Shut out: What buyers of color need to close the homeownership gap

By Jim Morrison | Boston.com Correspondent | December 8, 2020

After going through a difficult divorce in 2017, Niva Cruz and her three teenagers were forced to move out of their Boston home.

“I struggled to find an affordable apartment in the city where I raised my children,’’ Cruz said. She eventually found a two-bedroom apartment — 45 minutes from Boston — but she longed to buy a home.

“While I am thankful to have a roof over our heads, I always dreamed of giving my children a better life, something we could call our own,’’ said Cruz, who saved for three years and took a home-buyer education course. “Due to my budget and needs, I had to be open to buying outside of the Boston area, which was very difficult for my children because they had lived in Boston their entire lives and it’s also where I work. The Boston market was also very competitive for me, and I was often out won by real estate investors. I also had to re-budget in order to have my loan approved.’’

Cruz finally was able to purchase a home on the outskirts of Boston in June.

“Honestly, if other towns had down payment assistance, it would have made my search easier,’’ she said. “As a single mom, I was relying on all the help I could get, and there weren’t many options available.’’

(Other buyers of color recount their experiences.)

The home-buying process is difficult for everyone in this frenzied seller’s market, but it’s harder — much harder — for Black and brown buyers, like Cruz, who are often shocked to find out just how long and complicated the process can get. Many are the first in their family to purchase real estate.

The National Association of Real Estate Brokers, an organization of realty professionals of color, has documented the widest racial gap in homeownership in 52 years. Seventy-six percent of white Americans own their own home compared with 47 percent of Black Americans, a difference of 29 percent, the group found in its 2020 State of Housing in Black America report. In 1960, eight years before the Fair Housing Act took effect, that difference was 26.8 percent.

Linda Champion is a biracial (Black and Korean-American) lawyer and managing real estate broker with CUE Realty whose clients are mostly low-to-moderate income buyers of color. She said her clients face several major obstacles to homeownership.

“A lack of financial literacy’’ in the industry is one, and this seller’s market is another, Champion said. “The real estate industry is used to seeing a minimum of five to twenty percent down, and in this market there are a lot of cash buyers. Agents don’t understand how Mass. Housing Partnership loans only require 1.5 percent down; [the Federal Housing Administration] requires 3.5 percent. But these offers are seen as weaker than offers with larger down payments. These buyers aren’t even contenders. These loans also take longer to close than conventional loans.

These low-to-moderate income families of color are at a disadvantage as soon as they enter the market.’’

Champion is calling for “bottom line’’ offers that don’t reveal what kind of loan the prospective buyer has. “It’s humiliating. It’s embarrassing for them. They’re already intimidated at open houses’’ filled with buyers, she said.

Home-buyer education a must

Chris Herbert, managing director of the Joint Center for Housing Studies at Harvard University, said the racial gap in homeownership is primarily tied to hundreds of years of slavery and discrimination that have left Black Americans with lower incomes, less wealth, fewer college degrees, and a higher likelihood of being raised in a single-parent household than their white counterparts.

He said if people across the country had better access to home-buyer education and counseling; more down payment assistance programs; and safe, low-cost, long-term wealth-building mortgages, it would bring homeownership within reach for more people of color.

“Housing is a cause and consequence of our racial disparities,’’ Herbert said. “We dug ourselves a hole over the course of a couple hundred years. It’s going to take generations to eliminate the homeownership gap, but if we could close the gap by even a couple of percentage points, that would impact hundreds of thousands of families.’’

Champion agrees that home-buyer education is key to bridging the divide. “Oftentimes they have good credit and a great job and can afford to buy, but they bought an expensive car with a big monthly payment before they bought a house,’’ she said. “First-time buyer programs are very conservative and might decline that buyer because of that car debt. They should buy the home first, then the car, if they want to. But who talks to young people about this? Not their parents, because they wouldn’t know.’’

Marietta Rodriguez is the president and CEO of NeighborWorks America, a nationwide network of nearly 240 nonprofits that “creates opportunities for people to live in affordable homes, improve their lives, and strengthen their communities.’’ She said home-buyer education is critical, but the financial service industry needs to become more educated, too.

“Very often loan officers have access to hundreds of loans, but they get comfortable with working with just a few of them,’’ Rodriquez said. “They need to specialize in low-income products, because they’re unique, just like jumbo mortgages are unique. In Massachusetts, you have MassHousing and various kinds of down payment assistance, but if your loan officer hasn’t worked with those programs before, they’re less inclined to offer it to you.’’

She said people take driver education classes before they get their driver’s license. They take childbirth classes before they have a baby. But very few people take home-buying classes. If more people understood the process better, more people would complete it successfully.

“We need to invest in mainstreaming home-buyer preparation and teach them how to shop for a home,’’ she said. “So often the first step is to go online and look at listings until you find one you fall in love with. Then the realtor’s job is to help find you a loan. We’d like to see that order reversed so people know what they’re shopping for.

We want to empower people to shop for the home and mortgage that’s right for them.’’

Bob Credle is the director of community programs at Urban Edge, an organization that specializes in affordable housing, community engagement, home-buyer education, and real estate development. He said the enrollment in his home-buying classes is 70 percent to 80 percent Black and/or Spanish-speaking. The organization teaches home-buying classes in English, Spanish, and Haitian Creole for $25.

“Our students come in thinking they can just walk into a bank and get a loan,’’ said Credle, who is Black. “We have to keep them from getting so frustrated that they drop out. The underwriting process is very arduous. Many people don’t understand it, so we have to reset their expectations. They think they’re going to get a home in three to six months, and we have to explain it will probably be more like twelve to eighteen if you do these things that will require a lot of sacrifice and discipline.’’

Urban Edge students take a three-hour class on credit and receive counseling on how to improve their scores. The report on the state of housing in Black America found that in 2019, Black borrowers had a median credit score of 626, while white borrowers had a median of 751.

At Urban Edge, they meet with a coach who helps them work out a financial plan with a budget and schedules follow-up meetings until they reach their goals. Even then, it isn’t always smooth sailing.

“Often credit reports have issues that require special attention, so the underwriter keeps coming back saying, ‘I need a letter of explanation for this, and I need a letter for that,’ ’’ Credle said. “Some people get frustrated and drop out, but we encourage them to stay with it: Go through the process, and you’ll end up with a house.’’

Credle said about one-third of his students eventually become home buyers.

Alandra Sheffield, 31, is a construction laborer, a single mother, a graduate of Urban Edge’s program who just bought her second home, and Black. Her first was affordable housing in Roxbury, and she was looking to buy a two-family in Hyde Park. High prices pushed her over to Dorchester, where she bought a two-family that needed new kitchens and bathrooms. She lives on the second floor and rents out the first.

Finding a home and getting preapproved for a loan were the most difficult parts of the process, she said, noting that the bank kept putting her off, sending her back to fix things with her credit, questioning the home’s appraisal, and more. Urban Edge stepped in and helped her switch lenders. “I went through more with the house in Dorchester. Why am I going through this amount of headache?’’ she said. “There were so many stipulations with that house. … When you don’t have someone like Urban Edge, you just give up.’’

Racism blocks path to homeownership

More than 15 percent of US consumers have personally experienced housing discrimination as they attempted to rent or purchase a property, according to a survey of 2,000 adults Homes.com released in November. Respondents reported encountering bias in one or more scenarios, including rental applications (7 percent), financing (4 percent), searching with an agent (3 percent), appraisals (3 percent), and/or other residential purchase services (3 percent). Of those who disclosed their racial identities, 56 percent of Black respondents expressed that they have faced housing bias, followed by biracial or multiracial respondents (45 percent), those of Latino or Hispanic heritage (45 percent), and Native Americans or Alaskan Natives (31 percent).

Melvin A. Vieira Jr., from the Vieira Group at RE/Max Destiny and vice president of the Greater Boston Real Estate Board, said his board offers ethics training for its roughly 10,000 members, but nonmember agents outnumber GBREB members. He said the state should require all licensed real estate agents to undergo regular ethics and fair-housing training.

“When I’m presenting offers to my sellers,’’ he said, “I’ve had sellers ask me who the buyer is. I tell them: ‘They’re green. They have money.’ That’s how I leave it. If every agent did that, it would almost level the playing field. All sellers need to know is whether or not the buyer has the ability to pay.’’

Vieira, who is Black, has been selling real estate for 30 years. He said he still has to overcome assumptions that he is somehow underqualified.

“I still get looked at sideways when I walk into certain houses,’’ he said. “The agents don’t think I can do it. I have to explain my credentials. Most agents don’t have to do that. When I present offers to a seller, I put all my credentials at the bottom of all my paperwork so they take me seriously. And after we talk for a few minutes, they do.’’

Boston City Councilor Lydia Edwards said nowhere is racism more apparent than in the lending process. She said lenders who engage in “redlining,’’ refusing to grant mortgages in certain neighborhoods based in part on their racial makeup, should be held accountable.

“Redlining continued into the 1970s and denied today’s buyers’ parents and grandparents the opportunity to buy homes and build household wealth. The city should be saying to those banks, ‘You’ve done harm here, and you need to do a lot more healing.’ ’’

Champion said she’s certain she’s run into racist agents and owners in her career, but it’s nearly impossible to be sure that her clients’ offers were declined because of racial bias. On those few times she’s encountered unambiguous racism, she has filed a complaint with the Massachusetts Commission Against Discrimination (MCAD). A spokesperson for MCAD said the commission received eight real estate-related complaints of racial bias in 2017, nine in 2018, and five in 2019.

It can be very difficult to identify racism in the real estate process, because so much of it takes place out of sight. However, a 2020 Suffolk University Law School report subtitled “Qualified Renters Need Not Apply’’ made it plain. Using 200 undercover testers of different races contacting housing providers of 50 different Boston apartments, there was evidence of race-based discrimination against 71 percent of Black market-rate apartment seekers, according to the report.

That study focused on racial discrimination against renters, not buyers, but in 2019, a similar study based on a three-year-long investigation Newsday conducted on Long Island showed that undercover Black testers posing as home buyers were discriminated against 49 percent of the time. That number was 39 percent for Hispanic/Latino buyers and 19 percent for Asians.

“Real estate agents are the greatest amplifiers of racism,’’ Edwards said. ’’They represent buyers and sellers, and those folks know damn well what their clients want and don’t want. It’s about bringing the real estate agents to accountability.’’

She said Boston could strengthen its down payment assistance program and rezone to make it easier to build more multifamily housing. In addition, Edwards recently filed a hearing order with Councilors Matt O’Malley and Kenzie Bok to look into creating a city real estate agent testing program.

“The city should have a program dedicated to finding racial discrimination and eradicating it in the community,’’ she said.

Jim Morrison can be reached at JamesAndrewMorrison@gmail.com. Subscribe to the Globe’s free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp. Follow us on Facebook, Instagram, and Twitter @globehomes.