What Are Special-Purpose Credit Programs and Who Do They Serve?

Racial minorities, low-income families, and others in specific communities throughout the United States have historically experienced housing discrimination, resulting in a homeownership disparity among Americans.

Underserved populations may need additional assistance to achieve their homeownership dreams. Special-purpose credit programs were designed to make qualifying for a loan easier. Here’s what you need to know to take advantage of this exceptional opportunity.

What Are Special-Purpose Credit Programs (SPCPs)?

In communities where additional assistance in qualifying for a mortgage loan is needed, a special-purpose credit program may pave the way to homeownership by providing mortgage loans that require a smaller down payment (and even down payment assistance) or assist buyers trying to purchase property in certain eligible counties.

In compliance with the Equal Credit Opportunity Act (ECOA) and Regulation B, creditors can offer or participate in SPCPs to meet special social needs through any of the following:

  1. Credit assistance program authorized by federal or state law that benefits an economically disadvantaged class of persons
  2. Credit assistance program offered by a not-for-profit organization for the benefit of its members or an economically disadvantaged class of persons
  3. SPCP offered by a for-profit organization, or in which such an organization participates to meet special social needs, if it meets certain standards prescribed in regulation by the Consumer Financial Protection Bureau (CFPB)

Why Were Special-Purpose Credit Programs Created?

Promoting fair housing is a big priority, as homeownership is one of the best ways to create long-term security, improve financial stability and build wealth. Even with the Fair Housing Act that passed in 1968, minority and low-income homeownership continues to lag behind white or higher-income homeownership.

With SPCPs, consumers who wouldn’t have been able to buy a home with traditional loan programs may be able to now become a homeowner. This initiative will bring us closer to closing the housing gap.

Who Is Eligible for Special-Purpose Credit Programs?

Members of historically underserved communities and populations are the consumers who can take advantage of SPCPs to help them obtain a mortgage loan. While each program may be a bit different, eligibility typically depends on the following:

  • The location of the property
    Lenders can use the U.S. Census to help determine areas that have been underserved. Buyers who are purchasing homes in these areas may be able to take advantage of SPCPs.
  • The outlined component of the underserved group
    While lenders are prohibited from discriminating against a borrower based on protected class information, it can be used for SPCPs to support underserved communities. In these situations, the consumers must fall into the underserved category to be eligible.

What Are the Requirements for Special-Purpose Credit Programs?

As you can imagine, these programs must be regulated to ensure they are managed properly and help serve the populations and communities they’re meant to help.

SPCP guidance has been developed by the Consumer Financial Protection Bureau (CFPB), the Department of Housing and Urban Development (HUD), the Equal Credit Opportunity Act (ECOA), and Regulation B. Lenders must remember that, while the guidance from these entities is helpful and necessary, they don’t make the decision on whether a program qualifies.

Special Purpose Credit Programs Can Assist Underserved Populations

Homeownership is a dream that, until now, remained out of reach for many in underserved populations. By employing SPCPs, lenders can reach those communities and assist them in becoming homeowners. There are numerous advantages to these programs like reducing housing disparity, fighting the racial wealth divide, and promoting homeownership. In short, SPCPs help lenders be part of the solution.

If you’re interested in learning more about SPCPs and seeing if you’re eligible, contact MIG today and talk to one of our experienced loan officers.