Transcription
Penny Crosman (00:03):
Welcome to the American Banker Podcast. I'm Penny Crosman. The goal of owning a home, once a core component of the American dream, has become hopelessly out of reach for a growing number of Americans. Home ownership costs skyrocketed in 2022, pricing out about 2.4 million renters according to the Habitat for Humanity. According to a Harvard study, the estimated annual income needed to afford a home rose 20% to $117,000, well above the national median income for renters. There are many more stats like this, but the key point is that for many of the young families that most need a home, even in households where both parents work full-time, buying a home has become extremely challenging. We're here today with Darrin Williams, CEO of Southern Bancorp, a community development financial institution in Little Rock, Arkansas that is launching a new initiative to help home buyers. Welcome Darrin.
Darrin Williams (01:02):
Thank you Penny for having me.
Penny Crosman (01:04):
So this is probably not sensible of me, but I tend to ask people who live in Arkansas if they know the Clintons. Have you met Bill or Hillary Clinton?
Darrin Williams (01:13):
Well, Penny, it's interesting you might ask that. I've had the pleasure of knowing both President and Secretary Clinton since high school, and in fact this organization, Southern Bancorp was started by then Arkansas Governor Bill Clinton. Governor Clinton was looking for a way to stimulate activity in Arkansas's Delta region, one of the most persistent poor communities in the United States. And he came across a report about a bank called South Shore Bank, which was operating on the south side of Chicago, a bank that was placed there intentionally to serve communities that had been redlined. And given the success of that institution, Governor Clinton at the time invited the people from Chicago to Arkansas and said he wanted to start a bank similar to that in Arkansas's Delta region, a persistent poor community predominantly or largely African-American to hopefully have similar outcomes as the success that the founders of Shore Bank had.
(02:09):
Fast forward, when Governor Clinton becomes President Clinton, he takes the model of Shore Bank and of Southern, and one of the first pieces of legislation he creates is the Riegle Community Development and Regulatory Improvement Act of 1994, which established the CDFI Fund. And his idea was he wanted to have a partnership between the federal government and private sector to really provide economic opportunities through financial institutions or CDFIs. So we were among the very first CDFIs ever founded, founded by Governor Clinton. Then that model used to create the CDFI fund. So we have a long-term relationship with the Clintons and we're proud of that relationship and continue to work with them today. And in fact, at the time, First Lady of Arkansas Hillary Clinton, Secretary Clinton, she helped raise the initial capital. So we have a strong Clinton connection and proud of it.
Penny Crosman (03:06):
So on our topic today, in your view or your opinion, why is it so hard for people to buy homes in America today, especially in high priced urban and suburban areas?
Darrin Williams (03:21):
Yeah, so Penny, you're exactly right. The opportunity for home ownership has escaped many people. As a CDFI, we focus on those who've traditionally been left out and left behind of the financial system. And so here in our footprint, we focus large on rural communities. We focus on minority communities and low wealth communities who have always been left out, but now find it even harder to have this dream of homeownership. And we know that home ownership is really the foundation of building wealth for families. And all the work that we do focuses on those things have been proven to build net worth. So home ownership is kind of the key and one of the first pillars of things that we work on, and unfortunately housing construction costs have risen, housing supply is shrinking in many urban underserved communities, in many rural communities, the housing stock is not quality. So there's a number of things that have exacerbated the opportunity for people to by home, and those are things that we work on every day to try to make that ideal of home ownership possible for families.
Penny Crosman (04:38):
A lot of people blame Wall Street investors, like hedge funds that buy up property and then rent it out at high rates. Do you see that as part of the problem?
Darrin Williams (04:52):
Again, there are multitude of problems, and that is one of the problems. So that's a supply problem, right? And so when you have a shrinking supply, prices go up. And so that clearly is part of the problem. We've got to figure out a way to increase the supply of affordable housing in this country. There's just a shortage and a lack of affordable housing across the board in rural areas and urban areas across America.
Penny Crosman (05:25):
Do you think, generally speaking, that traditional banks and mortgage companies are doing enough to try to help first time home buyers?
Darrin Williams (05:35):
Well, there are a number of programs that are designed to help first time home buyers. Do we need more? Yes. And happy to talk a little about what we're doing, but the stats that you talked about at the very beginning of the podcast, just the cost of affording a house and how the average homeowner or the average American doesn't even make what's necessary to own a home means that many more people will have to have assistance, whether that's down payment assistance, whether that's some former support in various closing costs or various programs, first time home buyer programs, but they are absolutely desperately needed to help people obtain ownership.
Penny Crosman (06:22):
There are also some
Darrin Williams (06:57):
Yeah, I think all those things are needed, and I think they are helping. The fintech you talked about helping people save for down payment, it's often that down payment that really makes it difficult. The typical down payment is about 20% of the cost of the home, and that's just a large amount of money for people to have set aside. So if you're not born into a family where the family helps or you have that type of wealth to do it, then it makes home ownership tough. And we know that the behavioral economics around savings is important. So we have fintech programs as well. We have a program called Ella Vault that is available to really encourage and incentivize people to save. So if people just simple things from a behavioral economic standpoint, it's one thing to say, I want to save for a home. I want to save a down payment.
(07:49):
That seems so far away that people often may not maintain that savings. But if you actually just take a picture of the house and you get a reminder right about the time that you're paid, that encourages you to save and incentivize you to save. All those things are helpful and help to encourage people saving for down payment to help to move people toward home ownership.
Penny Crosman (08:27):
Now, you recently rolled out a first time homeowner fund. Can you tell us about that?
Darrin Williams (08:35):
Yeah, so Penny, it's not really a fund. So what we, again, as a CDFI, home ownership is the foundation of the work we do. We really work in three verticals, home ownership, supporting entrepreneurs who create jobs and empowering people to save and accumulate assets because we believe those things have been proven to build net worth. We often quote a study by Pew, research that says 70% of the people born into poverty never make it out, but people look at 30% who actually made it out and said, what was unique about that 30%? What was unique is it had some form of net worth, and that was often a home. And that family may have taken equity out of the home, send a kid to college to help break that cycle of poverty. So home ownership is important for us, and we focus again on underserved, traditionally underserved communities, rural communities, minority communities.
(09:20):
You just look at the home ownership gap between African American, Hispanic and white communities. There's a 28 point gap between black and white home ownership that's today higher than it was in 1960s. There's about a 25% ownership gap between whites and Hispanics, and we've got to do something to work on that. And so our program that we've created really, I guess you say we were zigging when others were zagging because over the last 15 months we have expanded our secondary mortgage division. We went from really only about two or three people working in the division over the last 12 months. We've hired as many as 24, and we focused on making sure that that team look like the folks we're trying to serve. So rural folks in rural communities, folks who are minorities, a number of women. And we have created programs that provide down payment assistance.
(10:19):
So we've gone out through our nonprofit and raised philanthropic capital. Our bank provides support and created products that will allow folks to access the secondary market because you help them with a down payment, either through a forgivable down payment. So up to about $12,000 a person can get toward down payment assistance that's forgiven 20% over time, over five years, or up to about $17,000 in a repayable down payment assistance loan that's at a lower interest rate, and you can pay it really over a 10 year period of time. So to help make home ownership possible and affordable for many families.
Penny Crosman (11:00):
What do people have to do to qualify for this?
Darrin Williams (11:03):
Yeah, so the qualifications are really simple. You've got to have, well, let me stop and say we are very flexible on the qualifications, but all these programs meet the secondary market requirements of GSEs that we sell these loans to. But I can tell you that in this past 12 months, we've served over 1,000 underserved borrowers, helping them attain affordable home ownership. The average loan size is only $139,000. So we're talking about a starter home in the southeast, some rural areas. 65% of these loans went to minority borrowers, 75% went to borrowers, not just who were also low and moderate income borrowers, and about 60% were first time home buyers. So that's really the demographic that we are searching for and trying to ensure that we serve. And what's important with our program, one, our sales team is diverse both from a gender and a race standpoint.
(12:12):
But not only that, our operations team, the overall mortgage division is diverse and including having Spanish speaking team members at all customer facing portions of the journey, from the lenders to the processes to underwriters to the credit counselors. And I say credit counselors because we also have HUD certified home buyer councilors and we work with people who want to buy a home on that home ownership journey. So we start pre homeownership. We have HUD certified home buyer councilors who really help you think about what it means to buy a home. Are you ready to buy a home? Are you prepared? Have you done things necessary to buy a home? And then we also have post homeownership counseling. So when you've been renting and you move from being a renter to a homeowner when you're renting and the hot water heater goes out, that's the landlord's problem. When you are a homeowner and it goes out, that's your problem. So are you prepared to take care of a home? Have you built in the necessary bandwidth to be able to take care of that home and live in a sustainable and comfortable way? And so we work with you to provide that type of education to support you not only gaining the home, but being able to live sustainably and comfortably in that home.
Penny Crosman (13:27):
So we have an election coming up very soon. How do you think a new administration might make this challenge of homeownership easier or harder?
Darrin Williams (13:39):
Well, here's what I will say about the issue of affordable housing homeownership in this presidential election. I'm just pleased that it is a topic of discussion. It has been a long time since this has been an issue in the presidential election. Both candidates have ideas on how they would really approach this lack of affordable housing, this lack of opportunity for people to access home ownership. And so for those of us who work in the space, we're pleased that both candidates or at least talking about it and have plans on how they might address those plans. Of course, the devil's in the details and somebody's got to win and we've got to move forward. But what's important is I think Americans are seeing, our policy makers are seeing that the lack of safety and affordable housing and home ownerships having a tremendous impact and strain on the overall economy. As a CDFI, we've been approached by Fortune 500 companies that work in rural communities and say, our biggest challenge is yes, finding workers, but more importantly, once we find workers, they have no place to live in the rural communities that you serve. Would you help us develop affordable housing? And we're seeing that in urban areas as well. The lack of housing supply and the increased demand for safety and affordable housing is really becoming a national issue. And I'm just glad that it's being talked about at the highest levels of government.
Penny Crosman (15:22):
Well, if you ruled the world, in the ideal future that you would want to shape, what would government try to do? What would traditional banks try to do and what would CDFIs like yourself and fintechs be doing to make home buying affordable, especially to those communities you identified rural communities and minority and women communities?
Darrin Williams (15:50):
Wow, you give me a magic wand. I could go on for days. Where do I start? First, I think there's a supply problem, right? So we've got to increase supply of all types of housing, rental housing as well as starter homes for families. And a lot of things need to happen for that to happen. But I would start with increasing supply. When you talk about the rural communities, this is one thing that's unique about rural communities that we see every day. The opportunity for families to access a secondary market has tremendously increased homeownership. And what I mean by that is for those, this is the American Banker podcast, most folks know, but to be able to provide a prospective customer with a fixed rate, long-term, 30-year mortgage is game changing. Well, what those who might not live in rural communities might not know is that's not available to many people in rural communities because the secondary market, they have certain standards, certain qualifications that have to be met to be able to sell that mortgage into the secondary market and securitize it.
(17:06):
Standardization is what we're looking for. Unfortunately, in many rural communities, because there is not as many home sales, you often can't find an adequate appraisal. There are just not enough sales. And so that means that mortgage or that loan doesn't meet secondary market standards. We've actually got a pilot program we're working on right now, but we're trying to prove that many of the mortgage, many of the homeowners that we support with a mortgage that unfortunately we have to keep on our books and then have to take the interest rate risk and can't them with a 30-year mortgage. These are safe loans. And so what we do, and many rural community banks do this, you'll provide someone with a three to five year mortgage with a balloon and you have to refinance it. But what that means is that family is subject to the interest rate shocks.
(18:02):
And just think about what happened to those folks who we provided mortgage to four years ago, our five years ago, when their interest rates were low, and look where they are today. That can be a couple of hundred bucks more in monthly rent that they're having to pay. Now we work with them to make sure that they're able to keep that home. But if I could provide them with a long-term, 30-year mortgage, think about how much easier and how much more sustainable that home ownership is for that family. And so the second thing I would do is unlock the secondary market for folks in rural communities who need help and assistance. And then the third thing, and this is no order, and I can go on again forever, but we've got to find ways to provide more support for middle and low income families in accessing affordable home ownership. And that's whether it's a down payment program or ways to reduce the cost of them entering that home, it's so important. It will help a lot home ownership for many families. So I'll stop with those three. There are a ton of things that could be done, but I think those three things could have a real impact on this housing supply and home ownership issue.
Penny Crosman (19:11):
That makes a lot of sense. Well, Darrin Williams, thank you so much for joining us today and to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Kelly Malone Yee. Special thanks this week to Darrin Williams at Southern Bancorp. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.