How Place-Based Special Purpose Credit Programs Can Reduce the Racial Homeownership Gap

Special purpose credit programs (SPCPs)—which allow banks to offer credit on favorable terms to borrowers who have suffered economic disadvantage and share common characteristics (e.g., race or income)—could provide the kind of homeownership boost to Black communities today that the New Deal provided to white people in the 20th century.

We have previously shown how the effects of generations of systemic racism and economic exploitation make credit less accessible and more expensive to Black borrowers. These conditions drive the 30 percentage-point homeownership gap between Black and white households, and they contribute to the higher costs and smaller returns Black homeowners experience.

SPCPs for Black homebuyers could alleviate some of the effects of historical unequal treatment in mortgage lending, improve access to credit in Black communities, and narrow the racial homeownership gap. But targeting programs to specific people can be difficult for lenders to implement, because they require significant outreach and engagement work and verification of eligible borrowers.

To avoid some of these challenges, lenders could implement place-based SPCPs, which target distinct geographic areas rather than specific people. Whether place-based SPCPs are more effective than people-based approaches will depend on the homeownership challenges unique to the location.

Read the full article at The Urban Institute.