Over the past year, the community of Des Moines has engaged in important conversations about racial inequity, highlighting disparities in homeownership for blacks caused, in part, by policies and unfair practices. Recently, an article in the Des Moines Register featured statistics showing that black applicants in Des Moines are more than twice as likely to be denied a mortgage than their white peers.
I am disappointed with these scores and agree that the systemic challenges of home ownership for blacks be addressed. However, I also believe the article missed an opportunity to discuss the importance of education and shared responsibility throughout the home buying process.
Following:Black applicants in Des Moines are more than twice as likely to be turned down for home loans as their white peers, analysis finds
As a black man who has spent over 20 years in the financial industry, including real estate and banking, and more importantly as a homeowner, I have experienced the process of buying a home under all angles. In my opinion, all three parties – realtor, buyer, lender – are responsible for some aspect of financial education, and we can all do more to support homebuyers, especially those who are black, native and of color. (BIPOC).
Let me break this down using an analogy: Buying a house is like playing basketball. You have to work a little before you are ready to exploit your potential. You will have to learn the basic skills, rules and strategies of the game.
The home buying process should start a few years before you are ready to buy. You need to understand your full financial picture by knowing your income, regular expenses, debt load, how to reduce unpaid debts, medium and long term expenses, and your credit health, to name a few. . Think of them as your financial skills.
Learn the rules
Many people don’t understand what goes into getting a loan, or the ârulesâ of the game, yet this is important information homebuyers need to understand. For example, know the difference between a prequalification (good indication) and a pre-approval (final) and what each includes. Financial institutions have an obligation to help customers understand the key terms of any lending process, especially those as important as mortgages.
The history of the Registry provided examples that clearly demonstrated this need for more education, not only on what information the borrower should provide, but also when and why. What worries me is how the example has been called disparate treatment. Take the example of the article, where there is a significant difference in the credit score when granting the loan compared to that stated in a pre-approval, and the interest rate on the loan changes due to of that or because of higher rates after the expiration of the pre-approval, it is not a patchwork treatment. These changes would impact any borrower, regardless of race. Problems like this can often be alleviated with proper education on the mortgage underwriting process.
Additionally, real estate agents often serve as trusted advisors to home buyers and are involved throughout the process. Because of this and the common role of the realtor as a liaison between a client and their lender, they also need to understand all parts of the lending process and help educate their clients on the ground rules.
Ready to play
In basketball, if you enter the court unprepared, the referees or other players will not change the rules of the game because you do not understand them. A common understanding of the rules ensures order, fairness and improves the probability of obtaining the best possible result.
Let’s be clear: people’s lives are not a game. I have spent my career working with people from all walks of life – in my early days, living paycheck to paycheck, middle class and beyond. One thing we all have in common is that someone had to teach us how to properly manage our finances before we were ready to become homeowners and take on their ongoing financial responsibility. We all need to acquire financial skills first and hopefully continue to learn strategies for managing or building wealth.
Surprisingly, sometimes even banking and real estate professionals need to acquire knowledge in these areas. So worth it. All the clients I have worked with who have taken a proactive approach, developed their financial knowledge and met their obligations have become owners.
It is important to note that financial institutions want to grant loans successfully, which is why so much information is required in the loan application. But it’s one thing to buy a house; continuing to manage your finances appropriately is a big part of maintaining them. So when it comes to financial education, especially in the mortgage process. I believe that financial institutions have the opportunity and the responsibility to do more for their customers.
I would love to see more financial institutions become more engaged in education, whether it be on budgeting, credit scores, mortgages or any other related topic. I am committed to doing everything possible to help BIPOC and all people achieve their financial dreams. That’s why I chose to work for a community bank that does the same.
In closing, disparities certainly exist in home ownership among blacks and there is a lot of work to be done. Communities in Iowa are well positioned to be better and to lead the way for national change. It starts with a comprehensive press and incorporating financial education into every step of the home buying process, supporting a home buyer‘s best opportunity for long term wealth building success. .
D’Angelo Johnson is Vice President and Regional Director of Private Banking at Bankers Trust and can be contacted at [email protected]