KeyBank rolls out program aimed at defraying homebuying costs

Joe Buglewicz/Bloomberg

KeyBank on Thursday unveiled a new program aimed at helping potential homeowners in underserved areas cover as much as $5,000 of closing costs and related charges.

It is the Cleveland bank's third program under a provision of the federal Equal Credit Opportunity Act that is designed to increase credit to disadvantaged groups.

Banks have expanded so-called special-purpose credit programs in recent years, using them to address racial inequities in credit access. For decades before the recent wave of adoption, financial institutions had shied away from establishing such programs, concerned that they would face charges of discrimination for lending to one racial group over another.

"You don't need a special-purpose credit program to increase lending in majority-minority areas, but it's one way to do it," said Richard Andreano Jr., leader of the mortgage banking group at the law firm Ballard Spahr.

Initiatives that address the rising cost of buying a home are among the most popular types of special-purpose credit programs. Last week, JPMorgan Chase announced that residents of more Black-majority and Hispanic-majority census tracts will be eligible for up to $5,000 in grants that are meant to help with down payments and closing costs.

For more than a year, steep increases in mortgage rates have made home purchases less affordable for a wide range of Americans. The average rate on a 30-year fixed-rate mortgage increased this week to 6.81%, its highest mark this year.

"At KeyBank, helping all residents have equal access to homeownership is a priority," said Dale Baker, president of the bank's home lending segment.

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Earlier this year, fair-lending advocacy groups called out KeyBank, a unit of the $197 billion-asset KeyCorp, for its lack of mortgages issued to Black borrowers. About 2.2% of the bank's mortgages in 2021 were issued to Black borrowers. That was the lowest rate among the 12 large banks studied by the National Community Reinvestment Coalition, an advocacy group.

In April, more than 80 community groups signed a letter asking regulators to examine whether Key executed community benefits commitments made during its 2016 acquisition of First Niagara Financial Group.

Over the past year, Key has launched two other special-purpose credit programs related to homeownership.

The latest program will provide new homeowners with up to $5,000 to cover homebuying-related expenses including closing costs, insurance, taxes and escrow deposits. To be eligible, buyers must get a mortgage from Key, plan to live in the house they are purchasing, and reside in designated majority-minority or low-to-moderate income communities across the bank's footprint.