Syracuse, N.Y. — When Arian Reed and her husband bought their home on the South Side of Syracuse, they did not get a mortgage from a bank.
Instead, they got financing from Home HeadQuarters, a nonprofit housing organization that is trying to make up for the lack of bank mortgages provided to African Americans and other minority borrowers.
Only 30% of African Americans in Onondaga County own their homes, compared with 72% of whites. That disparity is even worse than the national average gap of 29 percentage points.
Home HeadQuarters doesn’t have the resources of a bank. But the group has come up with a novel way to finance home purchases for people who might not get mortgages otherwise and in neighborhoods mostly shunned by traditional lenders.
Rosa Dunlap lives in one of those neighborhoods on the Near West Side. Six out of 10 people in her Census tract live below the poverty level. Dunlap assumed she would always be a renter.
But Home HeadQuarters worked with her to consolidate her debts and arranged a mortgage for her. Dunlap is buying the same house on Gifford Street she has rented for the past 23 years. The closing is this month.
“I look at it more like it’s mine now,’’ she said.
Dunlap and the Reeds are among dozens of Syracuse families who have taken out mortgages from Home HeadQuarters in the past three years. More than 60% of the borrowers are African American.
Kerry Quaglia, the CEO of Home HeadQuarters, said his agency targets minority and low-income borrowers in the city because those groups are consistently under-served by most banks, mortgage companies and other traditional lenders.
Home HeadQuarters made 207 home-purchase loans in Syracuse during the past three years. Those loans totaled $22.4 million. Some 126 of the 207 borrowers were Black or mixed-race, the organization reports.
Those numbers dwarf the mortgage lending in Syracuse by major national banks with billions of dollars in assets.
For example:
- KeyBank made 37 home purchase loans to owner-occupants in the city of Syracuse during the past three years, according to data the bank is required to provide the federal government. Those loans totaled $5.4 million. Four of the borrowers were Black.
- During the same period, Bank of America made 21 mortgages in Syracuse, totaling $3.3 million. Eight of the loans went to Black homebuyers.
- Wells Fargo made 14 loans for a total of $2.1 million in Syracuse. Two borrowers were Black.
There’s variation among them, but on average the 125 lenders active in Central New York made just 12% of their mortgages within the city of Syracuse in recent years. Only 5% of their borrowers have been African American.
State officials say the racial gap in mortgage lending is helping to perpetuate segregation and Black poverty, two scourges that Syracuse is known for.
The state Department of Financial Services in December 2022 called attention to “a persistent lack of lending to people of color and in majority-minority neighborhoods” in Syracuse and other Upstate cities.
Three months ago, the state attorney general issued similar findings.
“Unequal access to affordable credit is still pervasive across our state, reinforcing the legacy of segregation,’’ Attorney General Letitia James said.
Quaglia, the soft-spoken founder of Home HeadQuarters, is not one to bash the banks. He’d rather work with them.
Home HeadQuarters came up with a loan program that is unique among its national counterparts, said Joanie Straussman, regional vice president of NeighborWorks America, a national housing and community development organization of which Home HeadQuarters is an affiliate.
NeighborWorks has asked Quaglia to talk about the program at meetings and conferences. Although it might not be feasible everywhere because of differences in state banking laws, Straussman said she would like to see it replicated.
“It’s a great model,’’ she said.
The concept works because Quaglia convinced a handful of banks to buy his mortgages. Why would banks buy them? Because banks want to impress their regulators that they are lending money to people of color and low- and moderate-income borrowers.
Three years ago, Quaglia approached the leadership of Geddes Federal Savings & Loan Association, a small bank with two branches and about $618 million in assets. He asked if they would be willing to buy mortgages under certain conditions:
Home HeadQuarters would only provide loans to clients who complete an eight-hour course to prepare them for home ownership. For clients with low credit scores or high debts, Home HeadQuarters would provide financial counseling.
After selling the mortgage to the bank, Home HeadQuarters would continue to service the loan (for a fee), collecting the payments over the 25-year term.
And Quaglia offered this sweetener: If the borrower defaulted, Home HeadQuarters would take back the loan and compensate the bank.
Of the 300 mortgages completed through last April, only about five have gone into default, Quaglia said. That’s at or below the average delinquency rate.
“We’re trying to help primarily minority clients, and in neighborhoods that do not receive a whole heck of a lot of private financing,’’ Quaglia said.
Geddes Federal and a couple of other small banks were willing to buy a handful of loans on a trial basis, Quaglia said. As time went on, their appetite grew, in part because the loans made them look good to regulators.
Under the federal Community Reinvestment Act, which was passed in 1977 to prevent the segregationist practice of redlining, banks are graded in part on how well they serve low- and moderate-income households and help revitalize neighborhoods in their service area.
Although there are no explicit racial benchmarks, regulators pay attention to data that banks must report on the racial makeup and income levels of their loan clients.
Mortgages acquired from Home HeadQuarters score points on the CRA test, Quaglia said.
“At first, they may have been like, ‘Well, we’ll give it a try, we’ll buy one or two (mortgages) here or there,’ ‘’ Quaglia said. “And then they see that it’s successful. And of course they’re getting Community Reinvestment Act credit.”
Including areas of CNY outside the city of Syracuse, Home HeadQuarters originated about 300 mortgages worth nearly $35 million in the past three years. In the coming year, Quaglia wants to nearly double his annual output, from $13.5 million last year to $25 million this year.
So far, three small banks – Geddes, Solvay Bank and Seneca Savings – have purchased 70% of the loans. But recently Quaglia recruited two larger regional banks to join: NBT and Pathfinder banks. Fulton Savings also buys some of the assets.
“I think it works for the banks, because it’s improving their Community Reinvestment numbers. It’s working for us because we’re getting to help the customers that we want to help,’’ Quaglia said.
Home HeadQuarters was founded in 1996 to “address the declining owner-occupancy rate and overall disinvestment in the city of Syracuse.” The organization is certified by the U.S. Department of the Treasury as a Community Development Financial Institution, or CDFI, which makes it eligible for federal loans and grants that support local development.
But one-shot federal funding would not pay for many home mortgages unless Home HeadQuarters could find some way to replenish the money, Quaglia said. That’s why it was so important to sell the mortgages to banks.
Why don’t banks just make more mortgages to minority borrowers themselves?
Some say they are trying.
KeyBank, which faced accusations last year from a national advocacy group that it broke promises to improve its lending to Black and low-income buyers, disputed that criticism and said it has worked to increase the number of applications and loans from minority borrowers. In late 2022 the bank launched grant programs and discounted interest rates in designated majority-minority and low-income areas, among other efforts.
“As our mortgage business has matured, we have identified opportunities to do more lending to people of color,’’ spokesperson Matthew Pitts said in an email.
KeyBank, which has a top CRA rating of “outstanding,’’ also provides financial support for several Home HeadQuarters initiatives, including homebuyer education classes and home improvement loans.
Wells Fargo and Bank of America also have announced initiatives in recent years to increase their lending to minority homebuyers. But at the same time many leading banks are scaling back their mortgage business in general as online lenders like Rocket Mortgage take the lead.
Home HeadQuarters offers easier access for borrowers than most banks. For one thing, the organization can work with borrowers who might not pass bank underwriting standards, Quaglia said. Since the 2008 housing crisis, banks have tightened up their requirements.
Many banks require a 20% down payment, for example. Home HeadQuarters only requires 2% down. And if the client is a first-time, low-income buyer, they would likely qualify for a loan to cover the down payment.
Home HeadQuarters also can accept lower credit scores than most banks.
“Many banks are looking into the 700s,’’ Quaglia said. “We would accept 640, as an example. And because we have a loan committee, even if you had a score less than 640, but you had a good explanation, we would have the flexibility to provide such a loan.”
On the other hand, Home HeadQuarters requires all borrowers to complete an 8-hour homebuyer education program and to work with a housing counselor. If they have low credit scores or high debts, the organization provides financial counseling too.
Those efforts “help make these folks resistant to default,’’ Quaglia said. “They understand the rights and responsibilities of homeownership.’’
In some cases, just being in the neighborhood is an advantage for Home HeadQuarters over the banks.
Reed, who bought her home two years ago, said she and her husband tried working with a private lender when they first started house-hunting several years ago. They were pre-approved, but they encountered repeated delays dealing with out-of-town underwriters.
“Nobody in Syracuse, like in the actual bank, was willing to help us,’’ she said. “They wanted us to call an 800 number. They wanted us to email them this documentation and that documentation. … And then, on top of that, whenever we would call, no one would answer.’’
Ultimately they backed away from that house for reasons unrelated to the mortgage, and the Reeds were prepared to give up. Then they talked to a real estate agent who suggested they work with Home HeadQuarters. Within two months, they had a mortgage and moved into a four-bedroom house.
Reed said her family enjoys the freedom and control that come from owning a home. It costs about $200 a month more than they were paying in rent.
“Ever since we bought our home, my husband and I both have been talking to friends and family telling them that homeownership is the best way to go,’’ she said. “We went from an apartment where every three to five months they were increasing our rent. … Now (we) own our home. We get to say who can come and go. We can say if we want to have animals in the house. We can do whatever we want to our home.”
There is a significant racial housing gap in the Syracuse area and across the nation.
The racial disparity in homeownership is wider now than it was a decade ago, according to the National Association of Realtors.
That affects not just the stability of families and neighborhoods, but also the ability of households to accumulate wealth. In the U.S., home equity is often a family’s largest generator of wealth.
Researchers at the Federal Reserve Bank of St. Louis reported that in 2019 the median white family had $184,000 in wealth, compared with $23,000 for the median Black family.
“Stark differences in homeownership and housing wealth across racial and ethnic groups … are key contributors to the persistence of the racial wealth gap,’’ according to a November 2022 blog post by the Treasury department.
Mitria Spotser, federal policy director at the nonprofit Center for Responsible Lending, said small minority-owned banks, credit unions and nonprofit organizations are increasingly important mortgage providers in minority and low-income neighborhoods.
Policymakers and bank regulators should encourage their work, both with increased federal CDFI funding and with continued pressure on larger banks to buy mortgages from them, she said.
“We need to continue to encourage this support by larger financial institutions of smaller nonprofits who are doing that work,’’ she said.
Staff writer Tim Knauss can be reached at tknauss@syracuse.com or (315) 470-3023.
