The term “redlining” has recently come to refer to a variety of historically race-based exclusionary real estate practices, such as real estate agents’ use of racial steering to direct minority home buyers and tenants toward certain areas and away from others as a way of barring minority residents from buying homes.
Although illegal now, redlining played a role in the racial segregation that influenced how certain neighborhoods in America appear today.
One of the two most popular methods of creating generational wealth in the United States is mortgage access. Redlining was practiced for many years to keep non-White residents out of particular communities by denying mortgage loans, restricting any hopes of social mobility. Neighborhoods were carefully assessed based on factors such as housing cost and quality, accessibility to transportation, and distance to amenities like parks. However, non-housing-related traits including work level, economic class, immigration status, and the racial and ethnic composition of the neighborhood all had an impact.
Redlining and other forms of housing discrimination were prohibited by the Fair Housing Act (FHAct), which is title VIII of the Civil Rights Act of 1968. However, it is thought that there are still more than 150 residential security maps in existence.
Relevance Today
In 2020, the National Community Reinvestment Coalition (NCRC) found that 8.25 million people live in neighborhoods identified as “hazardous” or had previously been redlined by the Federal government more than 80 years ago. More than three-quarters of these Americans identify as belonging to a minority group. The continued lack of reinvestment into these neighborhoods has caused houses to fall into disrepair, but more concerning is the effect this has on school quality, funding, and health care access since property values in the United States play a large role in determining the quality of our rights.
Currently, U.S. home prices are rising to the highest rates the U.S. has seen in more than 40 years. Minority families tend to suffer the worst effects of rising inflation and struggle to keep up with their White counterparts in wealth, income, savings, and homeownership. National financial services regulators have an increasing focus on requiring lenders to make more loans to minorities and invest more broadly in low-to-moderate income communities.
How Equalize Capital’s American Home Opportunities Fund helps
The American Home Opportunities Mortgage Fund (also known as “AHOMe”) was created to make residential mortgage loans to deserving but underbanked borrowers while still meeting the demands of institutional investors looking for appealing yields.
The Fund’s objectives are:
- To provide current income from a pool of residential mortgage loans
- To maintain a well-diversified portfolio of loans to qualified borrowers
- Provide for low income and/or minority credit where available
- To allow investors to benefit from owning a pool of residential ITIN loans in an attractive vehicle that offers high levels of interest income, economies of scale, and high quarterly liquidity
AHOMe buys and holds Individual Taxpayer Identification Number “ITIN” residential mortgages made to individual mortgage borrowers. The Fund aims to allocate at least 90% of its resources to ITIN loans, while it may also hold cash, other agency or non-agency first lien mortgage loans, or mortgage bonds.
ITIN residential first-lien mortgage loans provide high yields, and their credit performance typically outperforms that of conventional mortgage loans with comparable income and credit score requirements. Even though ITIN loans are more difficult to discover and originate than conventional mortgages, AHOMe has developed a sizable origination capability in this market. Achieving economies of scale, improved regional and credit diversity, and easier access to ITIN loans are all benefits of the AHOMe fund structure.
Equalize Capital and the AHOMe fund answers the growing demand to meet Environment, Social, and Governance (ESG) criteria by impact lending to address financial inequities in the United States while still offering high returns for investors. Request more information about the fund or investing in U.S. residential mortgages here.
