By State Representative Jermaine Johnson
Guest Editorial Owning a home has always been a cornerstone of the American Dream and has allowed generations of Americans to build equity and wealth.
Unfortunately, systemic barriers to homeownership have made it harder for communities of color to access this dream. As someone who knows what it’s like to live without a roof over their head, I’ve seen these barriers firsthand.
My past struggles with homelessness help drive my desire to ensure that the American Dream of home ownership is more accessible for those that are too often left behind, which is why I’m concerned about a recent proposal from the Federal Reserve. The proposal, which would increase capital requirements for banks, would make it significantly harder for aspiring homeowners in minority communities to obtain a mortgage and get on the path to building wealth.
The proposal’s rationale is well-intentioned. By requiring banks to hold more capital in reserve, the Fed seeks to ensure that banks remain resilient.
The problem with the proposal, however, is two-fold. First, it is not necessary. Second, and more importantly, it would add to the many obstacles communities of color already face when accessing credit.
The fortunate reality is that the banking system in our country is exceptionally strong. In 2010, in response to the financial crisis, Congress passed a series of banking reforms commonly referred to as Dodd-Frank. These new rules drastically increased the financial stability of our banks and are a big reason our financial institutions were able to weather a challenge like the pandemic.
The resiliency of our largest banks is widely recognized. Even Fed Chairman Jerome Powell has noted their strength, recently stating that “capital and liquidity levels at our largest, most systemically important banks are at multi-decade highs.”
While America’s biggest banks are strong, housing affordability is not. Americans’ ability to afford a home is at multidecade lows. A recent report found that housing is the least affordable it has been since 1984. Current spikes in interest rates have only made the situation worse.
Herein lies the problem.
Rules from the Federal Reserve that require the largest banks to hold more capital in reserve will increase costs for borrowers seeking mortgages and other forms of credit. The more money banks have to keep in reserve, the less available for lending. Under the rules, some borrowers will find mortgages are not accessible. Others who still qualify will find they cost more.
This proposal takes housing policy in the wrong direction. Historically disadvantaged communities need policies that will expand access to homeownership. This proposal, albeit inadvertently, will do the opposite and compound the lasting effects of redlining and other discriminatory housing practices that too many still confront today.
The potential harm caused by this proposal is personal to me. A few years ago, I was nearly denied a loan to buy a home due to my student loan debt. Debt I took out to get the education I needed to be able to provide for myself and my loved ones. If this rule were in place when I sought a loan, I never would’ve been able to purchase my home.
It pains me to think that this measure would shut out so many people of color who find themselves in the position I was in. Folks who worked hard, who weren’t asking for a handout, just the financial support needed to build a home for themself. Those from more privileged backgrounds have had seamless access to that financial support, it’s essential that we don’t turn our backs on communities of color who need that same helping hand.
Thankfully, some are starting to take notice of the proposal’s downstream effects. The negative consequences of the Federal Reserve’s proposal have caught the attention of the nation’s largest civil rights organizations. The NAACP, National Urban League and others have warned that the proposal will have a “devastating impact” on efforts to increase Black homeownership and first-generation homebuyers.
Our leaders in Washington, DC, have an obligation to hear this message before it is too late. Over the last three years, the Biden administration has made major commitments to increase the supply of affordable housing and to tackle the lasting legacy of housing discrimination. These are important steps that are potentially undermined by policies from the Federal Reserve that put mortgages out-of-reach.
I believe we can do better as a nation. Making our banks as resilient as possible is an important goal, but it should not come at the cost of making it even harder for some of us to access the American Dream.
Dr. Jermaine Johnson, Sr. is a father, husband, current State Representative and community activist.
Motivational Moments I have great respect for the past. If you don’t know where you’ve come from, you don’t know where you’re going. I have respect for the past, but I’m a person of the moment. I’m here, and I do my best to be completely centered at the place I’m at, then I go forward to the next place. — Maya Angelou