A Fair and Realistic Solution to Homeownership Inequality
Thus far, our blog has covered the various historical reasons America’s most vulnerable communities are being locked out of the world of homeownership. We have shown why homeownership is a social justice issue at its core. We have explained why poor and minority Americans assume we will never be allowed to become homeowners, and therefore rarely bother taking meaningful steps to achieve homeownership. And we have unpacked the many ways predatory lenders are knowingly and purposely bleeding the poorest and most ignored communities for every penny they can, all while leaving behind millions of people drowning in unsustainable debt that haunts them for years.
Admittedly, these are difficult issues to explore, and even more difficult to experience in real life. But, this conversation about the dangers of predatory lenders and the generational lack of homeownership is absolutely necessary if we are ever going to break the cycle of poor and minority Americans locked into relentless poverty. The good news: there are ways to address these historical wrongdoings, and that is precisely why AHP 75 was created.
Through our social justice initiative here at AHP 75, we have brought together a suite of services that are expressly designed to help our most underserved communities break the cycle of poverty and systemic racism, join the ranks of homeowners, and begin the process of generating wealth and putting down roots in your community. We are joining with socially just real estate agents throughout the country, as well as reaching out to community organizations, churches, and non-profits, to get the word out about ways to raise homeownership in our neediest and most underserved populations.
One of the most important aspects of our community impact initiative is the micro mortgage. These are mortgages that begin as low as $5,000 and go as high as $100,000, originated through our ally company, AHP Mortgage Direct.
But what is a micro mortgage, and why does a micro mortgage matter?
Recently, I sat down with AHP 75 founder and CEO, Jorge Newbery, to discuss the ins and outs of the micro mortgage, as well as to fully dissect the importance of micro mortgages to AHP 75’s mission of raising homeownership to 75% for all Americans, regardless of race or income.
Why Micro Mortgages Matter
As Newbery discussed in one of his Huffington Post articles, one of the unintended consequences of the 2010 Dodd-Frank Act—which sought to address toxic mortgage lending practices that led to the Great Recession and the housing collapse that accompanied it—was that it resulted in lenders deciding that most loans under $100,000 were not worth the hassle, and so they began to move away from financing homes beneath the $100,000 threshold. The reason? Because Dodd-Frank placed caps on the amount of fees and interest a bank can collect on a mortgage. The result? Most lenders set minimum loan amounts ranging from $50,000 – $100,000, which ends up with America’s most underserved communities having far fewer mortgage options than they already had prior to 2008.
Though Dodd-Frank was designed to protect consumers from subprime mortgages and predatory practices, its effect was that banks simply excluded the vast majority of potential homeowners looking to buy in America’s most affordable communities.
So, the micro mortgage—as it’s come to be known in the finance and real estate worlds—is one potential and realistic solution to the problem of inaccessible home financing. Luckily, there have been many small lending operations that have identified this solution, and micro mortgages have slowly become more common and have opened up opportunities for homeownership to larger amounts of people.
With a micro mortgage, a $25,000 home in your neighborhood can be purchased by you or one of your neighbors, rather than being snapped up by an investor who usually pays cash and turns it into a rental, leasing it to the same type of family who had hoped to buy it in the first place. And why does this matter? According to Newbery, “these neighborhoods that used to have civic pride and that were once predominately owner-occupied have shifted to predominantly tenant-occupied. This is problematic for the community.”
Because good communities are built when people can put down roots and invest both financially and emotionally in their neighborhood, and homeownership is the key to this. Homeowners are far more likely to be positively involved in their communities because they are invested in the long term much more than renters, who tend to feel more mobile and temporary and disconnected from the larger concerns of the neighborhood.
Though AHP Mortgage Direct is not the only company making micro mortgages, according to Newbery, we are in the process of becoming the first company to be able and willing to originate micro mortgages nationwide. Major nationwide lenders do have the ability to make micro mortgages, of course, but they rarely, if ever, choose to do so. Even if they do decide to lend below $100,000, Newbery stated, “I don’t think there’s anybody out there who will go as low as $5,000.”
AHP Mortgage Direct is in the process of making our goal of being the premier nationwide originator of micro mortgages a reality. “In addition to all 50 states and D.C.,” said Newbery, “we will be lending in Guam, Puerto Rico, and the Virgin Islands.” Our company is on track to be available in all these areas by the end of 2021.
Another positive aspect of our micro mortgages is that they are also government-backed. This means that government-sponsored enterprises like Fannie Mae and Freddie Mac are working with us to help create more homeowners in the communities that need it most. A major benefit to homebuyers utilizing these programs is that you can often purchase a home with as little as 3% down. CRA loans are currently available too, and also often have the option to put down as little as 3%. In the near future, other government homebuyer assistance programs, such as FHA and VA loans, will be able to be utilized through AHP Mortgage Direct.
One other way we differ from other micro mortgage lenders—besides soon having a nationwide reach—is that we are purposely targeting the very communities that have been historically barred from homeownership. We are building a network of Community Impact Real Estate Agents, through the AHP 75 Academy program, who are carrying our message into the communities they serve in order to educate and inform their potential clients about the services we offer and get them on the path to homeownership.
People often bemoan the inequities baked into American society, particularly in regard to homeownership disparities and racial wealth gaps, which are both inextricably bound together. Rather than simply paying lip service to potential solutions, AHP 75 was created to be a solution.
How Micro Mortgages Work
Other than the lower amount of the loan, Newbery stated, “there shouldn’t be any difference from conventional loans.” They are simply for smaller amounts. He emphasized repeatedly, “interest rates should be the same. The loan terms should be the same. Unfortunately there are some lenders who, citing the ‘high-risk’ buyers asking for micro mortgages, raise the fees and interest rates to predatory levels.”
Besides the terms of a micro mortgage being the same as a conventional mortgage, this also means is that the process of applying for and obtaining a home loan is the same. You find a real estate agent to represent you—which can be done through AHP 75—and locate a home you wish to purchase. You determine your budget for both a deposit and monthly payments. You see which government-backed mortgages you are eligible for, and apply. You get approval for a loan amount and make your offer. Upon acceptance, you go through the process of closing on the home. Finally, upon closing—or finalizing—the purchase of the home, you have reached the first and most important step on the path of creating wealth for yourself and future generations, not to mention the many other financial and personal benefits that come from owning a home.
Not only are we willing to make loans as little as $5,000 up to $100,000, but, according to Newbery, we are also able to make loan lengths up to 30 years, just like a conventional mortgage. Having the option to extend a micro mortgage for up to 30 years will have an immediate and lasting impact on any buyer’s financial situation.
Like all banks, our ally company AHP Mortgage Direct will use your credit score to determine your eligibility for a loan. But, unlike other banks, we do not solely base your eligibility on your credit score and an impersonal algorithm. We take the time to get to know all applicants and their personal circumstances, and we make our determination based on the entire picture. “Because of this approach,” said Newbery, “we have been able to make loans for several clients in the past who were turned down by other banks based solely on their standard approval process.”
At AHP 75, we see more than a set of numbers and data points. We see you.
A Ray of Hope
So why a loan as small as $5,000? Because there really are places in America where homes are that affordable. I have lived there myself. Imagine the freedom of being able to buy a home with just a few hundred dollars down, of being able to spend so much less than rent, and owning the home instead of watching your monthly housing cost evaporate into thin air and make someone else money instead of you. This is our goal, and the micro mortgage is the key.
Newbery is hopeful that his newest initiative, AHP 75, will be a much-needed catalyst for change in the fight for homeownership equality. And that it will be a ray of hope for the countless poor and minority Americans who have written off the possibility of homeownership in their lifetimes.
Ready to explore your homeownership options? Visit AHP75.com to learn about our micro mortgage solutions and begin your journey down the path of homeownership!
Aaron Morales is the Social Justice Writer for AHP 75, based out of Chicago, IL.