How Chase is boosting mortgage lending to underserved communities

  • Earlier this month, JPMorgan Chase announced it would designate $30 billion over the next five years to provide economic opportunity to underserved communities.
  • The bank has budgeted $8 billion for its Chase Home Lending division to disburse 40,000 home purchase loans specifically to Black and Latinx mortgage seekers.
  • The CEO of Chase’s Home Lending division laid out how, from an expanded branch footprint to hiring loan advisors, Chase will disburse the loans.
  • Visit Business Insider’s homepage for more stories.

It’s a known fact that Black and Latinx communities face a steeper uphill battle than their white counterparts in securing mortgages and paving a path toward home ownership.

While more than 71% of white people in the US own their homes, just 41% of Black people and 47% of Hispanic people can say the same, according to the Pew Research Center.

In 2017, Pew looked at historical data from 2015 about mortgage inquiry rejections by various demographics. Mortgage inquiries were rejected at a higher rate for Hispanic (19%) and Black (27%) home-loan seekers compared to white mortgage seekers (11%). 

And in a year that’s been defined by deep racial schisms that underpin much of the American socioeconomic fabric, JPMorgan Chase says financial institutions have a part to play in advancing opportunities for minorities.

A fractious 2020 triggered introspection at JPMorgan Chase, where executives came to a conclusion that “we need to really double down or get even more focused on [these issues] than we are today,” Mark O’Donovan, the CEO of Chase Home Lending, told Business Insider.

Read more: The pandemic has created a do-or-die moment for smaller banks. Here’s how fintechs are playing a key role in these firms staying relevant.

In early October, the bank, which is the largest in the US by assets, announced it would designate $30 billion over the next five years to invest in support and development for “underserved communities,” with a particular focus on Black and Latinx communities.

A significant chunk of that — nearly a third — will be designated to broadening the bank’s home-lending pipelines for Black and Latinx people.

The bank has budgeted $8 billion for its Chase Home Lending division to disburse 40,000 home purchase loans specifically to Black and Latinx mortgage seekers. It also says it will open 100 new branches in economically underserved or middle-income communities nationwide.

The plans come at a time when other banks are scaling back on their branch footprint. 

The bank also pledged $4 billion for refinancing loans, with a goal of lower mortgage payments for an additional 20,000 Black and Latinx households.

O’Donovan spoke to Business Insider about how the bank plans to roll out its plans over the next five years.

Read more: Zumper, a home-listing site that has raised $150 million from backers like Blackstone and Kleiner Perkins, weeded out thousands of Section 8 renters in a practice some experts say may amount to discrimination

How will Chase ensure that its home-lending efforts are successful?

Chase assessed what it would need to do to distribute these loans using an approach that largely centers on expanding its branch footprint and network of home lending advisors, O’Donovan said.

Part of that strategy involves hiring an additional 50 to 100 of those home-lending advisors, on top of the home-lending advisory team that Chase already has. The new reinforcements will be able to offer more in-depth services for mortgage seekers, such as helping customers figure out how to improve their personal financial health in order to obtain a loan.

To run the program, Chase recruited Cerita Battles, a former Wells Fargo executive who was head of retail diverse segments for their home-mortgage division, in August to serve as its new managing director for affordable home lending. Battles will oversee the loan distribution program.

She will be accountable to O’Donovan, plus other top executives including Jamie Dimon, the CEO of JPMorgan Chase; and Gordon Smith, the firm’s co-president and COO, who leads its consumer and community banking division. The executives will expect monthly reporting “at a minimum,” O’Donovan said, to appraise the program’s efficacy and ensure that it stays on track.

Another major issue the bank is confronting is rethinking loan distribution on the basis of credit and considering alternatives to FICO scores to determine a mortgage seeker’s eligibility.

Two federal statutes exist to help govern discrimination in home lending.

One is the Equal Credit Opportunity Act, which protects mortgage seekers from discrimination due to their race, color, nationality, or other personal designations like marital status, according to the Federal Trade Commission.

The other is the Fair Housing Act, which addresses discrimination stemming from transactions like taking out loans to improve a home or renting or selling a dwelling, the FTC says.

O’Donovan said Chase, like much of the broader home-lending industry, is considering other options beyond just FICO scores to evaluate credit, such as rental and utility payment consistency.

Other ways the bank is trying to help

To be sure, JPMorgan Chase has recently come under fire for its fraught history on race relations. 

Last year, the New York Times reported that two Black men — one, a prospective private client, and another, a financial advisor at the bank — said they experienced racial discrimination at one of the bank’s branches in Arizona.

In the wake of the fallout, a group of five US senators including Elizabeth Warren of Massachusetts sent the bank a letter to inquire about its history on race. Dimon, the firm’s CEO, sent a memo to staff noting that he was “disgusted by racism and hate in any form.”

Subsequently, JPMorgan announced new mandatory diversity and inclusion training for its entire global workforce, and hired Brian Lamb to be its new global head of diversity and inclusion in April.

As part of its wider $30 billion pledge, the bank has also earmarked $2 billion for small-business lending, and a $750 million budget to spend with Black and Latinx suppliers.

The bank said it will also aim to help as many as one million people open affordable checking and savings accounts.

A 2017 report from the Federal Deposit Insurance Corporation looked at how many Americans were fully banked — meaning they have a bank account and don’t utilize alternative financial services like check-cashing outlets.

The data revealed a stark disparity between white, Black, and Latinx households. Just 9.3% of Black households and 9% of Hispanic households qualified as fully banked, compared to 75% of white households. 

O’Donovan said that support for small businesses will lead to greater economic prosperity for those in the local communities as well. 

“You need small business formation and small business lending to create jobs. You need branches and other things to promote financial health. You need to have lending, you need to have commitments to rental,” he said.

“I think when you put the full ecosystem that we can offer together, to me that’s the real power of what I’m really excited about.”

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