• Citi plans to expand a program that aims to eliminate key barriers to homeownership in diverse communities, particularly with regard to cost and affordability.
• The firm is also launching two new pilots aimed at giving more credit access to people with limited or no credit information, as well as providing access to capital to small businesses owners in Los Angeles.
• The moves are part of a legacy focus on financial inclusion and racial equity, one executive says.

Citi is expanding a program to encourage homeownership in diverse communities, as part of a new set of initiatives to broaden access to its lending products.

The program, called HomeRun, seeks to help eliminate the key barriers to homeownership, particularly with regard to cost and affordability. The program, which offers down payments as low as 3% with no mortgage insurance requirement, is paired with a lender paid assistance program that helps offset closing costs.

Separately, Citi is launching two new pilots aimed at giving more credit access to people with limited or no credit information, as well as providing access to capital to small businesses owners in Los Angeles, with a focus on those businesses run by women, minorities and veterans.

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The moves are part of a legacy focus on financial inclusion and racial equity, according to Lisa Frison, who serves as head of financial inclusion and racial equity of U.S. Personal Banking at Citi.

"Across all the initiatives, creating access to the financial mainstream is foundational," Frison said.

"But helping communities create assets, that's transformational, and homeownership is one of those things," she said.

Lenders look to 'better serve' diverse communities

Citi's news comes as Bank of America recently announced it plans to offer new zero down payment, zero closing cost mortgage products to help members of predominantly minority communities buy homes.

"Our community affordable loan solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families, and it is part of our broader commitment to the communities that we serve," AJ Barkley, head of neighborhood and community lending at Bank of America, said in a statement.

Research has found that Black homeownership has declined. If the rate of Black homeownership were the same today as it was in 2000, there would be 770,000 more Black homeowners, according to the Urban Institute.

Even as the U.S. homeownership rate surged to record highs in 2020, Black homeownership was still lower than it was a decade ago, according to the National Association of Realtors. Black Americans continue to face significant obstacles that prevent them from buying homes, including high levels of student loan debt, the research found.

As mortgage lending activity has cooled appreciably this year, that might give financial institutions opportunity to reach out to new markets.

"It may be that mortgage lending at some of these institutions now has an opportunity to go look to better serve some of these communities," said Keith Gumbinger, vice president at HSH, a market research firm.

Who qualifies for Citi's lending program

Citi's HomeRun community affordable lending program is eligible to low- to moderate-income borrowers based on census data. Typically, that includes borrowers who have less than median family income, according to Frison.

With the program expansion, Citi is broadening both the income and geographic eligibility.

The program currently targets borrowers with less than 80% of the family median income, a figure that will increase to less than 120% of family median income based on census data.

"That's really going to allow a lot more people the opportunity to take advantage of this," Frison said.

Citi also plans to expand the program's geographic footprint. HomeRun is currently available in cities including San Francisco, Los Angeles, New York, Miami, Washington, D.C., and Chicago.

It will be available in additional markets, including Atlanta, Austin, Denver, Dallas, Houston, Philadelphia and Cambridge, Massachusetts, with a particular focus on majority minority census tracks within those markets.

No private mortgage insurance is required, which can enable homebuyers to put the money they save toward either reducing their monthly mortgages or buying more home, Frison said.

It is available to both first-time homebuyers, as well as those who have previously bought homes or are looking to refinance. It can apply to the purchase of a single-family or two-family homes, as well as condos and co-ops.

In addition, the lender paid assistance program provides a credit to eligible borrowers to help with closing costs. That will be increased to $7,500 from $5,000.

In order to expand credit access for homeownership, Citi will look at alternative ways of assessing credit readiness, according to Frison. If a credit score is not available, then it will look at other factors, such as rent and utility payments, in order to gauge an applicant's ability to repay their debts and become successful homeowners.

In addition, Citi is also hiring a group of community loan officers who will have community connections, including affordable housing community partners and realtors, particularly diverse realtor associations.

"We're going to work hard to go deep into communities to make sure that that message gets heard," Frison said.

More access for the 'credit invisible'

At the same time, Citi is also launching two new pilots aimed at making credit cards available to populations who are considered "credit invisible," as well as a special purpose credit program targeted at Los Angeles-based small businesses.

Both initiatives are slated to launch in early 2023 and are part of Project REACh, led by the Office of the Comptroller of the Currency that promotes expanded financial inclusion through access to credit and capital.

Citi's credit invisibles program aims to underwrite and approve credit cards for people who have limited to no credit information.

The program will work to identify whether other data is available to approve a credit application for applicants who are not approved through the traditional underwriting process.

Research from the Brookings Institution has found 46% of Blacks and 32% of Hispanics are either unbanked or underbanked, compared to 14% of whites.

Without access to traditional lending services, many who are either unbanked or underbanked turn to higher-cost products such as payday loans. The average interest rate on a payday loan is 391%, according to 2019 St. Louis Federal Reserve data, versus 17.8% for the average credit card.

"A credit card is one of the most basic necessities from a financial management perspective, and being able to provide that option is something that we're interested in doing," Frison said.

Citi will also begin providing technical assistance resources and access to capital for Los Angeles-based small business owners early next year, with a particular focus on women, minority and veteran business owners. The goal is to expand that program to additional markets in the future.