The Fair Housing Act was passed in April 1968 to ban racial discrimination in home sales and lending. Yet despite subsequent progress, the homeownership gap between Black and white families has persisted and even increased in recent years. According to the U.S. Census Bureau, the homeownership rate among Black Americans was just 43.1% in 2021, compared to 74.3% among white Americans.

The impacts of the homeownership gap extend far beyond housing. Homeownership is a primary way to build wealth in America and if the Black homeownership gap continues to grow, so too does the risk that the staggering racial wealth gap will follow. As it stands today, the typical white family has about 10 times the wealth of the average Black family.

“To reverse the Black homeownership gap in America, we must dismantle systemic racial barriers limiting minority borrowers from achieving their homeownership dreams — for FHLBank San Francisco, this starts with rewriting the rules of home financing to enable equity within our systems while still creating sustainable homeownership,” said Teresa Bryce Bazemore, president and CEO for FHLBank San Francisco.

In collaboration with Urban Institute, FHLBank San Francisco launched the Racial Equity Accelerator, a research initiative that identified four systemic challenges that must be solved to finally achieve fair housing:

• Underwriting criteria

Many Black families who pay their bills on time still have difficulty qualifying for a mortgage or oftentimes must pay a higher rate because they don’t have enough credit history, or that history just doesn’t align with the traditional criteria used in assessing loan risk. To give Black families a fair chance at homeownership, financial institutions need to rethink ways to evaluate borrowers’ ability to pay back a mortgage.

• Automated tools

Automated tools such as online loan origination can streamline key processes, but the algorithms these tools use often incorporate bias. One study found that bias in artificial intelligence tools made lenders much more likely to deny home loans to people of color — nationally, Black applicants were 80% more likely to be rejected than similarly situated white applicants. To achieve fair housing practices, any built-in biases must be stripped from the tools used by the mortgage industry.

• Short-term payment issues

The most affordable houses in many communities are often older homes, which may require significant maintenance. To support equitable and sustainable homeownership, the mortgage industry must explore opportunities to help homeowners manage unexpected short-term costs associated with homeownership while building equity to pay for future upkeep.

• Student loan debt

Education is often touted as the great equalizer, but student loan debt can actually increase disparities. The average Black graduate owes more than the average white graduate, often because their families did not have access to homeownership and the ability to build wealth as a result. That creates a wealth gap which widens over time, across the entire income spectrum. As a result, many aspiring Black homeowners carry higher student loan debt than their white peers. Helping these borrowers overcome their student debt so that they can purchase a home will set them on a path to greater financial security.

The Fair Housing Act was a critical piece of legislation in American history, but it’s only the beginning. Disparities will continue to fuel the systemic racial divide until our home financing rules are rewritten to enable equity. “When we close the homeownership gap, we will simultaneously move the nation toward closing the racial wealth gap and finally fulfill the promise of fair housing,” said Bazemore.

About FHLBank San Francisco: FHLBank San Francisco is a cooperatively owned wholesale bank serving member financial institutions in Arizona, California, and Nevada. The products, services, tools, and resources the Bank provides promote homeownership, expand access to quality affordable housing, boost economic development, seed or sustain small businesses, and revitalize communities. In 2021, the Bank launched a Racial Equity Accelerator in collaboration with Urban Institute to identify systemic home financing-related challenges currently impeding fair housing, as well as potential solutions.