BofA launches a mortgage program aimed at helping Black and Hispanic families

The news: This week, Bank of America announced a new mortgage lending program, the Community Affordable Loan Solution, aimed at making home ownership more attainable for Black and Hispanic families. But the program is receiving mixed reviews from those communities, per MarketWatch.

What does it do? The program requires zero down payment and zero closing costs for first-time homebuyers in Charlotte, Dallas, Detroit, Los Angeles, and Miami.

  • Applicants must complete a homebuyer certification course prior to applying.
  • The mortgage approval is based on the timely payments of rent, utilities, phone bills, and auto insurance.
  • There’s no minimum credit score, and mortgage insurance isn’t required.
  • Customers don’t have to be Black or Hispanic to apply for the program.

Mind the gap: Though anyone can apply, the program is an effort to level the playing field for Black Americans and other minority groups that typically face difficulties in obtaining a mortgage and buying and selling their homes.

  • According to the National Association of Realtors, 42% of Black Americans are homeowners, compared to nearly 70% of white Americans, resulting in nearly a 30% gap.
  • The group also revealed that Black mortgage applicants are 2.5 times more likely to be denied than white mortgage applicants.

Reports have also surfaced that Black homeowners receive unreasonably low appraisals on their homes when trying to sell them, and are often offered unfavorable loan terms when applying for mortgages. This puts them at a disadvantage at all stages of home ownership.

Mixed reviews: Bank of America’s program has met with mixed reactions from people in Black communities.

  • Some are comparing the program to the subprime loan crisis that kickstarted the 2008 financial crisis. They say that the loan terms appear to be beneficial, but that they may be unsustainable for the mortgage holders, and that the loans are predatory.
  • Others say the program is a big step toward closing the home ownership gap for Black Americans.
  • Still others think the program is a good first step, but that more needs to be done to ensure homes aren’t being sold for “pennies on the dollar.”

Our take: The homeownership gap must be addressed, as homeownership is one of the primary ways that families can build generational wealth. But programs like this are likely to be both praised and criticized. They’ll be closely scrutinized and analyzed by justifiably wary minority groups keen to determine whether the products and services they’re being offered are truly beneficial or predatory.

  • Banks increasingly recognize that their customers value social justice and equality and want their financial services providers to reflect these values. While it’s important for banks to address these issues, they must be sure that their execution is sincere and doesn’t just look like a PR tactic aimed at burnishing their image.
  • Banks also recognize that reflecting such values can help them attract and retain employees. Gen Z in particular wants to feel their employer is making a meaningful difference in society. Banks that fail to show they’re doing so risk losing out on talent.

This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.