2008 again? Bank of America Just Launched a Test of Zero Down Payment and Zero Lockout Mortgages for Minority Communities
A major US bank has launched a new program to help minority first-time buyers finance the purchase of a home with no down payment or closing costs. It’s a boon for buyers at a time when rising interest rates and declining home inventory have piled the deck against them.
It is also the latest response to longstanding criticism that banks favor white borrowers.
Bank of America’s testing plan is being rolled out in Los Angeles, Dallas, Detroit and Charlotte and targets minority neighborhoods in those cities. It offers loans to minority buyers without the need for a down payment, closing costs or private mortgage insurance (PMI), an extra cost familiar to buyers offering less than 20% of a home’s purchase price.
Crucially, the program also does not require a minimum credit score, with eligibility instead focusing on the borrower’s track record of rent payments and regular monthly bills such as utilities and telephone. Before applying, buyers must complete a home buyer certification course that advises them on property responsibilities and other considerations.
But the move quickly sparked mixed reactions online, with Bank of America (and other large lenders) criticized in the past for predatory lending practices — particularly when lending to minority groups.
do not miss
No financial loans – timely payment
For buyers in Bank of America’s test cities, loans come at a critical time.
Higher interest rates make mortgages more expensive and create downward pressure on lenders to ensure that their loans are as risk-averse as possible. The Bank of America program aims to get out of this by freeing eligible applicants from down payments, credit score criteria, and PMI costs.
This reduces many barriers to entry for buyers in communities that are fighting against institutional lending that favors white borrowers for home ownership.
“Home ownership strengthens our communities and can help individuals and families build wealth over time,” said A.J. Barclay, president of neighborhood and community lending at Bank of America.
Home ownership among white households was 72.1% in 2020, according to the National Association of Realtors — compared to 51.1% for Hispanics and 43.4% for black households.
And black borrowers are being rejected at twice the rate of the total borrower pool, according to a recent report from LendingTree.
Bank of America’s plan adds to its $15 billion program that provides closing cost and down payment assistance to low-income buyers and another initiative that aims to provide $15 billion in mortgages to low- to moderate-income buyers through mid-2027.
However, critics of the program were quick to point out that it could backfire and potentially harm the communities it was designed to help.
The 2008 housing crisis – fueled heavily by precarious loans to unqualified buyers – taught hard lessons to lenders who were stuck in foreclosed homes after buyers stopped making property payments they could not afford.
The consequences were dire: Lenders inherited foreclosed homes and buyers saw their credit scores plummet.
At least some of the borrowers under Bank of America’s new “sub-prime” program will likely be considered under normal lending rules — recalling the worst days of the 2008 crisis and providing critics with easy talking points. The Experian credit agency, for example, considers borrowers with credit scores between 580 and 669 as sub-prime.
And while credit scores aren’t always an accurate measure of a buyer’s purchasing power or ability to make payments in a timely manner, advocates worry that the interest rates required to offset the low range set by a lender may lead to minority buyers failing.
What do you read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.