DC REACh (Roundtable for Economic Access and Change)
Fiscal Year 2023 Report*
Department of Insurance, Securities and Banking
Background
Project REACh (Roundtable for Economic Access and Change) brings together leaders from banking, business, technology and national civil rights organizations to reduce specific barriers that prevent full, equal and fair participation in the nation’s economy. The Office of the Comptroller of the Currency (OCC), in conjunction with the Department of Insurance, Securities and Banking (DISB), oversee DC REACh. DC REACh is an initiative focused on removing structural barriers to financial inclusion to facilitate broader participation in the economy and help millions of people, previously left out of the system, pursue their American dreams.
The District’s REACh initiative has three workstreams that focus on areas that could increase economic access for low- and moderate- income communities. The three workstreams are:
- Affordable Homeownership
- Small Business
- Credit Counseling and Repair
This report provides an overview of the efforts of each workstream in Fiscal Year 2023. Each workstream focused on addressing a problem, identifying the barriers and challenges to residents, and proposing recommendations.
Affordable Homeownership Workstream
The affordable homeownership workstream is made up of local leaders in mortgage banking, economic development, real estate, community development, government and not-for-profit sectors. The workstream meets monthly to identify barriers affecting affordable homeownership opportunities for minority residents. The goal of the workstream is to develop and recommend resources that remove those barriers. To accomplish this, the workstream drafted a problem and focus statement. Workstream participants also put forth recommendations to increase minority homeownership rates in the District.
Workstream Problem and Focus
Homeownership is the primary way individuals and families build wealth in the United States. Unfortunately, the homeownership rates for minorities significantly trail behind non-Hispanic Whites. The workstream focuses on breaking down barriers through programs, products and policy changes to increase the opportunity for District residents to build wealth through homeownership.
Workstream Barriers and Challenges for Minority Residents Looking to Buy Homes in DC
Lack of Supply of Affordable Inventory
- The median sales price in DC is $640K.
- Most homes priced below $400K are made up of condos with high condo association fees and limited space.
- Height restrictions prevent the addition of units to existing condo buildings, which results in construction of small condo buildings that reduce the potential for single-family detached homes.
Lack of Knowledge and Outreach on Available Programs
Inconsistent guidelines, delayed approval processes for the Home Purchase Assistance Program (HPAP), funding restraints and a lack of transparency into the down payment assistance programs created a lack of trust for many sellers in the DC market. This has caused buyers using contracts with HPAP funding to lose out to buyers using traditional financing options or cash. Additionally, HPAP application processing is manual and outdated, causing long delays for initial approvals.
Preservation of Homeownership for Aging Homeowners
Many DC seniors age in place and their properties have become dilapidated, aged or in need of serious improvements. Unfortunately, the Single Family Residential Rehabilitation Program (SFRRP) offered by the DC Department of Housing and Community Development (DHCD) does not adequately cover essential repairs. The rehabilitation scope is too limited on what the program will cover. These costs have required seniors to take out reverse mortgages, refinance using cash out refinancing programs or even sell their homes and move out of DC.
Limitation of Special Purpose Credit Programs (SPCP)
The lending community currently uses SPCP in limited markets and often excludes DC in their product offerings. More financial institutions need to utilize SPCPs to increase minority homeownership opportunities in DC.
Income and Asset Shortfalls in Minority Communities
Black communities continue to earn less than White communities. This disparity in income causes a shortfall of assets that can be used to purchase homes and create generational wealth.
Deliverables
Product Deliverables
Create an Urban Heirs’ Fund to allow family members to purchase “family” homes that are secured by a reverse mortgage with favorable terms for the purchaser. This will allow legacy DC families to keep homes in the family.
Program Deliverable
Develop a dashboard that captures HPAP funding, highlights and demographics of recipients in real time.
Policy Deliverable
Explore how the new Community Reinvestment Act can be leveraged to improve mortgage lending in minority communities. Recommend local and federal policy changes to income limits, program guidelines and outreach requirements for funded housing related programs.
Activities
Develop a website like Frontdoor specific to the private sector. This website would include all SPCPs, and down payment assistance offered by financial institutions lending in DC.
Recommendations
- Program Recommendation
The affordable homeownership workstream recommends the development of a foreclosure assistance fund to be implemented once the Homeowner Assistance Fund sunsets in 2025. - Product Recommendation
The affordable workstream recommends standing up the Urban Heirs’ Fund and developing a roadmap for other states and financial institutions to replicate it. - Policy Recommendation
The affordable homeownership workstream recommends the creation of an affordable homeownership council. The council would be charged with advising the District of Columbia on matters related to program and policy guidelines to allow for more affordable homeownership and preservation of existing homeownership opportunities.
Small Business Workstream
The Small Business Workstream is made up of local leaders in the areas of small business banking, economic development, community development, and government and not-for-profit work. The workstream meets monthly to identify barriers affecting small businesses. The goal of the workstream is to develop and recommend resources that remove those barriers. To accomplish this, the workstream drafted a problem and focus statement. Workstream participants also identified barriers affecting District-based minority-operated small businesses.
Workstream Problem and Focus
Small businesses serve as engines for the economy, but resources to support their expansion are limited. Project REACh focuses on providing support to minority-owned businesses and minority entrepreneurs from the District of Columbia. The DC REACh Small Business Workstream is working to support these small businesses by providing programs, products and policy recommendations around the areas of access to capital, technical assistance and procurement opportunities.
Workstream Barriers
- The lack of loans, investments and contracts issued to minorities, including minority- and woman-owned businesses.
- The lack of transparency in the loan approval/contract award process.
- The capital and underwriting requirements to get funded and manage contracts are too strict and out of reach for many minority-owned businesses.
- Inadequate coordination of targeted technical assistance (small business resource services).
- Inconsistent oversight results in biased practices that adversely affect minority small businesses.
Impacts for Minority-Owned Small Businesses
The lack of loans, investments and contracts issued to minorities, including minority and women owned businesses.
Not issuing sufficient access to loans, investments and contracting opportunities to businesses owned by minorities and women of color impede the ability for these small businesses to grow and be successful. This results in a reduction of job creation, limits innovation and adversely affects minority DC residents’ ability to build wealth or access wealth through entrepreneurship.
The lack of transparency in the loan approval/contract award process.
Inconsistent approval processes for loans, grants, investment, and contracts fosters a lack of trust for minorities applying for capital and contracts. Additionally, underwriting standards may differ by institution. Not having clear and transparent guidelines can potentially create an environment for real or perceived discrimination and unfair or deceptive practices.
The capital and underwriting requirements to get funded and manage contracts are too strict and out of reach for many minority-owned businesses.
Due to the historical lack of access to unencumbered real estate and liquid assets in minority communities, lender’s requirements for loans are unachievable to many businesses resulting in a lack of funding in jurisdictions with large minority-based populations. A lack of funding in minority communities facilitates data inconsistencies that may unintentionally affect decisions or promote practices such as redlining.
Inadequate coordination of targeted technical assistance (small business resource services).
The needs of small businesses vary due to company dynamics. Historically, there has not been an emphasis on coordination between organizations to ensure people have a roadmap to navigate services relating to technical assistance. Not having this coordination can be confusing to entrepreneurs in pursuit of small business resources.
Deliverables
Product Deliverable
Develop an online resource providing District small businesses with contacts for access to capital providers, procurement programs and technical assistance providers.
Program Deliverable
Develop a vision and mission statement for the formation of a small business council.
Policy Deliverable
Explore how the new Community Reinvestment Act can be leveraged to improve bank and CDFI lending.
Activities
In order to develop an online resource directory for DC small businesses, the small business workstream has separated into small workgroups to complete a business model. The business model canvas (BMC) has nine areas which provide a framework for the development of the online resource directory.
Recommendations
- Program Recommendation
The small business workstream recommends the development of a program aimed at preparing small businesses to successfully obtain loans, grants and investments. - Product Recommendation
The small business workstream recommends an online resource directory for District small businesses interested in capital, procurement opportunities and business advisory services. - Policy Recommendation
The small business workstream recommends the formation of a small business council. The council would be charged with advising the District of Columbia on matters relating to access to capital, procurement opportunities, and technical assistance for minority and women-owned small businesses.
Credit Counseling And Repair Workstream
The credit counseling and repair workstream is made up of local leaders in the areas of retail banking, economic development, community development, and government and not-for-profit work. The workstream meets monthly to identify how poor or no credit affects minorities in DC and facilities barriers to accessing wealth. The goal of the workstream is to develop and recommend credit resources that remove or reduce those barriers. To accomplish this, the workstream drafted a problem and focus statement.
Workstream Problem and Focus
Nearly 50 million people in the United States have no usable credit scores, making credit less accessible and more expensive for them. The credit counseling and repair workstream is focused on identifying and recommending programs, products and policies that increase wealth building opportunities for District residents by providing the education and counseling needed to improve individual credit scores.
Workstream Barriers
- Lack of Credit Management
- Biased Creditors
- Biased Credit Reporters
- Social Economic Impacts of Credit
- Ineffective Uncoordinated Technical Assistance
Examples and Impacts for Minorities
Lack of Credit Management
- Examples of lack of credit management for minorities include the insufficient education around credit and finance. Credit tools like loans and mortgages are not available to many minorities due to poor or no credit history. Issues with fraud also play a part in poor credit. This includes the misutilization of credit by others. Additionally, fraud and schemes using technology is at a heightened state.
- Not having access to tools and education that improve residents’ ability to manage credit reduces their ability to purchase homes, attend college and acquire wealth.
- Workstream members concurred that making more state-funded financial literacy available to youth as early as elementary school is critical in removing barriers stemming from a lack of credit management.
Biased Creditors
Examples of biased creditors include the amount of financial institutions accessible to minorities and the way credit has disproportionately affected minorities. Historically less credit has been available to minorities. Additionally, neighborhoods with high minority populations do not have enough physical locations available to conduct banking. A lack of creditable financial access forces minorities to seek alternatives that may be predatory in nature. The higher cost of financial tools, insufficient representation of financial institutions, and high declination rates has facilitated a lack of trust in financial institutions and created psychological and community trauma surrounding credit.
Biased Credit Reporting
Biased credit reporting addresses issues with the way credit has historically been reported. This includes inconsistencies between the credit policies of banks and lenders. Examples of biased credit reporting include creditors who report negative credit but not positive credit like utilities, medical billing, and rent payments to property management companies.
Social Economic Impacts of Credit
- Examples of how socioeconomic conditions are impacted when residents have poor, or no credit are confirmed by the reduced rates of homeownership in minority communities. This is also reflected in college attendance, median income levels and incarceration rates in the District of Columbia. Because credit is less available in minority communities, many of these communities have lower attendance in colleges and universities, which also contributes to reduced rates of homeownership and wealth building opportunities. Recent labor statistics reported by the Bureau of Labor Statistics suggest that workers without a high school diploma had median weekly earnings of $682. Workers who graduated from high school made $853 per week, or just over 25% more than those who didn't finish high school—and earnings improved with every level of education completed. Specifically, individuals with a bachelor’s degree make on average $1,432 weekly which equates to a 52% increase in wages from those without a high school diploma.
- Studies also indicate that communities lacking access to credit and wealth also have higher incarceration rates and community displacement is extremely common.
- The workstream participants conclude that better outreach for returning citizens, technical assistance that incorporates financial therapy, and youth entrepreneurship programs are needed to improve financial literacy and reduce barriers to accessing wealth.
Ineffective Uncoordinated Technical Assistance
- The financial needs of individuals vary based on genetics, behavior, environmental and physical influences, medical care and social factors. The TIAA Institute conducted a study on financial literacy that asked questions to measure financial literacy across the U.S. The report on the study concludes that many Americans function with a poor level of financial literacy. On average, U.S. adults correctly answered only 50% of the index questions in 2022. Eighteen% correctly answered over 75% of the index questions, while 23% correctly answered 25% or fewer of the questions. The reports reviewed by the workstream showed evidence that greater financial literacy leads to higher financial well-being, and that lower financial literacy is associated with lower financial well-being.
- The workstream finds that an emphasis on coordination between organizations to ensure people have a roadmap to navigate services relating to technical assistance has not historically been a priority to providers. Not having this coordination can be confusing to individuals looking to improve credit and financial literacy.
Deliverables
Product Deliverable
Develop a list of financially focused products aimed at improving access to credit.
Program Deliverable
Develop resource list of credible District credit counseling services.
Policy Deliverable
Explore how to encourage banks, credit card companies and fintech’s to provide credit education and information at the branch and during online account sign up/application.
Activities
- To ensure inclusion within the community as we move towards solutions surrounding the barriers affecting minority’s ability to access credit, the credit counseling and repair workstream conducted a listening session. The listening session included District residents who have encountered credit challenges. The attendees were made up of individuals starting the journey of credit, those with credit issues they are looking to improve, individuals who have improved credit based on the support offered in the District, and individuals who experienced a negative encounter with the support offered within the District. Attendees confirmed the barriers identified by the workstream and gave feedback on the type of support needed to reduce the barriers that prevent fair access to wealth.
- The workstream also heard from companies that provide traditional and technology-based technical assistance aimed at educating individuals on credit and assisting them in improving negative credit.
Recommendations
- Program Recommendation
The credit counseling and repair workstream recommends that credit counseling resources work to better coordinate the support offered to District residents. This would include creating a list of counseling services in the District. - Product Recommendation
The credit counseling and repair workstream recommends online and in-person resource directories for District residents in pursuit of credit and financial education. - Policy Recommendation
The credit counseling and repair workstream recommends a universal credit rating system that considers alternative scoring options such as rent payments, utility bills and other reoccurring expenses. The goal would be for the system to provide a boost to individual scores that show positive credit reporting under those conditions.
*References to the OCC and Project REACh in this resource do not constitute an endorsement, recommendation, or favoring of DISB or their findings by the OCC. Participants in Project REACh, with the support of DISB, worked together to articulate their findings; the information in this resource does not constitute an endorsement by the OCC and does not necessarily reflect the complete positions of the institutions that REACh working group members represent.