Mama Lenders and Mortgage Lenders

 As it is today, the housing sector is a provider of equal opportunity. People in their respective economic milieus live in somewhat-integrated neighborhoods. Taking Fairfax County, Virginia as an example, Working-Class Whites and Latinos may share one neighborhood; and Upper-Middle Class Whites and Asians may share another neighborhood.

There is one group that is left behind, studies show: middle-class African-Americans, who miss out on the opportunity to purchase in the same neighborhoods that White Americans of similar economic status do. Merely calling it “systemic racism” won’t solve the discrepancy; but dissecting it will.  

Qualification for a traditional mortgage is based on the ability to repay; in addition to making a down payment. Many prospective homebuyers must budget carefully to build the down payment, by cutting out some discretionary spending.  African-American purchasing habits are similar to other Americans, although the community spends slightly more on haircare and barbeque supplies, slightly less on home appliances. Contrary to pervasive stereotypes, spending on discretionary goods (such as shoes and handbags) does not differ from other groups.

How “consumer debt” is handled, does differ culturally. In the African-American community, it is common for family members in middle-class jobs to gift, or loan on flexible terms, significant sums of money to less-fortunate relatives. This could be cash for a nephew to buy a used car for his new job, medical expenses for a parent, or college textbooks for a cousin.

In previous decades, this arrangement was highly beneficial, and even necessary to ensure a family’s security in light of the peonage, or debt-bondage, system common in the Jim Crow South. In the Agricultural South and Industrial North, young and middle-aged men had a short period of time in their prime-earning years. This relative excess would be used to support family members in more vulnerable financial situations, such as grandparents. Today, this informal system of family assurance is much better for the recipient economically than a payday loan, and better than a high-interest credit card. It, however, does not enhance the donor’s credit score; nor is the possibility of receiving mutual assurance counted towards “ability to pay” a mortgage.  

Asian-American families often have a similar practice of family assurance, but with one notable difference among the American-born: bank checks are passed instead of large bills. When financial transfers within a family are significant, traceability makes a large impact on perceived creditworthiness. When cash “disappears” from a bank account, it is assumed by mortgage lenders to have been spent. A check, written out to a relative, carries intrinsic proof as an intra-family gift.

Indeed, many members of the Black Middle Class may fall through the cracks of mortgage lenders; resulting in smaller loan approvals and higher interest rates; and consequently, less choice of neighborhood. What mortgage originators need to do, then, is to recognize this form of family assurance as a legitimate form of insurance and financial security. Community leaders should encourage the use of traceable instruments, such as bank checks or mobile apps, to ‘mainstream’ this mutually-beneficial practice in the eyes of institutional lenders.