Acknowledging that the rate of mortgage applications and originations declined for Black and LatinX customers during the pandemic, Citigroup Inc. says it’s investing in digital mortgage capabilities to better reach all communities, while also expanding mortgage programs that help make down payments and closing costs more manageable for borrowers.
Citi says it wants more homebuyers to take advantage of its HomeRun mortgage program, which lets borrowers make down payments as low as 3 percent without taking out mortgage insurance, and its Lender Paid Assistance program, which provides up to $5,000 in closing cost assistance.
The announcement comes as Citi’s shareholders attending the company’s annual meeting today are being asked to approve a “racial equity audit” analyzing the bank’s impact on communities of color. The audit is backed by CtW Investment Group, which works with pension funds sponsored by unions representing nearly 5 million members.
The investment group has urged shareholders at seven other “systemically important financial institutions” — Bank of America, Black Rock, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street and Wells Fargo — to approve similar audits.
Citigroup’s board, however, is recommending that shareholders reject the audit, because the company “believes it is already addressing” its intent. “While we disagree with the overall approach in this proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector,” the company advised shareholders.
In advance of today’s board meeting, the company provided an update on early results of the Action for Racial Equity Initiative, which is aimed at expanding access to banking and credit in communities of color, increasing investment in Black-owned businesses, expanding homeownership among Black Americans, and advancing anti-racist practices in the financial services industry.
“We know that many are rightfully calling on banks and other big companies to put real action behind their commitments,” Citi CEO Jane Fraser said in a statement. “Today, we’re sharing what we’ve done to date to show how Citi is committed to real change, and to be clear and transparent about how far we have to go. We are determined to do everything we can to help close the racial wealth gap in our communities and continue to do the work to become an anti-racist institution.”
On the homeownership front, Citi said it’s in the “final stages” of committing $200 million to preserve affordable and workforce housing, and continuing with previously announced plans to expand its community lending team and network of correspondent lenders to provide better access to mortgage credit minority borrowers in low- and moderate-income neighborhoods.
Citi said it will be putting more resources and capital into two loan products that can be important tools for many of those borrowers:
- The HomeRun mortgage program provides flexible credit guidelines for borrowers making down payments as low as 3 percent. Unlike most mortgages for borrowers making down payments of less than 20 percent, there’s no requirement to obtain mortgage insurance. And, the HomeRun mortgage is available both for home purchases, and for “rate and term” refinancing where borrowers aren’t cashing out equity.
- The Lender Paid Assistance program provides a lender credit of up to $5,000 that’s applied against closing costs on the purchase of a primary residence. Anybody whose income is less than 80 percent of the median can qualify, and the program is also available to homes in low- to moderate-income census tracts.
Although not part of Citi’s announcement, the company is looking to hire a new head of retail mortgage sales. In addition to providing “strategic direction and oversight to a combined staff of over 800 employees,” the position’s specific responsibilities include owning “the development and execution of key strategic initiatives for [Community Reinvestment Act] and Fair Lending designed to better serve [low to moderate income] and minority customers and communities and improve regulatory performance and cost structures related to CRA, and Fair Lending performance.”
According to the Center for Responsible Lending, there was a “modest increase” in the share of home purchase loans provided to Black and LatinX borrowers in 2019. Although 13.4 percent of Americans are Black, they received 7.0 percent of home-purchase loans. Latinos represent 18.3 percent of the U.S. population, but received 9.2 percent of 2019 home-purchase loans.
“By not creating cost-efficient homeownership opportunities for creditworthy borrowers of color, we are denying millions of Americans the opportunity to accumulate wealth, suppressing economic growth, and widening the racial wealth gap,” said Nikitra Bailey, the Center for Responsible Lending’s executive vice president, in a statement last year (2020 data will be released this June).
Bailey said that many data points lenders must submit to regulators under the requirements of the Home Mortgage Disclosure Act (HMDA) are’t make publicly available, which makes it harder “to comprehend the reasons for disparities in mortgage lending.” She said the Consumer Financial Protection Bureau should release credit score data and other fields it now collects from lenders to the public.
A more recent Urban Institute analysis found that low credit scores, along with high debt-to-income and loan-to-value ratios “decrease the likelihood of mortgage approval and increase the costs of borrowing for potential homebuyers.”
Those characteristics are correlated with income and wealth, “which means that households with fewer financial resources are likely to face difficulty accessing home equity when it is most needed and pay a higher price when purchasing a home. Access to credit is an area where public policy must adapt so as not to exacerbate the precarious situation many Black households face.”