For generations, home ownership has been a central part of the American dream, but for many people it still remains out of reach. This despite government programs and institutions created to help people become homeowners. Bloomberg reporters Heather Pearlberg and Noah bu Hire took a closer look at one of them, a system of banks called the Federal Home Loan Banks. They found that even though these institutions have billions of dollars to lend, many home buyers still struggle to get
approved for a mortgage. Heather and Noah spoke to home buyers across the country.
Id gibil I got to the point where this is not going to work. We're not going to get no house. Thanks, don't want to loan you the money.
Thanks.
You know, they don't really tell you what you need to do or try to help you anyway. More of just like, no, we're not going to give you the loan.
Today. On the big take, does buying a house really need to be this hard? Heather visited Mississippi in the town of Drew for this story. I asked her to describe what she found when she arrived in the Mississippi Delta.
Well the Delta is really spread out and very rural. Some of these small towns are kind of smack dab in the middle of Jackson, Mississippi, and Memphis. There's just these little neighborhoods or little communities that are connected by long stretches of highway.
There really aren't a lot of grocery stores.
I mean a lot of places like this are referred to as food deserts. The mayor of Drew told me that in January they got a dollar General, so people finally have access to fresh produce, which wasn't an option before. They had to drive at least half an hour just to get those kinds of groceries. And when you get to the actual neighborhoods, particularly the ones that we spent time in and Drew, they were just lighted homes everywhere. Also, you find in nearby towns like Greenville, these huge, huge
plantations that were just passed down for generations. These are all owned by white families and really.
Feels like there are still.
Very prominent white and black parts of town.
Noah, Heather Thing, it's a pretty stark picture of what's happening in places like Drew. What were you trying to find out when you were reporting this story, why did you go there?
Yeah, I mean the reason we were interested in this community is that we knew that there were a lot of people in this area that wanted to buy homes, but they just couldn't. They were getting shut out of the financial system. You've had banks basically retreat from a lot of parts of the country. So the same way Heather was talking about a food desert, we also have banking deserts in this country.
So you can imagine the kind of you know, headache it would be if you're working a full time job to have to drive on a Saturday half an hour to forty five minutes away just to put your money in the bank.
I mean a lot of people just don't want to do that.
I mean, these people they don't have trouble being able to afford paying for these homes. They're paying rent that is sometimes more than they would pay for a mortgage payment monthly. But they don't have bank accounts. They do their banking at gas stations, They cash checks anywhere they possibly can, but they don't have credit history because they
don't have credit cards, they don't have bank accounts. Sometimes they'll have one sort of bad medical bill they don't even realize is affecting their entire ability to qualify for a home loan.
And credit scores are still such a huge.
Marker for banks right now in the United States for whether or not someone is deserving of debt to buy a house.
If you don't have access to just normal banking products, which is the case for a lot of folks in the Mississippi Delta, and frankly in a lot of rural and poorer areas of this country, it can be really hard to build credit history, which is just a precursor of getting a home loan and buying a home, even if that home, as is the case in this part of Mississippi, may only cost fifty sixty thousand dollars.
But not everyone Heather and Noah talked to for this story had trouble accessing a nearby bank. Some were regular bank customers, and yet they still struggled to get approved for a mortgage. Heather, you spoke to one man, Andrew tell us about him.
So, James Green. He was a heavy machine operator in Sunflower County.
My name is James Green and I'm from Drew, Mississippi.
He has been and drew for a few decades. Now he has a steady job, steady income. He's married, he has two kids. He's been trying to get a home loan for twelve or thirteen years, hasn't missed any rent payments, and was really interested in buying a home.
Building wealth.
Me and my wife we always been trying to get a home and that's one of the things that she wanted. So that made me start getting out looking.
So he found a house he really liked. It was meaningful to him. He had rented it for years. His wife went into labor with a second child there, and still even though he could afford it, wasn't able to get a home loan from any of the traditional banks in that area. Five different banks turned him down, and Region's Bank, which was very prominent down there.
He was a customer.
He tried three different times to get a home loan and every time same story. Your credit score is too low, your credit score is too low.
I did give a I got to the point where this is not going to work. We're not going to get no house. It seems like people don't want to sell the house. Thanks don't want to loan you the money they're saying that your credit gain't good enough, and I'm like, man, I can go purchase a brand new vehicle with my credit job saying my credit ain't good enough.
For someone like James Green, there is this whole federal program that's supposed to help people like him buy homes, Isn't that right?
The federal government, almost one hundred years ago, during the depths of the Great Depression, came up with a plan to basically set up this network of home loan banks.
The idea behind this network that knows describing was that these home loan banks can easily raise money with the government's backing by issuing bonds that investors buy up.
And investors are willing to lend them money at basically the same rate as the US Treasury borrows, because their thinking is that if the federal home loan banks ever run into trouble, they're going to get built out by the federal government.
And once the federal home loan banks raise that investor money, they lend it to other banks, banks that everyday people use, and those banks can then write more mortgages.
So they then take that cheap money that they get and they lend it out to their members, which are banks, credit unions, insurance companies who can then go out and make home loans. This system's been around for a lot of years. Thousands of banks, ranging from small community lenders to the JP Morgan and Bank of Americas of the
World are part of this system. And there are eleven of these home loan banks around the country, and they each have their own region, and so if you're a bank or credit union in that region, you apply to be a member of that home loan bank.
So heather to witt No is saying, when someone like James Green applies for a loan, how is the system supposed to work? And then how did it actually work well?
Because a lot of these banks have government subsidized money that is intended to boost housing and mortgages and communities that need it most. You would think that banks like Regions, which at a time had eight billion dollars from the home loan banks, would be able to help someone like that, But it didn't happen for him until a community lender
came to town. James Green eventually did get a mortgage, but it wasn't from any of these traditional banks that have borrowed billions and billions of dollars from the government subsidized system. It was a small community lender called Hope, which is a credit union and works to help promote home ownership and low income and black communities.
Well, it's a positive vibe when you walk through that door. You know, man, it's a change in here. It's something different. The managers in there, they greeting you with open arm. You're not sitting there thirty and forty minutes and waiting just to speak with the manager and trying to handle your business in there and try to get along. They right on top of it. Things that you don't understand. They sitting there with you, walking you through a step
by step the bigger branches and stuff. They're not taking their time out just to sit there and walk you through all this and things that you're not able to get. They're not going to try to help you or tell you how you can go by getting it. But Hope really care about their peoples. They really care about their customers they come through that doors.
So they worked with him to bring up his credit score. They gave him a mortgage for fifty thousand dollars and he bought that home, the one he was dreaming of with three bedrooms, and for the first time in his life, this forty eight year old man is a homeowner.
It was a happy moment and I'm like, man, we did it, We really did it. My wife was happy, my kids was happy. You're looking at ten plus years that we've been trying. Then wait, just all of a sudden just disappeared. I'll play your shoulders.
After the break. Why Hope Credit Union gave James Green a mortgage when other big lenders would not. The difficulty James Green had in getting a mortgage from Regions, the bigger bank in his area isn't unique. Nohen Heather checked the data on who the bank gave mortgages to over the past five years.
When we were looking at what they did in Mississippi, they lend more in wealthier census tracks, higher income census tracks, and to more white borrowers.
Just to underscore that point, I mean, we went county by county through Mississippi and looked at the kinds of loans that Hope was making and who those borrowers were, and who regions were. And you saw in county after county double digit percentage differences between regions lending to black borrowers and Hopes lending to black borrows. Hope just clearly has a focus on building wealth in the black community
in a way that Regions doesn't. And just to be clear, Regions is not a crazy outlier within the financial system. They're lending at about the same rate to black borrowers that other lenders are in Mississippi. It's just that Hope is really much, much, much more focused on that.
What did Regents say when you asked about their lending.
They said that they do as much as they can for home buyers regardless of their race. Said they donated several of these branches to Hope, that they gave them money cash to help with the renovations and the transition, and that they have other community programs that do help in the Mississippi Delta and other areas.
A Region spokesperson also told Bloomberg the company is actively serving the Mississippi Delta, including providing credit to people in low and moderate income areas. They said the bank chose to donate for properties to Hope because a community partner was in a better position to maintain services in specific communities. They said when banks like Regions support lenders like Hope.
They collectively create results for individual in communities, and they said it's misleading to directly compare the two types of lenders. Region says it takes access to credit very seriously and wherever possible, works with consumers who may not qualify for loans to help improve their financial strength. So this isn't something only happening in places like Drew, but really a broad thing that's happening across the country.
You're seeing similar trends play out in places like rural Ohio or in New Mexico. And what we saw over and over and over again in the data and in talking to other financial institutions is that these community lenders like Hope do a much better job. They're doing a greater share of their mortgages in poorer areas.
Absolutely, we talked to.
Community lenders all over the place, other places that are doing a lot to help low income people become homeowners.
And this does just affect black home buyers. Heather spoke to a white woman in central Ohio about her challenges in buying a home.
Hello, I'm Tara Carmichael. I'm from North Ohio.
She is a single mom and had the same issues she has a good job working in a hospital. She's an ultrasound tech and seemingly would be a good candidate for a home by all standards.
I was just kind of done throwing away money and rent. I wanted something that I could invest in and make improvements too, and a place for my family to put down roots.
She told us her credit score was a five to eighty and she couldn't qualify for a home loan from any of the traditional banks in her area.
Thanks, you know, they don't really tell you what you need to do or try to help you anyway, more of just like, no, we're not going to give you the loan. So I need a little assistant than getting myself in a place where I was actually able to fall I and be ready to purchase.
So it wasn't until she found Truecore, another credit union and community focus lender that really worked with her to bring that credit score up.
They told her.
Which credit cards to cancel, which accounts to close, and a year later she was up to a six 't eighty, So it really did work, but it took Elbow grease. So now she is a first time home buyer who's very happy and proud in Newark Ohio.
I was just relieved to have, you know, something of my own. We lived in a house, it was a rental, it was on a busy street.
We couldn't really make any changes to the property as it was.
So it was nice to be able to get into our own home and put our personal touches on everything, and kids to have their own space.
Noah, how are these community focus banks able to issue so many loans to lower income home buyers when the larger banks aren't doing it as much?
You know, That's actually the crux of our story is what you find is when you talk to these community lenders, their ability to go out and work with people like James Green and Tara Carmichael is really a function of how much they can borrow from the federal home loan banks.
That's right. These community lenders are also borrowing money from the Federal Home Loan Banks, the bank set up by the federal government to spur mortgage lending. But as Heather and Noah learned in their reporting, when these community banks go to borrow from the federal home loan banks, they sometimes receive less money than larger banks. I asked Heather about.
That these banks because they're smaller, and they're lending to lower income Americans. They're just seen as riskier, they're seen as less financially stable, and they're kind of treated as second class citizens by these home loan banks.
Are they risk her? Do these loans default at higher rates than other mortgages?
No?
If you look at the loss rates for a lot of these portfolios, they're less than one percent. They do a better job, they lose less money than the larger institutions who are lending.
This is not just you know us saying this. You've got a credit rating firm like Fitch that went out and studied a lot of these, you know, community mission focused lenders, and they found that they've had really really low loss rates. They buy and large function in safe and sound ways.
If these community lenders like Hope and Truecore aren't able to access as much of this money from the home loan banks as they want or need, it raises a question what are the federal home loan banks doing with their money.
They've sort of strayed from that mission where they were focused really entirely on housing, and these banks changed and started lending almost to help banks with any kind of needs that they might have.
Heather and Noah report that the federal home loan banks became a go to for big firms in need of quick cash at cheap rates. They gave billions of dollars in financial support to now failed companies like Silicon Valley Bank and Signature Bank.
People stopped and kind of scratched their heads and thought, what are these banks playing in crypto and lending to the one percent and these niche institutions that really had nothing to do with home lending getting all of this government subsidized cheap, cheap money. And that was part of what sparked our interest in this in the first place.
When we come back, what a fix to this massive financial system might look like, Heather, how is it that this system, which was started explicitly to help people buy homes now lends out so much of its money to things that have nothing to do with buying homes.
That's just a flaw in the way the system operates.
They are in this sort of nebulous area.
They also have little quirks like once you become a member, sort of like tenure if you're a professor, so you don't really get kicked out, And there are insurance companies that used to be a big part of the housing market ninety years ago when this thing was started, that now don't give any home loans, but they got kind of grandfathered in, so now they're still benefiting from access to this really cheap money.
But all of this is legal, we should say, Is that right?
It's all legal.
Yeah.
So everyone's making a lot of money, including banks, smaller banks, and it's hard to shut something down or even change it a little bit when the status quo has been working quite.
Well for some time.
Noah, what do the federal home loan banks say about their lending?
Basically, they say that they need to maintain tight credit standards to run institutions that don't fail and don't cause tax bearers money if they need to be bailed out, which, by the way, they have run safe institutions for a
long time. They've lent a lot of money successfully over many many years, and so basically what they're saying is that they're responding to the rules that Congress and their regulator have made for them over the years, and they're really focused on running safe institutions.
They're regulated by the FAHFA, which is the Federal Housing Finance Agency, the same group that oversees Fannie May and Freddie Mac.
If those names are more familiar.
I know, what does this regulator have to say about out how they're lending money.
The FHFA has for the past year been studying the home loan bank system. Remember this is a ninety plus year old institution. They are trying to make it work better. And when we put a series of detailed questions to them, they told us that they very much are interested in making the home loan banks work better for community focused lenders, those that are actually helping to create home ownership opportunities. So there's likely more to come there. But a lot
of this stems from Congress. You have to realize that this system has been around for so long. Congress has fiddled with it for years, and there are rules upon rules that have been codified over the years saying how the banks have to operate, who their members can be, how they can lend, what sort of collateral they can accept to make loans, and a lot of that. When you talk with experts in this field, they'll tell you it doesn't make a whole heck of a lot of
sense anymore. Or there's a lot of contradictions in the system because the mortgage market frankly, has just changed a lot in the last ninety years, and lawmakers and regulators just haven't kept up with that change.
What might the system look like that they changed it. What are some of the reforms they're considering.
Well, frankly, we don't know, but some of the ideas that have been floating out there in Washington, or maybe the test periodically that the financial institutions that are members of the home loan banks that they continue to be
in the mortgage business. You have some institutions that have been in this system for a long time that have just really moved away from mortgage lending, and so maybe that shouldn't be I think there are some things that have been discussed around the edges which might make it cheaper and easier for some of these community lenders to borrow money from the system, to acknowledge the fact that they have good underwriting track records and should be able to get greater access to funds.
Heather, we've heard how this system has affected people like James Green and Tara Carmichael. Are their broader implications to the system not operating as originally intended.
Well, we're struggling with a huge affordable housing crisis, so it's hard to think about an institution that was set up directly to solve some of these problems, that has the means to tackle a lot of this all throughout the country and.
Is really falling short.
And that's where regulator like the FHFA can step in and really do something to change this if they choose to.
Heather Noah, thanks so much for sharing your reporting. Thank you, thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Virgolina. Our senior producer is Katherine Fink. Our producers
are Michael Falero and Moe Barrow. This episode was edited by Caitlin Kenney. Raphael mcili is our engineer. Our original music was composed by Leo Sidrin. I'm west Kasova. We'll be back tomorrow with another Big take