(Joshua Paladino, Headline USA) Bank of America unveiled a new program on Tuesday that appeared to introduce racial and cultural factors into its approval of home loans, drawing criticism that it may instead perpetuate both racism and risky lending practices.
Its Community Affordable Loan Solution will let Americans who plan to purchase their first home in majority black or Hispanic areas do so with no down payment or closing costs, PRNewswire reported.
Bank of America will offer the option to purchasers who have proven their credit worthiness by paying their rent, utilities, phone and auto insurance bills on time. But credit scores will not be considered.
Conservative commentators have noted that the loan program seems to purposefully discriminate against white Americans. But Bank of America said that the program will depend upon “income and home location,” not the purchaser’s race.
The company would have immediately opened itself up to a losing lawsuit if it exclusively offered the program to non-white people; but by restricting the program to certain geographical locations, it can avoid obvious illegalities while maintaining them in practice.
Nonetheless, the company faced accusations of redlining—or trying to force minorities to remain in high-crime, impoverished ghettoes—by limiting the regions in which the program would be available.
It also made clear that the underlying intention was mostly to serve non-white people, a company executive admitted.
“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” said AJ Barkley, head of neighborhood and community lending for Bank of America.
“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,” he continued.
Each city on the list has a white population that makes up less than 50% of its total population. Detroit’s white population is less than 10% of the total population.
The program’s announcement during a recession has also raised speculation about its intended effects. The program could trap low-income Americans in underwater mortgages as home prices begin to fall, while operating under the guise of anti-racism.
Economic experts suggested that it might even be the catalyst for a new round of sub-prime lending like that which triggered the so-called Great Recession in 2008.
As explained to many by the movie The Big Short, the crash came about after lenders routinely bundled together the debts of homeowners unlikely to pay back their loans and then sold it off to other lenders who were unaware of the inevitable default, creating a sort of Ponzi scheme.
The latest display of reckless lending comes after President Joe Biden recently announced a sweeping round of federal student-loan amnesty that will transfer up to $20,000 in debt from deadbeat borrowers onto U.S. taxpayers at large.
“All of this means people can start finally to crawl out from under that mountain of debt,” Biden said in his Aug. 24 announcement. “To get on top of their rent and their utilities. To finally think about buying a home or starting a family or starting a business.”
It remains to be seen whether those conditioned to having their earlier debts wiped away will be more committed to paying off their new ones.
Headline USA’s Ben Sellers contributed to this report.