Residential Magazine

Getting All the Buzz for a Good Reason

Special purpose credit programs can open the door to homeownership for the underserved

By Michael Innis-Thompson

If you work in the mortgage business, acronyms are a way of life. From ARMs to MLOs, there are many terms that the industry abbreviates. (Those are adjustable-rate mortgages and mortgage loan originators, by the way.)

One abbreviation has recently been getting a lot of buzz — SPCP. What does it stand for? Opportunity, accessibility and affordability. To be more exact, however, it stands for special purpose credit program. SPCPs have been around since 1976 as a provision of the Equal Credit Opportunity Act and Regulation B. These are programs that permit lenders to design loan products that benefit traditionally underserved populations, such as Black and Hispanic people.

When you look at the statistics, the progress to ensure equity for communities of color — particularly as it relates to wealth and homeownership — has been dismally slow.

They generally provide more flexible credit parameters and higher debt-to-income ratios, and they may even include lender-provided credits or funds to be used toward a downpayment or closing costs. Simply put, they’re designed as a tool to help close the racial wealth gap by increasing opportunity for historically underserved populations.

Progress delayed

So, if these credit programs have been around for almost half a century, why all the buzz now? Part of the reason is that special purpose credit programs are featured prominently in the equitable housing finance plans released this past June by Fannie Mae and Freddie Mac under federal regulator guidance. The government-sponsored enterprises and federal regulators believe the expanded use of these programs could bring about change, both individually and collectively, for underserved populations.
When you look at the statistics, the progress to ensure equity for communities of color — particularly as it relates to wealth and homeownership — has been dismally slow. For example, the median white household in 2019 held nearly eight times the wealth of Black households, according to a Brookings Institution analysis. (Note that this was before the COVID-19 pandemic.)
Having wealth provides a safety net for families and individuals during tough economic times. What’s one of the most effective ways to accumulate generational wealth? Buy a home. It affords families the opportunity to not only build equity over time but also to provide a head start to their children, so they can inherit wealth rather than simply acquiring it.
It’s important to look directly at the homeownership gap. As of second-quarter 2022, 45.3% of Black Americans owned their homes, compared to 74.6% of white Americans, according to the U.S. Census Bureau. Hispanic Americans don’t fare much better with a 48.3% homeownership rate. Although there are several reasons for the gap, many will agree it leads back to discrimination.
The Fair Housing Act wasn’t passed until 1968. Before that, many minorities (especially Black people) were denied mortgages and the ability to live in certain neighborhoods because of the color of their skin. The long-lasting impact of a carefully constructed, racially biased system left communities of color at a significant disadvantage when it came to fulfilling the American dream of buying a home. And this disadvantage was only exacerbated during the COVID-19 pandemic when vulnerable populations, including low- to moderate-income Black and Hispanic families, were far more likely to have missed or deferred their mortgage payments due to the financial impact of the health crisis.
Navigating and enduring this troubled history and its lingering effects directly impacts the ability to even think about saving for a home. A recent TD Bank survey of people who are planning to purchase their first home in 2022 found that 46% of respondents consider saving for a downpayment to be a roadblock. This includes 44% and 45% of Black and Hispanic respondents, respectively.

Underutilized tool

Collectively, lenders play a significant role in closing the homeownership gap. But historically, SPCPs have been an underutilized tool to meet this challenge. It’s time for lenders to flip the script and act by designing products that specifically reach underserved communities.
From a reputational perspective, introducing SPCPs shows that a company is striving to build more equity into the homeownership process. These lenders will have an identified focus on all clients, not just a few, and certainly not only on high net worth consumers. Furthermore, borrowers are more likely to choose a lender that’s clearing barriers along the path to homeownership and generational wealth, rather than a lender that doesn’t prioritize a buyer’s needs.
SPCPs also foster greater inclusion across the home lending product suite. Lenders and originators don’t have to go through the red tape of changing existing products that may be doing well across their markets. SPCPs allow you to expand your existing product suite and further diversify your client base to be more inclusive of Blacks, Hispanics and other racial minorities.
And if lenders think that creating and bringing these products to market is overly cumbersome, that’s simply not true. Yes, it takes time, like any other product. Among other things, you must comb through data and identify the populations you want to increase lending opportunities to, then build guidelines and credit criteria into the product accordingly.
But the strategy for building a successful SPCP product is similar to any other. Additionally, there’s a great resource, the SPCP Toolkit, that was launched by the Mortgage Bankers Association and the National Fair Housing Alliance. It provides background about these programs along with a step-by-step guide for lenders to implement them. It even highlights SPCPs that can be tailored for small businesses.

Business opportunity

While there are sound reasons for lenders to implement SPCPs, there also are benefits to mortgage originators who work for financial institutions with these programs. The most obvious is the business opportunity.
The intent of SPCPs is to provide more flexibility in situations where borrowers traditionally may not have qualified. The more borrowers who qualify, the more revenue generated for originators. Not to mention, having a broad and inclusive product suite better enables them to provide the best options for prospective borrowers.
When looking at it from a demographic perspective, census projections show that all minority populations will increase over the next few decades, with the Hispanic American population estimated to grow from 57 million in 2016 to 111 million in 2060. As these populations increase, so does their need for housing. Originators who have SPCPs as part of their product suite — or those who advocate for them to be created — can tap into a huge growth opportunity.
Inflation and a rising interest rate environment have certainly presented challenges for the home-purchase market, with affordability being a top issue. But depending on the design of your company’s SPCP, originators may be able to suggest using any lender-funded credit toward the downpayment, closing costs or even buying down the interest rate, making affordability more attainable for prospective borrowers.

Supportive voice

SPCPs benefit everyone in the mortgage ecosystem. The special parameters around how they are designed can help move the needle for people of color looking to purchase a home and begin the journey to intergenerational wealth. These products also can complement other efforts, such as affordable lending strategies and affirmative marketing.
If an originator works for a lender that doesn’t offer an SPCP, they can be an advocate to add one. Originators are the boots on the ground. They are central to the equation because they work with Realtors, community leaders and nonprofit organizations, all of which have a strong understanding of local homeownership needs and challenges. Originators can help make the case for integrating these pivotal programs into the affordable loan offerings at any company.
Regardless of what you do, if you work in the mortgage business, you should listen, learn and do your part to leverage SPCPs. It’s an opportunity to offer sustainable homeownership to communities that have been systemically left out of the process for decades. There’s a chance for mortgage professionals to be part of the solution and provide more equity in the home lending process, making the dream of homeownership more attainable for everyone. ●


  • Michael Innis-Thompson

    Michael Innis-Thompson is a senior vice president and head of community lending and development at TD Bank, where he drives the company’s Community Reinvestment Act (CRA) operational strategy and execution across consumer and commercial lending. He also is responsible for building and directing TD Bank’s CRA and multicultural lending strategy for mortgage and equity, which includes strategic development and evolution of the community mortgage sales origination model, enhancement of product offerings, and the development of marketing and channel strategies to better serve low-income, moderate-income and multicultural communities. 

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