Click here to view the toolkit.

The post NFHA and MBA Launch Online Toolkit to Help Lenders Develop Special Purpose Credit Programs for Underserved Communities appeared first on NFHA.

Read the full article here.

The post How People-Based Special Purpose Credit Programs Can Reduce the Racial Homeownership Gap appeared first on NFHA.

Read the full article here.

The post How Place-Based Special Purpose Credit Programs Can Reduce the Racial Homeownership Gap appeared first on NFHA.

Increasingly, lenders are interested in pursuing proactive efforts to increase homebuying opportunities for people of color, whose communities have been historically — and systematically — excluded from the housing market. These well-intentioned efforts, however, must be undertaken in compliance with prohibitions in the Equal Credit Opportunity Act (ECOA) and its implementing regulation (Regulation B) against considering a prohibited basis, such as race or ethnicity, in any aspect of a credit transaction. Notwithstanding this prohibition, ECOA and Regulation B permit creditors to create “special purpose credit programs” in order to extend credit to applicants who meet certain eligibility requirements. Pursuant to such a program, lenders may offer special underwriting or pricing for economically disadvantaged groups. 

De facto and de jure segregation, intentional and unintentional bias in appraisals, and disparities in access to flood insurance and FHA loans all have played a role in limiting the opportunities for Black families to accumulate wealth above and beyond access to credit.

Dave Uejio, Acting Director of the Consumer Financial Protection Bureau (CFPB)

Special Purpose Credit Programs Virtual Forum

After a welcome from the partner organizations’ CEOs — Lisa Rice with NFHA, Sarah Rosen Wartell with Urban Institute, and Bob Broeksmit with MBA — the audience heard recorded remarks from Dave Uejio, Acting Director of the Consumer Financial Protection Bureau (CFPB). Acting Director Uejio emphasized the important role homeownership plays in wealth accumulation for Black families and stated that he is pleased that efforts are being made to discuss the potential of using SPCPs to promote fair and equitable access to credit and homeownership. Mr. Uejio also stated how critical it is to “address the web of related issues that too often suppress the financial value of homeownership for Black families.” He went on to describe how “De facto and de jure segregation, intentional and unintentional bias in appraisals, and disparities in access to flood insurance and FHA loans all have played a role in limiting the opportunities for Black families to accumulate wealth above and beyond access to credit.” He further shared how the pandemic has disproportionately affected homeowners of color, as evidenced by delinquencies and forbearance statistics. Finally, he expressed concern for these communities in post-pandemic foreclosure activity and described the CFPB’s efforts to prevent avoidable foreclosures through outreach to struggling homeowners, rulemaking, and supervision and enforcement work with mortgage servicer.

The first panel titled, “What Does the Research Tell Us?” focused on data surrounding barriers to credit access and how SPCPs can help move the country towards a place of equitable homeownership opportunity. Moderated by Pam Perry of Freddie Mac, the panelists — Jung Choi with Urban Institute, Svenja Gudell with Zillow, and Mike Fratantoni with MBA — offered statistics and industry trends. Ms. Perry invited the mortgage lending community to bring SPCPs forward to the GSEs as they are looking for opportunities to scale and support those programs by providing a secondary market take out. Ms. Choi presented data on Black homeownership demonstrating that this population has the lowest homeownership rate and has experienced the greatest decline in homeownership since the Great Recession. Aside from historic discriminatory policies, the primary barriers today include lack of credit access, specifically high denial rates for reasons of debt-to-income ratio, lack of collateral, and credit history. Mike Fratantoni walked the audience through several trends from the lending perspective that are critical to understand when considering building an SPCP. He shared that experts are predicting a rise in interest rates over the next couple of years and that, while credit availability has been tight due to the pandemic, they expect to see those restrictions loosen as the market returns to a pre-pandemic state. Unfortunately, these challenges coupled with inventory issues, create obstacles for first-time buyers. Mr. Fratantoni also noted that people of color overwhelmingly represent the highest percentage of FHA borrowers, so accessibility to these programs is crucial. Finally, Ms. Gudell revealed statistics on record-setting recent home price and rent appreciation, supply and demand trends, and market velocity, and echoed Mr. Fratantoni’s sentiment on how those circumstances have combined to create complications for a significant portion of the homebuying market.

The next panel explored the legal and regulatory framework behind SPCPs. Panelists included Patrice Ficklin with the CFPB, Sasha Samberg-Champion with the U.S. Department of Housing and Urban Development (HUD), and Donna Murphy with the Office of the Comptroller of the Currency (OCC). It was moderated by NFHA board chair, Kenneth Scott with Citigroup. Mr. Scott began with some introductory explanations of the federal regulations that allow for the creation of SPCPs, namely Regulation B of ECOA, the Federal Housing Administration (FHA)’s role, and how the three panelists’ agencies intersect in this space. Ms. Ficklin gave a deeper explanation of SPCPs, the implementing regulations, and the requirement that such programs must benefit socially and economically disadvantaged individuals. More details can be found here. Ms. Murphy described the unique position of the OCC in that the agency doesn’t interpret the Fair Housing Act or ECOA, but instead supervises national banks and federal savings associations to ensure compliance with applicable laws and regulations, including fair housing and fair lending. She encouraged lending institutions to engage with their regulators on SPCPs and talked a little about Project REACH, which began in 2020 as a multi-industry partnership to explore specific barriers that prevent individuals and small businesses from fully participating in the nation’s economy. Mr. Samberg-Champion indicated that HUD is interested in hearing from lending institutions about their plans and intentions surrounding SPCPs. Ms. Murphy added that SPCPs have the potential for Community Reinvestment Act (CRA) consideration if structured properly.

The panel then went on to discuss some of the specifics surrounding crafting an SPCP and what regulators will be looking for in their evaluations. Ms. Ficklin pointed the audience to an interpretive rule that the CFPB issued in December of 2020 in response to a request for information from the lending community on SPCPs. This rule clarifies the type of research and analysis that a for-profit lending institution must provide as part of a SPCP proposal. She also emphasized that these programs must be created intentionally and rooted in need and that lenders may not apply an SPCP label to a program retroactively. While the CFPB does not formally approve SPCP programs, a dialog is important to make sure that critical standards are being met and that the Bureau has a comfort level with the proposal. Ms. Ficklin offered additional information by way of an essay published in a PRRAC May 2021 publication (page 52) that describes in detail the relevant data lenders can use to establish SPCPs. Mr. Samberg-Champion shared that HUD is aware that many institutions are looking to HUD for guidance on what the FHA will have to say about SPCPs and that the agency is studying the issue very closely.

Ms. Ficklin touched on some of the requirement differences under ECOA between for-profit and non-profit organizations. Non-profits, such as credit unions or Community Development Financial Institutions (CDFIs), have looser requirements in that SPCPs need only benefit their members or an economically disadvantaged class of persons and do not need to follow for-profit standards requiring a written plan or evaluation of customary standards of creditworthiness. However, both non-profits and for-profits need to adhere to similar evidentiary predicates when establishing a program and could require participants to possess one or more common characteristics such as race, sex, or national origin. Panelists described the data that institutions can consider when identifying underserved groups for an SPCP. They need not limit themselves to their own proprietary data or past lending patterns. Factors including credit inexperience or use of credit sources that don’t report to credit agencies can be used to identify individuals who are being denied or not accessing loan programs, and this can be used as a factual basis for creating an SPCP. Banks can also use government Home Mortgage Disclosure Act (HMDA) data along with Census demographic data from their assessment areas to demonstrate need. Furthermore, Small Business Administration (SBA) and Federal Reserve Board small business credit surveys are excellent data sources for small business SPCP program creation. Government reports or academic studies describing historical causes and effects of discrimination may also be considered to establish the basis for an SPCP. The panel closed by noting that loan servicers can use SPCPs to fulfill legal requirements to assist borrowers with pandemic protections and are flexible enough to support loss mitigation efforts such as loan modification programs, provided they are compliant with overarching requirements.

The final panel of the day was titled, “Considerations for Designing a Successful SPCP.” It was moderated by Brian Kreiswirth of Chase who was joined by Cerita Battles, also with Chase, Gabe del Rio of the Homeownership Council of America, Debra Still with Pulte Financial Services, and Stephen Hayes with the Relman Colfax law firm. These organizations discussed their efforts surrounding designing and implementing SPCPs and best practices for marketing, with the hope of inspiring and educating other lenders to do the same. By way of introductory remarks, Mr. Kreiswirth mentioned the widespread industry interest in implementing SPCPs to increase racial equity and support affordable housing and conceded that the reticence many institutions have around SPCPs is that they are largely untested, both from a regulatory and judicial perspective.

Ms. Still discussed recent efforts of Pulte, the nation’s largest homebuilder, to address the racial homeownership gap through a down payment assistance program to provide eligible buyers with incremental equity in their home and another program that includes selling homes at below market price. She touched on some of the challenges Pulte faced as a builder and a non-bank. The first challenge was with U.S. tax code provisions that prohibit sellers from directly funding buyer down payments. Pulte found a compliance solution by partnering with the nonprofit organization Homeownership Council of America. The second challenge is a government-sponsored enterprise (GSE) guideline which would otherwise make their charitable contribution an interested party contribution and would be a dollar-for-dollar sales concession. Pulte is asking that the contribution be considered an affordable community second [mortgage] much like depository institutions are allowed under the CRA. Ms. Still went on to discuss considerations for ensuring non-lender SPCPs are compliant with the Fair Housing Act and urged the GSEs to align regulations to make sure the loans are saleable. She also raised an important point that institutions and entities designing an SPCP need to be aware of any legal risk exposure that might come from using their own data to support an SPCP.

Cerita Battles continued by describing Chase’s SPCP that was introduced in January of 2021. Chase began planning by looking at HMDA data specific to Black, Hispanic, and majority-minority Census tracts to create a baseline for the direction of the program. Declination rates and areas with high loan-to-value ratios were also examined and found to be prevalent in majority Black and Hispanic Census tracts. Ultimately, Chase designed its programs around geography rather than attach them to racially explicit parameters. Recognizing that down payment and closing costs are often a barrier to homeownership, Chase opted to offer its assistance as a grant in 6,700 minority Census and lending tracts throughout the U.S. The program centers around purchased homes and is restricted by conforming loan limits instead of area median income. An interesting feature of Chase’s program is that any buyer meeting the terms of the program will automatically have access to the funds. It’s not dependent on a loan officer to introduce the program, and no special application process is needed. As of the date of the Forum, Ms. Battles reported that, on average, roughly 60% of the program recipients are Black and Latinx, although some regions have much higher rates of people of color using the program. She shared that Chase will constantly track and monitor the impact of the program to ensure that the funds reach the individuals and communities that most need it.

Next, Stephen Hayes with Relman Colfax, author of this white paper on SPCPs, described three main risk areas for organizations wanting to create their own program. The first is the interaction between ECOA and the Fair Housing Act. The major risk is that, while ECOA explicitly permits SPCPs, the Fair Housing Act does not. A program designed to comply with ECOA is unlikely to violate the Fair Housing Act, but additional guidance is needed from HUD. The next area to consider is that when designing an SPCP it needs to be at least as favorable as other programs the applicant might qualify for. The third area of concern is the written plan that establishes the foundational need for the program. An SPCP should demonstrate that it’s meeting the needs of individuals who probably wouldn’t qualify for credit or might qualify on worse than average terms. The CFPB interpretive rule specifies that a nexus must be created between the program and the entities’ own creditworthiness standards, and that can be done with historical data about declinations. However, there is no inference that an organization creating an SPCP has violated fair lending standards.

Finally, Mr. del Rio talked about best practices for creating an SPCP from the perspective of nonprofits and CDFIs. The first step is to ensure that the organization has institutional authorization to make a target market designation within the Treasury CDFI approval. This can broaden the income restrictions that ordinarily apply to CDFI institutions. Other best practices include installing alternative credit decisioning policies and product terms, and designating capital and fundraising to support the program. From a marketing perspective, community partnerships with other nonprofits working in the racial equity space are critical when facing potential pushback for a racially explicit program. Mr. del Rio calls out to all housing organizations to not shy away from marketing messaging that emphasizes racial disparities and discrimination because they are embedded in the history of this country. Another best practice is to package homebuyer counseling or education fees as those providers are often woefully under resourced. Essentially, nonprofits have a unique opportunity to lean into SPCPs as their standards for creating are less onerous.

The presenting partners hope that this Special Purpose Credit Programs Virtual Forum will be a step in the right direction towards using this decades-old lending structure to meaningfully address racial disparities in homeownership and wealth. We encourage for-profit, not-for-profit, government, and quasi-government entities alike to work together to create opportunities for credit and homeownership access for historically excluded individuals.

The post Special Purpose Credit Programs Virtual Forum Overview appeared first on NFHA.

The COVID-19 health pandemic is the great revealer. It has exposed, in harsh reality, deep-seated inequalities that exist in our country built on centuries of unjust practices and policies, lack of enforcement of civil rights laws, and structural racism. People of color are disproportionately contracting and dying from the virus but they are also disproportionately experiencing housing eviction, overcrowding, and instability. This is, to a large extent, the result of residential segregation and the wide wealth and homeownership gaps between Whites and people of color. In fact, the Black-White homeownership rate gap, at a 30+ percentage point difference, is the largest it has been since 1890.[1]

But we have a unique opportunity to correct this disparity using one of our nation’s most promising civil rights laws – the Equal Credit Opportunity Act (ECOA). The statute allows institutions to develop Special Purpose Credit Programs (SPCPs), which provide a tailored way to meet special social needs and benefit economically disadvantaged groups, including groups that share a common characteristic such as race, national origin, or gender. Properly designed, SPCPs can play a critical role in promoting equity and inclusion, building wealth, and removing stubborn barriers that have contributed to financial inequities, housing instability, and residential segregation. SPCPs are also consistent with and provide a targeted and effective way to further the purposes of other civil rights laws, including the Fair Housing Act’s twin goals of overcoming discrimination and segregation.[2]

In fact, the Black-White homeownership rate gap, at a 30+ percentage point difference, is the largest it has been since 1890.

Building More Affordable Housing Won’t Cut It

While building more affordable housing will certainly help expand opportunities for underserved groups and is an important factor in the formula for reducing the racial homeownership gap, it is not a panacea and, without more intentional action, may ultimately do little to advance racial equity. The nation has a long history of investing in affordable housing programs that did little to advance opportunities for underserved groups.

Just before, during, and after WWII, the U.S. embarked on many bold and ambitious housing development projects that greatly expanded the number of affordable housing units for both rental homes and homeownership. But people of color were prevented from taking advantage of these opportunities. The programs were infected with racist policies that locked out Blacks and other people of color. Those policies created systems in the housing and finance sectors that are deeply inequitable, and we are still feeling their impacts today.

The nation’s largest affordable housing initiative was arguably the Federal Housing Administration (FHA) mortgage insurance program. It did very little to benefit people of color in the first decades of the effort largely because the guidelines and policies adopted by the program were designed to restrict access for Black people and other underserved groups.[3] Many of these policies were explicitly racist,[4] including the utilization of the Home Owners’ Loan Corporation’s (HOLC) race-based redlining system, the requirement to use racially restrictive covenants, and language included in the FHA’s underwriting guidelines that associated risk with race.

Policies and practices in other federal programs also supported a separate and unequal housing market. For example, federal housing policies by the then US Housing Authority mandated residential segregation in publicly funded multi-family rental housing developments. Even today, some housing authorities still continue to practice segregation by offering facilities located in well-resourced neighborhoods to White tenants while steering Black tenants to complexes located in under-resourced areas.[5] Blatant discrimination in the implementation of the GI Bill,[6] the Social Security program, the National Highway Act, Urban Renewal Program, and more contributed to the permanent installation of a dual credit and housing market that too often prohibits consumers of color from accessing quality, sustainable credit options.

U.S. Financial and Housing Markets are Structurally Unfair

Inequity is baked into our housing and finance systems. It is a feature of the structures, not a bug; these systems were designed to be biased. Unfair policies were utilized for decades, creating clear and distinct advantages and support for White families, but not for others. These policies followed centuries of slavery, racial violence, and a race-based caste system that systematically robbed Blacks, Native Americans, Latinxs, and other people of color of opportunities to own homes, build wealth, and pass down assets to their heirs. Together, these practices denied people of color a chance to take hold of the American Dream of homeownership and other wealth-building opportunities, like starting businesses. And often when underserved groups have been able to access wealth-building opportunities, common injustices make the opportunities too short-lived.[7] The continued racial wealth and homeownership gaps are a testament to the reality that these systems are not fair. At the median, White households have eight times the wealth of Latinx families and ten times the wealth of Black families.[8] While 26 percent of White families receive an inheritance, only 8 percent of Black families receive one, and when Black families do inherit wealth, it is only 35 percent of what White families inherit.[9]

Today, while many policies and guidelines may not be explicitly discriminatory on their face, many generate widescale disparate outcomes based on race. For example, credit overlay policies, an over-reliance on outdated credit scoring systems and lending policies linked to debt-to-income ratios or loan-to-value ratios are all highly correlated to race and national origin and disproportionately disadvantage Latinxs, Native Americans, Blacks, and certain segments of the Asian-American and Pacific Islander populations. Algorithm-based systems, like automated underwriting systems and risk-based pricing systems, manifest and perpetuate these biases.[10] Our current financial system relies on assessments that can unfairly lock underserved groups out of the opportunity to access credit. For example, credit scores are a requirement for automated underwriting and risk-based pricing systems and matrices.[11] Yet roughly one-third of Black and Latinx borrowers don’t have credit scores[12] because they disproportionately access credit outside of the financial mainstream.

One of the reasons consumers of color disproportionately access credit through non-traditional credit providers (who typically do not report timely payments to the credit repositories) is because banks are sparsely located in Black and Brown communities. In fact, high-income Black neighborhoods are losing more bank branches than low-income non-Black areas.[13] An analysis by Standard & Poor found that between 2010 and 2018, majority-Black neighborhoods lost more branches than majority-White, Latinx, and Asian neighborhoods. Median household income did not help explain the pattern since majority-Black areas with median household incomes above $100,000 were as likely to not have a branch as low-income areas.[14]

However, many underserved consumers have nontraditional credit, like timely rental housing payments, or other compensating factors, like residual income, that soundly demonstrate their ability to pay a mortgage obligation. Moreover, the current system relies heavily on debt-to-income ratio requirements that disproportionately affect consumers of color. However, debt-to-income ratio requirements have been shown to be poor predictors of risk[15] – particularly for borrowers who are used to paying higher percentages of their income on rental housing payments. As a result, not only do these standards disadvantage borrowers of color, they are suboptimal for achieving their intended purpose of managing risk.

Because the U.S. lending and housing markets are so exclusionary, a disproportionate percentage of Black, Latinx, and Native American borrowers are turned down for mortgage credit each year. NFHA’s analysis of 2019 HMDA data reveals that Black applicants are denied for mortgage loans at almost twice the rate of White applicants. Latinx consumers are denied at almost 1.5 times the rate of White applicants. These trends have persisted over decades. (See chart below.)

Additionally, programs designed to extend credit to businesses owned by people of color have lackluster performance. The Paycheck Protection Program developed to help businesses impacted by the COVID-19 pandemic has provided minimal benefits to companies owned by Blacks and Latinxs. The Center for Responsible Lending estimated that during the first round of the PPP program, when support for small businesses was most critical, only about 5% of Black-owned and 9% of Latinx-owned businesses would be able to access the program.[16] Its projections were borne out. One analysis revealed that a disproportionate majority of PPP loans went to businesses in majority-White communities while a disproportionately small share of loans went to those located in majority-Black or majority-Latinx areas.[17]

Additionally, borrowers of credit face discriminatory roadblocks when trying to access car loans. An investigation by the National Fair Housing Alliance revealed that consumers of color with better financial profiles than their White counterparts were more often charged higher interest rates, received more costly options, presumed to be less qualified than they actually were, taken less seriously as buyers, and were more likely to be subjected to disrespectful treatment.[18] Sales people and finance officers at the dealerships where the investigations took place were much more likely to work with White consumers to bring prices down, sometimes through breaking policies, rules, and procedures or by making an extra effort to give the White consumer better pricing.[19]

In many respects the cards are stacked against underserved borrowers. Maintaining the status quo will never provide these families and consumers with the opportunities they need and deserve to access credit or secure housing stability. While building more affordable housing is critically necessary and may help expand equal housing opportunities, increasing affordable housing units alone will not address the racial inequality gap.

The Center for Responsible Lending estimated that during the first round of the PPP program, when support for small businesses was most critical, only about 5% of Black-owned and 9% of Latinx-owned businesses would be able to access the program.[16] Its projections were borne out.

We Need Intentionality in our Housing Policies and Programs

We are deluding ourselves if we believe we will cure centuries of race-based discrimination without targeted measures. A rising tide does not lift all boats, especially if some boats have holes and leak. And a rising tide can drown those who are not fortunate enough to have a boat at all. For too long, our housing and lending policies have primarily benefitted certain segments of our society – and that was by design. We must now be intentional and deliberate about expanding opportunities to those who were unfairly locked out. Because of our innately unfair structures and inequitable systems – residential segregation, dual credit market, over-reliance on outdated credit scoring systems, policies that favor wealthy households, etc. – maintaining the status quo will simply lead to more inequality. This observation is true even with respect to well-intentioned affordable housing programs. Without deliberate tailoring, these programs can exacerbate racial gaps—particularly in gentrifying areas—and can further segregation if housing options are limited to certain geographic areas.[20] We must implement policies and programs that serve as catalysts for change and are explicitly designed to bring opportunities to those who deserve but do not have them.

Our survival as a society depends on our planned and deliberate efforts to expand opportunities. Last month, Citi released a ground-breaking report, Closing the Racial Inequality Gaps, that conveyed a salient point sometimes missed when talking about racial inequality in the U.S. Systemic racism doesn’t just harm people of color, it harms our entire society. According to the report, if racial gaps in housing, employment, education, and investment had been closed 20 years ago, the U.S. economy would have increased by $16 trillion. Expanding fair access to credit would have added homeownership opportunities for almost 800,000 Black households, adding $218 billion in sales to the housing market. Providing equal lending opportunities to Black entrepreneurs would have added $13 trillion in business revenue and 6.1 million jobs per year. Closing these racial gaps today would add $5 trillion in GDP to the U.S. economy over a 5-year period.

Our society is becoming more diverse. Forty-four percent of the millennial cohort is comprised of people of color. The homebuyers of today and tomorrow are diverse consumers and if our housing and financial markets do not work for these consumers, not only will we unnecessarily harm people, we will stifle our economic growth and productivity. According to the Urban Institute, there are over 6 million millennials of color[21] who could qualify for a prime mortgage loan using responsible credit qualification standards. But these consumers are not participating in the market for myriad reasons, including policies that penalize borrowers who cannot afford a 20 percent down-payment or who cannot utilize their rental housing payment history to help them qualify for a loan.

Lenders Can Use Special Purpose Credit Programs to Expand Opportunity

Lenders have a real interest in meeting the credit needs of underserved communities, particularly if they want to meet their business objectives. Consumers of color, women, and other groups of underserved consumers represent the lion’s share of business growth opportunities today and in the future. Yet these consumers continue to face structural and other barriers that prohibit them from accessing the credit they deserve. SPCPs allow lenders to be intentional and specifically design programs to help underserved groups.

The Consumer Financial Protection Bureau (CFPB) has promised steps to “help create real and sustainable changes in our financial system so that Blacks and other underserved groups have equal opportunities to build wealth and close the economic divide.”[22] To further that goal, it promoted the use of SPCPs, reminding creditors of the availability of these opportunities.[23] Historically, the CFPB has favorably highlighted SPCPs specially designed to serve businesses owned by people of color and to provide special purpose credit to historically underserved mortgage borrowers.[24]

ECOA allows both non-profit and for-profit organizations to utilize SPCPs to meet borrowers’ unique credit needs. Specifically, if a for-profit entity has determined that a SPCP would “benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms,” the organization can create a program that meets certain qualifications, including:

1. The program is established and administered pursuant to a written plan that identifies the class of persons that the program is designed to benefit and sets forth the procedures and standards for extending credit pursuant to the program;
2. and The program is established and administered to extend credit to a class of persons who, under the organization’s customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit.

Lenders, non-profit organizations, and other entities have used SPCPs to expand credit access for underserved borrowers who can demonstrate they have an ability to repay their debt obligations but, due to exclusionary standards, structural barriers, and other hurdles, have been locked out of important opportunities they need to lead successful lives. Communities without credit are communities without hope and SPCPs are one way to bring hope back to neighborhoods that deserve fair access to financial investments. Lenders or other entities considering an SPCP should coordinate with their legal counsel to identify the appropriate steps that should be taken to establish a program. Legal counsel can also assist organizations in developing a written plan and strategy to meet the requirements set forth in ECOA. Institutions should confer with the CFPB and any other appropriate regulatory agency about plans to establish a SPCP.

Special Purpose Credit Programs Fulfill the Letter and Spirit of our Fair Lending Laws

The Civil Rights Act of 1866, the Fair Housing Act of 1968, the Equal Credit Opportunity Act of 1974, the Community Reinvestment Act of 1977, and other fair housing laws, executive orders, and regulations are all designed to work hand-in-glove to advance equal and fair opportunities. Together, they provide an important bulwark to stop discrimination, dismantle inequitable structures, and promote policies, practices, and programs that help correct the horrible mistakes we have made in this nation – mistakes that still harm us today. They are designed to create a fairer society. The Fair Housing Act, a partial catalyst for Special Purpose Credit Programs, was passed just 7 days after the assassination of Dr. Martin Luther King, Jr. President Johnson wanted to gift the Civil Rights Act of 1968 to the King family in memoriam to Dr. King for his valiant efforts to create a just and equitable society, his great sacrifice for this nation, and his vehement commitment to fair and open housing. Dr. King reminded us of the “interrelatedness of all communities and states” and that “Injustice anywhere is a threat to justice everywhere.”

The Equal Credit Opportunity Act builds on the Civil Rights Act of 1866 and the Fair Housing Act to further equity in our society and provide a more direct way for entities to advance fair housing goals. SPCPs can help further this nation’s commitment to fair housing and justice and aid in the fight to end discrimination and segregation. SPCPs can be a tool for tackling the racial wealth and homeownership gaps and ensuring that housing is genuinely fair, open, and available to all people. Just as we were purposeful and deliberate about excluding people of color, we need to be intentional about including them. SPCPs are an essential means of doing that. They are a great way for lenders to display their commitment to dismantling unfair systems and building programs and structures for advancing justice, fairness, and equality. They are a way for the financial services industry to step up and be a part of a long-needed solution to our nation’s history of structural racism and systemic bias.

Resources

• Read a special article by Chi Chi Wu of the National Consumer Law Center on Special Purpose Credit Programs.
• Read more about Special Purpose Credit Programs and how they advance the goals of fair housing laws like the Fair Housing Act.
• Read the article “The Use of Special Purpose Credit Programs to Promote Racial and Economic Equity” by two leaders in the CFPB’s Fair Lending Office – Patrice Ficklin, Fair Lending Director, and Charles Nier, Senior Fair Lending Counsel. The article is included in PRRAC’s May 2021 edition.
• Read important guidance from the Consumer Financial Protection Bureau about Special Purpose Credit Programs.
• Read a CFPB blog on Special Purpose Credit Programs.

#CreditEquity Twitter Storm Toolkit

Special Purpose Credit Programs are allowable under the Equal Credit Opportunity Act and provide a way for financial institutions to meet the special credit needs of people who have been impacted by lending discrimination, systemic racism, and redlining.

The post Using Special Purpose Credit Programs to Expand Equality appeared first on NFHA.