An Affordable Home

Putting homeownership within the reach of more buyers is a key factor for industry success, and the priority of it is rising. With the significant increase in home prices over the last two years together with the rapid rise in interest rates over the last three months, affordability has become challenged. Furthermore, the effect on minorities and low- and moderate-income borrowers (LMI) is even more pronounced. It’s therefore more important than ever that we come together as an industry to find solutions around affordability and community development.

As a bank, we’re an important pillar of the communities we serve, and it’s critical we commit our support, resources, and energies to ensuring the prosperities of these communities are optimized. The key is to support the entire community and not just focus on homeownership.

Community Pledge Agreement

As part of our upcoming merger with New York Community Bank, a Community Pledge Agreement was reached with the National Community Reinvestment Coalition to provide $28 billion in loans, investments, and other financial support to communities and people of color, LMI families and communities, and small businesses over a five-year period.

Some of the pertinent points from the agreement include:

• We will invest $21.7 billion in community development loans and investments, including those that address the needs of LMI communities and individuals. As part of this, we will invest in home ownership and affordable housing strategies with minority-led organizations and organizations that address housing issues in minority communities.
• The agreement pledges to originate $6 billion of loans for home purchases, refinances, home improvement, and home equity loans to underserved and LMI borrowers and in majority-minority communities. We will also provide loan products or participate in affordable housing programs that address the specific needs of LMI borrowers and create a $10 million down payment assistance fund to support home ownership for LMI borrowers.
• We recently launched an ITIN (individual taxpayer identification number) mortgage for borrowers without social security numbers. This is a product we worked on with the Government-Sponsored Enterprises to ensure we matched up to their product specifications.
• At the same time, we’re also looking at expanding our investment in limited English proficiency initiatives to better serve those minorities where English is not their native language.
• We have also created and launched other products that assist with down-payment assistance or lend against niche assets such as manufactured homes.
• We will provide $542 million in loans to small businesses with less than $1 million in revenues in LMI and majority-minority communities.
• Under the agreement, there will be $16.5 million in philanthropic support to non-profit organizations that meet the needs of LMI and majority-minority communities and individuals.

As you can see, this is a comprehensive agreement that focuses not just on home ownership and helping to solve the affordability issue, but also in providing broader solutions that help the communities we serve in multiple ways. To have a successful lending program, you also need to ensure the entire community is successful through supporting small businesses, as well as providing educational support and creating economic health. A successful community is a thriving community, and we need to support all facets of its development.

To do this well, we will identify community partners with whom we will collaborate because we know we can’t do this alone, and engage appropriate resources to address identified needs, similar to what we’ve done in Pontiac, Michigan.

Working together with community leaders and stakeholders is key to ensuring we’re focused on the right areas and introducing the right products to address the needs of that community. It’s a collaborative effort that requires teamwork and organization.

Other Catalysts for Affordability

On May 16, the White House announced a series of administrative changes and legislative proposals that are intended to help close the nation’s housing shortfall, which estimates suggest is anywhere between 1.5 million units and 5.5 million units. Improving and correcting the supply shortfall will go a long way to helping with affordability.

The Federal Housing Administration is likely to cut its mortgage insurance premium later this year, given its strong capital position. This reduction would be aimed at cutting financing costs for LMI borrowers. Similarly, the Federal Housing Finance Agency may also consider reducing loan level pricing adjustments to improve affordability.

The proposed revisions to the Community Reinvestment Act, a joint effort by the Office of the Comptroller of the Currency, Federal Deposit Insurance Reserve, and Federal Reserve, and currently in its comment period, would also appear to be effective in expanding access to lending for LMI communities and borrowers.

So, there are several other proposals and catalysts on the table that can help solve the current affordability disconnect.

Holistic Approach

Supporting communities is not a one-size-fits-all strategy. It’s imperative we not only work hand in hand with community leaders and businesses, but also have a comprehensive and diversified tool kit, because every community is different and requires tailored solutions.

We also need to have a holistic approach rather than a narrow scope, because if you want to help with housing affordability, you need more than just mortgage products, you also need to support neighborhoods and the broader community in ensuring the right foundations are in place. If you do this, affordability becomes much easier to solve for.

Here at Flagstar, we’re committed to supporting and improving the communities we serve.