The BorrowSmart Access program offers up to $3,000 to help with the down payment or closing costs on a mortgage.
With this program, first-time Black and Brown homebuyers can more easily reach the 3% down payment they’d need to close a mortgage, said Pam Perry, Freddie Mac’s vice president of single-family equitable housing.
“Really what this program does is it leverages an existing product that requires only a 3% down payment and then provides $3,000 in down payment assistance to help that borrower achieve first time homeownership,” she said. “This product is seeking to address the challenge of having the cash to get into a first-time home.”
Rocket Mortgage, Guild Mortgage and Cross Country Mortgage are participating lenders for the St. Louis region and contributing to the funding of down payment assistance, Perry said. It can take more than two years for a family to save enough for a small down payment, according to Freddie Mac’s research, she said.
“There are a significant number of families who have income and credit profiles that should qualify them for a mortgage today, but they simply do not have the money necessary for a down payment or closing cost,” Perry said.
Freddie Mac estimates there are a quarter million mortgage-ready borrowers in the St. Louis area, many of whom are Black or Latino, she said. The organization selected St. Louis as one of 10 metropolitan areas for the program because it identified an opportunity to reach these borrowers.
“Compared to the rest of the United States, St. Louis has a higher share of affordable housing stock, in addition to a high concentration of traditionally underserved borrowers,” she said.
Affordable housing advocates agree that the region has a good supply of affordable homes and that this kind of help can be instrumental in getting people into their first home.
“Down payment assistance is extremely helpful,” said Sunni Hutton, community engagement consultant for the St. Louis Affordable Housing Report Card. “That way, new homeowners can accumulate or hold on to their nest eggs for maintenance for their home that may come up.”
But Hutton worries about the program’s launch at a time when the cost of borrowing for a home is significantly higher than it was a few years ago. It may make housing unaffordable for the families it aims to help, she said.
“Ultimately a population of people who we say we want to help build generational wealth would be spending more than their home is actually worth in the end,” Hutton said. “This could actually lead to the extraction of generational wealth.”
The assistance from Freddie Mac isn’t necessarily geared toward those in the St. Louis region who have the most need for affordable housing, since people who earn up to 140% of the area median income can qualify, said Cristina Garmendia, who authored the housing report card, which was released in 2021.
“That’s not a low-income household,” she said. “What this program is in down payment assistance is a small carrot for Black and brown middle-class households to remain in our region. It has value just because of that.”
But it doesn’t get after some of the key roots that block many Black applicants from securing a home loan, such as their credit scores and debt-to-income ratio, Garmendia said.
“There’s lots of barriers to homeownership, and lack of capital is just one of them,” she said. “And there’s many reasons why it’s harder for Black residents to have that capital. Income is the most obvious and the disparities in median income.”
Garmendia also noted there are other local programs for first-time home buyers, credit building and the appraisal gap, in which a home’s listed price or cost of rehabilitation is higher than a bank’s appraised value of the property. This gap can be a significant barrier for Black homeowners or people who want to buy homes in Black neighborhoods, she said.
Freddie Mac does have initiatives beyond down payment assistance to help with the other hurdles minority residents face when trying to purchase a home. Last year, the organization launched a program to incentivize landlords to log on-time rental payments to help build their tenant’s credit scores, Perry said.
“Many families who rent homes pay their rental payments on time month over month, year over year, and they receive no positive benefit for doing so in terms of their credit profile,” she said.
While the new program from Freddie Mac may not go as far to alleviate some of the underlying barriers for minority residents in seeking housing, Garmendia said there is a place for it in correcting the harm Black and brown residents experienced from discriminatory housing policies.
“Every little bit helps, and there’s a role for every player for redressing that harm,” Garmendia said.