Assistance Corporation of America, that caters to mortgages in low- to moderate-income buyers through May 2027.

However, many are very critical of the bank's new home loan program on predatory lending grounds.

"New no-down-payment mortgages targeted at minorities. In the bank's best scenario, the failure is flushed down the memory hole; the worst case is they get sued for predatory lending,” said Eric Falkenstein, an analyst in a tweet.

No down payment mortgages can be very risky, even if it can make it easier for lower-income or minority borrowers to purchase homes.

In the middle of a housing market slump, homeowners without sufficient capital in their personal accounts, are often stuck with the inability to pay off their mortgages, tanking their credit scores and leaving lenders with masses of foreclosures.

The housing crisis from over a decade ago has left bad memories regarding easy money lenders in minority communities, which left many families homeless and destitute.

Wells Fargo was fined $175 million back in 2012, to settle accusations that it targeted minorities with risky predatory home loans that financially hurt many of its clients.

“Bank of America….y’all ain’t really doing “minorities” a favor with your no down payment mortgage program. Why we gotta stay in the ghetto to be able to qualify for this?” said one commentator on Twitter.

Attempt To Make Amends

BofA promises that this time, it will give homebuyers down-payment grants of $10,000 to $15,000, in order to provide immediate equity when they purchase their homes.

The bank said that its new program has safeguards such as requiring borrowers to be certified by the Department of Housing and Urban Development and receive personal financial counseling in order to qualify.

Its previous program under Countrywide Financial had failed to properly verify borrowers’ employment, income, credit information, and other liabilities during the 2000s housing boom.

“We will qualify applicants to confirm they have demonstrated an ability to repay,” she said. “What we don’t want to do with this program is place people in homes they cannot stay in,” said Barkley.

Applicants do not have to be black or Hispanic to qualify for the product, he said, but that U.S. Census data will be used to target eligible neighborhoods that are predominately in those demographic groups.

Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.