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Single-Family | June 17, 2021

Our Renewed Commitment to Equitable Housing: Follow the Data

Pamela Perry
By
Pamela Perry, Single-Family Vice President of Equitable Housing

Earlier this year I was honored to be named head of the Freddie Mac Single-Family Equitable Housing team. In this role, I am tasked with identifying and developing solutions to address the array of complex issues communities of color face in attaining, sustaining and building wealth through homeownership. Our focus is on removing barriers, not just for the loans Freddie Mac may ultimately buy, but also for the broader housing system. Our plan involves using data and our role in the market – and an intense commitment – to tackle issues around three main topics: access to credit, property valuation gaps and financial education.

Access to Credit

With centuries of limited access to credit, Black Americans continue to significantly lag their White counterparts in homeownership. Based on Freddie Mac's analysis, there are nearly 3.4 million Black Americans who meet the criteria to qualify for a mortgage today but have not purchased a home. And because there is no such thing as the monolithic "Black Borrower," we're working with our lender clients to identify the markets, provide mortgage products and down payment assistance when needed, and to build strategies to help reach the range of potential borrowers so they can explore the possibility of homeownership.

A related area where we can increase Black homeownership is through innovation in credit standards.  Many Black borrowers are less likely to meet the traditional credit standards necessary to qualify for a mortgage. To that end, we're actively exploring and evaluating alternative credit score models, as well as technology and machine learning tools that can help expand homeownership opportunities responsibly.

The Property Valuation Gap

Another priority for my team is addressing the property valuation gap. A home in a majority-Black neighborhood is likely to be valued 23 percent less than a near-identical home in a majority-White neighborhood – costing Black homeowners $156 billion in cumulative lost equity.

By leveraging our extensive data, which consists of millions of appraisals across a long time horizon, we're uniquely positioned to investigate potential gaps and add data-driven proposals to the public discourse. We are working with the appraisal community and other stakeholders to identify root causes and create and pressure-test viable solutions to promote equity across the valuation process.  

Financial Education

Financial education is also essential. In part because of past discrimination and a failure of the industry to fully serve Black communities. Black consumers are less likely to inquire about obtaining a mortgage, which further decreases their propensity for homeownership and limits wealth building as a result. Ongoing consumer education about low down payment mortgages and down payment assistance programs is critical to ensuring homeownership is available to more families. We also need to help make sure those families that are ready now know that – and know what steps they need to take to achieve homeownership.  

Freddie Mac's community engagement team holds over 400 education and outreach events each year to inform lenders, banking institutions, real estate professionals and other industry stakeholders on how to best identify, target and help underserved communities so they can overcome homeownership barriers.

Along these lines, Freddie Mac is working on a major overhaul to our CreditSmart® financial capability curriculum, including a focus on building financial awareness for Black Americans from childhood through homeownership. The new CreditSmart, which is celebrating a milestone of twenty years helping consumers, will be available this summer.

The Sobering Supply Issue

The Black-White homeownership gap is being exacerbated by the anemic supply of homes for sale. This is the largest challenge facing every aspect of the housing market today. There's a shortfall of 3.8 million housing units to meet current demand, and we're at a five decade low in construction of starter homes. In the late 1970s, over 418,000 starter homes were built annually. In 2020, just 65,000 new units were built. The supply issue is a challenge the entire industry needs to tackle through collaboration with local government, lenders, investors and social services to bring about change.

We believe these are key challenges contributing to the widening wealth gap we see today, and as a leader in housing, we have an obligation to address it. We can help communities of color by developing data-driven solutions of our own and using our strong relationships across the industry to bring about real change. I'm so proud to be leading our company's effort to provide equitable homeownership in order to break down the historical barriers to wealth creation. But Freddie Mac's commitment to equity does not stop here. You can read more about our efforts to ensure diversity in all aspects of our company – from the multifamily industry to our suppliers to our own employees.