In a presentation to a Reparations Subcommittee meeting Friday, a Los Angeles-based real estate broker urged that Evanston use its planned reparation fund to make grants to prospective home buyers to lower or eliminate their required downpayments.
Mark Edward Alston of the National Association of Real Estate Brokers, speaking by telephone from California, suggested a $10,000 or $15,000 grant to a would-be homeowners could be effective in significantly increasing the black homeownership rate in Evanston, which he said dramatically lags the rate for other racial and ethnic groups.
Alston also sharply criticized lending guidelines put in place after the real estate market crash in 2008, which he said make the poor subsidize richer borrowers by requiring borrowers with lower credit scores to pay higher interest rates on mortgage loans.
Blacks typically have lower credit scores than whites.
So, Alston said, a typical black borrower might have to pay a one percent higher interest rate on a loan than a typical white buyer. On a $300,000 house with a five percent down payment, that could mean, at current rates, the black borrower would pay nearly $163 more per month or nearly $58,680 more over the life of a 30-year mortgage.
A video of Alston making a presentation similar to his one to the Evanston group, during an NAREB meeting in Chicago last November.
Alston did not address the fact that people with lower credit scores have proved to be more likely to default on mortgage loans, making them more risky for lenders — who charge higher rates to compensate for the added risk.
Nor did he address the way that essentially no-money-down loans might contribute to a repeat of the foreclosure crisis that forced many black Evanston residents out of their homes a decade ago.
Researchers at the Urban Institute have suggested that cities focus on improving the credit scores of their residents — so they can get better rates on a mortgage loan.
They suggest providing constructive options for households in debt for city services and creating financial inclusion programs to support financially vulnerable residents.
Alderman Robin Rue Simmons, 5th Ward, the subcommittee chair, said “financial literacy and preparedness is absolutely important,” and she said the city has partnered with a local credit union to launch such programs and had scheduled a day-long financial literacy program for today at the Civic Center.
Bennett Johnson.
Evanston resident Bennett Johnson suggested that rather than making grants, it would be better to give homebuyers low-interest or no-interest loans. He also suggested forming a real estate investment trust as a vehicle to give residents the opportunity to invest in property and make money from it.
Alston also suggested that would-be black homebuyers need to be more flexible in considering where to buy.
“We exit neighbrhoods as opposed to taking a chance to bring the neighborhoods back up,” Alston said. “There’s a lot of affordable housing in neighborhoods that we don’t want to live in,” he added, and by rejecting those neighborhoods, people “never get the affordable benefit of that housing.”
“In Los Angeles,” Alston said, “blacks are sellers, not buyers. My neighborhood used to be all black, now it’s almost all white.”
Robin Rue Simmons.
Rue Simmons said she has concerns about traditional programs to create affordable home-ownership options.
They generally require that the property remain affordable in perpetuity, she said. And that means buyers have the experience of home ownership but don’t realize the financial benefit — because they can’t benefit from the appreciation in the home’s value when they sell.
Rue Simmons was the only member of the three-person subcommittee present for the session, so no action was taken, and even approving the minutes will have to wait until the group’s next meeting on March 6.