An Indianapolis nonprofit is taking advantage of a decades-old federal housing rule to help close the racial homeownership gap, which is wider now than it was almost 45 years ago.
In Marion County, the white homeownership rate in 2022 was about 67%, according to data compiled by the Fair Housing Center of Central Indiana. Meanwhile, the Black homeownership rate was 39% — about 10 percentage points worse than it was in 1970.
That disparity is part of the reason Indianapolis Neighborhood Housing Partnership launched Community Lift, one of a growing number of special purpose credit programs meant to help people who otherwise would have a hard time qualifying for a loan because of an issue such as having a lower credit score.
Community Lift is open to minority borrowers or borrowers of any race who want to live in a majority-minority census tract.
Trevor Meeks, vice president of homeownership initiatives at INHP, said racial and ethnic disparities are persistent throughout the homebuying process.
Among households at or below 120% of the area median income — the midpoint of income distribution — the denial rate for Black applicants in 2022 was 13%, according to data compiled by INHP. The denial rate for white applicants was just under 6%.
And even when controlling for income, Meeks said Black applicants still have a higher rate of denials.
“Clearly, there is a difference in proportion between homebuyers in terms of race,” he said.
History of racial homeownership gaps
It’s a disparity that has roots in redlining, a discriminatory practice from the 1930s where the federal government categorized many African American neighborhoods as “hazardous” for lending purposes. The result: It was nearly impossible for African Americans to become homeowners.
The 1968 Fair Housing Act outlawed racially motivated redlining, but the disparities haven’t left.
The top two reasons minority applicants are denied, Meeks said, are credit scores and debt-to-income ratios.
That’s where Community Lift can make a difference.
While most lenders require a credit score of 620 for a conventional loan, borrowers through the INHP program can have a minimum score of 580. Borrowers also need to contribute at least $500 toward closing costs and have a household income that doesn’t exceed 120% of the area median income.
INHP has a full list of requirements on the Community Lift page.
Special purpose credit programs gaining popularity
Special purpose credit programs have been available since 1976, but housing experts say lenders have been slow to implement them.
Ironically, lenders worried a program meant to reverse the impact of housing discrimination might be discriminatory, and they didn’t want to get hit with lending violations.
A few things have changed that recently.
First, companies and governments made commitments to racial justice in response to the murder of George Floyd in 2020 and the civil unrest that followed.
And while much of the focus was on criminal justice, the same sentiment applied to homeownership and finances more broadly, said Laurie Benner, associate vice president of housing and community development at the National Fair Housing Alliance.
At the same time, Benner said, the political landscape shifted as newly elected President Joe Biden rolled out a broad racial justice agenda.
“There was a recipe for multiple layers of attention on racial equity,” Benner said.
And special purpose credit programs got a boost in 2022 when federal agencies, including the U.S. Department of Housing and Urban Development, encouraged lenders to adopt a program.
Where Indianapolis stands
Now, INHP’s program is one of a few in the Indianapolis market — including KeyBank and Federal Home Loan Bank of Indianapolis.
Every lender is free to create its own requirements and offerings through a special purpose credit program, as long as the institution has a plan that lays out groups of people the program is supposed to benefit.
John Walsh, a research analyst in the Housing Finance Policy Center at the Urban Institute, said that means lenders can use the data relevant to their area and design a program suited to meet specific needs.
The Urban Institute has a data toolkit — which includes an analysis of the Indianapolis metropolitan area — meant to help lenders decide what requirements and offerings their program should have.
Given the recent rise in popularity, though, Walsh said it’s still too early to know if these programs are actually narrowing the homeownership gap. There isn’t even an accurate count of how many exist.
At INHP, which formally launched its program in the spring, Meeks said the organization closed on seven loans through the end of April.
But the long-term goal is to make sure at least 145 people are approved for loans.
Mirror Indy reporter Tyler Fenwick covers economics. Contact him at 317-766-1406 or tyler.fenwick@mirrorindy.org. Follow him on X @ty_fenwick.
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