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Speaker 1: For generations, home ownership has been a central part of

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Speaker 1: the American dream, but for many people it still remains

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Speaker 1: out of reach. This despite government programs and institutions created

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Speaker 1: to help people become homeowners. Bloomberg reporters Heather Pearlberg and

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Speaker 1: Noah bu Hire took a closer look at one of them,

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Speaker 1: a system of banks called the Federal Home Loan Banks.

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Speaker 1: They found that even though these institutions have billions of

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Speaker 1: dollars to lend, many home buyers still struggle to get

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Speaker 1: approved for a mortgage. Heather and Noah spoke to home

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Speaker 1: buyers across the country.

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Speaker 2: Id gibil I got to the point where this is

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Speaker 2: not going to work. We're not going to get no house. Thanks,

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Speaker 2: don't want to loan you the money.

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Speaker 3: Thanks.

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Speaker 4: You know, they don't really tell you what you need

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Speaker 4: to do or try to help you anyway. More of

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Speaker 4: just like, no, we're not going to give you the loan.

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Speaker 1: Today. On the big take, does buying a house really

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Speaker 1: need to be this hard? Heather visited Mississippi in the

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Speaker 1: town of Drew for this story. I asked her to

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Speaker 1: describe what she found when she arrived in the Mississippi Delta.

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Speaker 3: Well the Delta is really spread out and very rural.

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Speaker 3: Some of these small towns are kind of smack dab

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Speaker 3: in the middle of Jackson, Mississippi, and Memphis. There's just

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Speaker 3: these little neighborhoods or little communities that are connected by

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Speaker 3: long stretches of highway.

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Speaker 5: There really aren't a lot of grocery stores.

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Speaker 3: I mean a lot of places like this are referred

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Speaker 3: to as food deserts. The mayor of Drew told me

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Speaker 3: that in January they got a dollar General, so people

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Speaker 3: finally have access to fresh produce, which wasn't an option before.

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Speaker 3: They had to drive at least half an hour just

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Speaker 3: to get those kinds of groceries. And when you get

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Speaker 3: to the actual neighborhoods, particularly the ones that we spent

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Speaker 3: time in and Drew, they were just lighted homes everywhere. Also,

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Speaker 3: you find in nearby towns like Greenville, these huge, huge

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Speaker 3: plantations that were just passed down for generations. These are

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Speaker 3: all owned by white families and really.

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Speaker 5: Feels like there are still.

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Speaker 3: Very prominent white and black parts of town.

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Speaker 1: Noah, Heather Thing, it's a pretty stark picture of what's

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Speaker 1: happening in places like Drew. What were you trying to

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Speaker 1: find out when you were reporting this story, why did

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Speaker 1: you go there?

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Speaker 6: Yeah, I mean the reason we were interested in this

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Speaker 6: community is that we knew that there were a lot

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Speaker 6: of people in this area that wanted to buy homes,

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Speaker 6: but they just couldn't. They were getting shut out of

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Speaker 6: the financial system. You've had banks basically retreat from a

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Speaker 6: lot of parts of the country. So the same way

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Speaker 6: Heather was talking about a food desert, we also have

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Speaker 6: banking deserts in this country.

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Speaker 3: So you can imagine the kind of you know, headache

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Speaker 3: it would be if you're working a full time job

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Speaker 3: to have to drive on a Saturday half an hour

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Speaker 3: to forty five minutes away just to put your money

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Speaker 3: in the bank.

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Speaker 5: I mean a lot of people just don't want to

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Speaker 5: do that.

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Speaker 3: I mean, these people they don't have trouble being able

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Speaker 3: to afford paying for these homes. They're paying rent that

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Speaker 3: is sometimes more than they would pay for a mortgage

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Speaker 3: payment monthly. But they don't have bank accounts. They do

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Speaker 3: their banking at gas stations, They cash checks anywhere they

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Speaker 3: possibly can, but they don't have credit history because they

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Speaker 3: don't have credit cards, they don't have bank accounts. Sometimes

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Speaker 3: they'll have one sort of bad medical bill they don't

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Speaker 3: even realize is affecting their entire ability to qualify for

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Speaker 3: a home loan.

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Speaker 5: And credit scores are still such a huge.

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Speaker 3: Marker for banks right now in the United States for

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Speaker 3: whether or not someone is deserving of debt to buy

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Speaker 3: a house.

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Speaker 6: If you don't have access to just normal banking products,

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Speaker 6: which is the case for a lot of folks in

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Speaker 6: the Mississippi Delta, and frankly in a lot of rural

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Speaker 6: and poorer areas of this country, it can be really

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Speaker 6: hard to build credit history, which is just a precursor

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Speaker 6: of getting a home loan and buying a home, even

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Speaker 6: if that home, as is the case in this part

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Speaker 6: of Mississippi, may only cost fifty sixty thousand dollars.

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Speaker 1: But not everyone Heather and Noah talked to for this

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Speaker 1: story had trouble accessing a nearby bank. Some were regular

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Speaker 1: bank customers, and yet they still struggled to get approved

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Speaker 1: for a mortgage. Heather, you spoke to one man, Andrew

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Speaker 1: tell us about him.

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Speaker 3: So, James Green. He was a heavy machine operator in

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Speaker 3: Sunflower County.

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Speaker 2: My name is James Green and I'm from Drew, Mississippi.

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Speaker 3: He has been and drew for a few decades. Now

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Speaker 3: he has a steady job, steady income. He's married, he

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Speaker 3: has two kids. He's been trying to get a home

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Speaker 3: loan for twelve or thirteen years, hasn't missed any rent payments,

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Speaker 3: and was really interested in buying a home.

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Speaker 5: Building wealth.

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Speaker 2: Me and my wife we always been trying to get

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Speaker 2: a home and that's one of the things that she wanted.

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Speaker 2: So that made me start getting out looking.

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Speaker 3: So he found a house he really liked. It was

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Speaker 3: meaningful to him. He had rented it for years. His

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Speaker 3: wife went into labor with a second child there, and

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Speaker 3: still even though he could afford it, wasn't able to

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Speaker 3: get a home loan from any of the traditional banks

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Speaker 3: in that area. Five different banks turned him down, and

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Speaker 3: Region's Bank, which was very prominent down there.

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Speaker 5: He was a customer.

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Speaker 3: He tried three different times to get a home loan

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Speaker 3: and every time same story. Your credit score is too low,

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Speaker 3: your credit score is too low.

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Speaker 2: I did give a I got to the point where

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Speaker 2: this is not going to work. We're not going to

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Speaker 2: get no house. It seems like people don't want to

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Speaker 2: sell the house. Thanks don't want to loan you the

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Speaker 2: money they're saying that your credit gain't good enough, and

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Speaker 2: I'm like, man, I can go purchase a brand new

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Speaker 2: vehicle with my credit job saying my credit ain't good enough.

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Speaker 1: For someone like James Green, there is this whole federal

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Speaker 1: program that's supposed to help people like him buy homes,

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Speaker 1: Isn't that right?

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Speaker 6: The federal government, almost one hundred years ago, during the

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Speaker 6: depths of the Great Depression, came up with a plan

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Speaker 6: to basically set up this network of home loan banks.

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Speaker 1: The idea behind this network that knows describing was that

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Speaker 1: these home loan banks can easily raise money with the

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Speaker 1: government's backing by issuing bonds that investors buy up.

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Speaker 6: And investors are willing to lend them money at basically

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Speaker 6: the same rate as the US Treasury borrows, because their

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Speaker 6: thinking is that if the federal home loan banks ever

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Speaker 6: run into trouble, they're going to get built out by

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Speaker 6: the federal government.

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Speaker 1: And once the federal home loan banks raise that investor money,

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Speaker 1: they lend it to other banks, banks that everyday people use,

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Speaker 1: and those banks can then write more mortgages.

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Speaker 6: So they then take that cheap money that they get

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Speaker 6: and they lend it out to their members, which are banks,

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Speaker 6: credit unions, insurance companies who can then go out and

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Speaker 6: make home loans. This system's been around for a lot

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Speaker 6: of years. Thousands of banks, ranging from small community lenders

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Speaker 6: to the JP Morgan and Bank of Americas of the

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Speaker 6: World are part of this system. And there are eleven

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Speaker 6: of these home loan banks around the country, and they

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Speaker 6: each have their own region, and so if you're a

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Speaker 6: bank or credit union in that region, you apply to

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Speaker 6: be a member of that home loan bank.

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Speaker 1: So heather to witt No is saying, when someone like

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Speaker 1: James Green applies for a loan, how is the system

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Speaker 1: supposed to work? And then how did it actually work well?

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Speaker 3: Because a lot of these banks have government subsidized money

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Speaker 3: that is intended to boost housing and mortgages and communities

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Speaker 3: that need it most. You would think that banks like Regions,

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Speaker 3: which at a time had eight billion dollars from the

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Speaker 3: home loan banks, would be able to help someone like that,

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Speaker 3: But it didn't happen for him until a community lender

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Speaker 3: came to town. James Green eventually did get a mortgage,

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Speaker 3: but it wasn't from any of these traditional banks that

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Speaker 3: have borrowed billions and billions of dollars from the government

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Speaker 3: subsidized system. It was a small community lender called Hope,

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Speaker 3: which is a credit union and works to help promote

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Speaker 3: home ownership and low income and black communities.

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Speaker 2: Well, it's a positive vibe when you walk through that door.

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Speaker 2: You know, man, it's a change in here. It's something different.

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Speaker 2: The managers in there, they greeting you with open arm.

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Speaker 2: You're not sitting there thirty and forty minutes and waiting

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Speaker 2: just to speak with the manager and trying to handle

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Speaker 2: your business in there and try to get along. They

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Speaker 2: right on top of it. Things that you don't understand.

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Speaker 2: They sitting there with you, walking you through a step

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Speaker 2: by step the bigger branches and stuff. They're not taking

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Speaker 2: their time out just to sit there and walk you

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Speaker 2: through all this and things that you're not able to get.

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Speaker 2: They're not going to try to help you or tell

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Speaker 2: you how you can go by getting it. But Hope

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Speaker 2: really care about their peoples. They really care about their

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Speaker 2: customers they come through that doors.

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Speaker 3: So they worked with him to bring up his credit score.

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Speaker 3: They gave him a mortgage for fifty thousand dollars and

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Speaker 3: he bought that home, the one he was dreaming of

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Speaker 3: with three bedrooms, and for the first time in his life,

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Speaker 3: this forty eight year old man is a homeowner.

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Speaker 2: It was a happy moment and I'm like, man, we

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Speaker 2: did it, We really did it. My wife was happy,

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Speaker 2: my kids was happy. You're looking at ten plus years

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Speaker 2: that we've been trying. Then wait, just all of a

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Speaker 2: sudden just disappeared. I'll play your shoulders.

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Speaker 1: After the break. Why Hope Credit Union gave James Green

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Speaker 1: a mortgage when other big lenders would not. The difficulty

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Speaker 1: James Green had in getting a mortgage from Regions, the

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Speaker 1: bigger bank in his area isn't unique. Nohen Heather checked

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Speaker 1: the data on who the bank gave mortgages to over

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Speaker 1: the past five years.

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Speaker 3: When we were looking at what they did in Mississippi,

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Speaker 3: they lend more in wealthier census tracks, higher income census tracks,

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Speaker 3: and to more white borrowers.

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Speaker 6: Just to underscore that point, I mean, we went county

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Speaker 6: by county through Mississippi and looked at the kinds of

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Speaker 6: loans that Hope was making and who those borrowers were,

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Speaker 6: and who regions were. And you saw in county after

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Speaker 6: county double digit percentage differences between regions lending to black

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Speaker 6: borrowers and Hopes lending to black borrows. Hope just clearly

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Speaker 6: has a focus on building wealth in the black community

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Speaker 6: in a way that Regions doesn't. And just to be clear,

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Speaker 6: Regions is not a crazy outlier within the financial system.

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Speaker 6: They're lending at about the same rate to black borrowers

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Speaker 6: that other lenders are in Mississippi. It's just that Hope

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Speaker 6: is really much, much, much more focused on that.

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Speaker 1: What did Regents say when you asked about their lending.

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Speaker 3: They said that they do as much as they can

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Speaker 3: for home buyers regardless of their race. Said they donated

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Speaker 3: several of these branches to Hope, that they gave them

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Speaker 3: money cash to help with the renovations and the transition,

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Speaker 3: and that they have other community programs that do help

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Speaker 3: in the Mississippi Delta and other areas.

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Speaker 1: A Region spokesperson also told Bloomberg the company is actively

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Speaker 1: serving the Mississippi Delta, including providing credit to people in

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Speaker 1: low and moderate income areas. They said the bank chose

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Speaker 1: to donate for properties to Hope because a community partner

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Speaker 1: was in a better position to maintain services in specific communities.

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Speaker 1: They said when banks like Regions support lenders like Hope.

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Speaker 1: They collectively create results for individual in communities, and they

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Speaker 1: said it's misleading to directly compare the two types of lenders.

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Speaker 1: Region says it takes access to credit very seriously and

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Speaker 1: wherever possible, works with consumers who may not qualify for

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Speaker 1: loans to help improve their financial strength. So this isn't

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Speaker 1: something only happening in places like Drew, but really a

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Speaker 1: broad thing that's happening across the country.

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Speaker 6: You're seeing similar trends play out in places like rural

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Speaker 6: Ohio or in New Mexico. And what we saw over

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Speaker 6: and over and over again in the data and in

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Speaker 6: talking to other financial institutions is that these community lenders

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Speaker 6: like Hope do a much better job. They're doing a

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Speaker 6: greater share of their mortgages in poorer areas.

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Speaker 5: Absolutely, we talked to.

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Speaker 3: Community lenders all over the place, other places that are

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Speaker 3: doing a lot to help low income people become homeowners.

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Speaker 1: And this does just affect black home buyers. Heather spoke

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Speaker 1: to a white woman in central Ohio about her challenges

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Speaker 1: in buying a home.

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Speaker 4: Hello, I'm Tara Carmichael. I'm from North Ohio.

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Speaker 3: She is a single mom and had the same issues

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Speaker 3: she has a good job working in a hospital. She's

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Speaker 3: an ultrasound tech and seemingly would be a good candidate

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Speaker 3: for a home by all standards.

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Speaker 7: I was just kind of done throwing away money and rent.

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Speaker 7: I wanted something that I could invest in and make

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Speaker 7: improvements too, and a place for my family to put

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Speaker 7: down roots.

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Speaker 3: She told us her credit score was a five to

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Speaker 3: eighty and she couldn't qualify for a home loan from

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Speaker 3: any of the traditional banks in her area.

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Speaker 4: Thanks, you know, they don't really tell you what you

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Speaker 4: need to do or try to help you anyway, more

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Speaker 4: of just like, no, we're not going to give you

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Speaker 4: the loan. So I need a little assistant than getting

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Speaker 4: myself in a place where I was actually able to

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Speaker 4: fall I and be ready to purchase.

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Speaker 3: So it wasn't until she found Truecore, another credit union

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Speaker 3: and community focus lender that really worked with her to

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Speaker 3: bring that credit score up.

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Speaker 5: They told her.

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Speaker 3: Which credit cards to cancel, which accounts to close, and

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Speaker 3: a year later she was up to a six 't eighty,

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Speaker 3: So it really did work, but it took Elbow grease.

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Speaker 3: So now she is a first time home buyer who's

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Speaker 3: very happy and proud in Newark Ohio.

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Speaker 4: I was just relieved to have, you know, something of

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Speaker 4: my own. We lived in a house, it was a rental,

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Speaker 4: it was on a busy street.

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Speaker 7: We couldn't really make any changes to the property as

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Speaker 7: it was.

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Speaker 4: So it was nice to be able to get into

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Speaker 4: our own home and put our personal touches on everything,

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Speaker 4: and kids to have their own space.

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Speaker 1: Noah, how are these community focus banks able to issue

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Speaker 1: so many loans to lower income home buyers when the

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Speaker 1: larger banks aren't doing it as much?

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Speaker 6: You know, That's actually the crux of our story is

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Speaker 6: what you find is when you talk to these community lenders,

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Speaker 6: their ability to go out and work with people like

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Speaker 6: James Green and Tara Carmichael is really a function of

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Speaker 6: how much they can borrow from the federal home loan banks.

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Speaker 1: That's right. These community lenders are also borrowing money from

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Speaker 1: the Federal Home Loan Banks, the bank set up by

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Speaker 1: the federal government to spur mortgage lending. But as Heather

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Speaker 1: and Noah learned in their reporting, when these community banks

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Speaker 1: go to borrow from the federal home loan banks, they

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Speaker 1: sometimes receive less money than larger banks. I asked Heather about.

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Speaker 3: That these banks because they're smaller, and they're lending to

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Speaker 3: lower income Americans. They're just seen as riskier, they're seen

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Speaker 3: as less financially stable, and they're kind of treated as

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Speaker 3: second class citizens by these home loan banks.

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Speaker 1: Are they risk her? Do these loans default at higher

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Speaker 1: rates than other mortgages?

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Speaker 7: No?

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Speaker 3: If you look at the loss rates for a lot

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Speaker 3: of these portfolios, they're less than one percent. They do

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Speaker 3: a better job, they lose less money than the larger

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Speaker 3: institutions who are lending.

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Speaker 6: This is not just you know us saying this. You've

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Speaker 6: got a credit rating firm like Fitch that went out

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Speaker 6: and studied a lot of these, you know, community mission

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Speaker 6: focused lenders, and they found that they've had really really

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Speaker 6: low loss rates. They buy and large function in safe

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Speaker 6: and sound ways.

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Speaker 1: If these community lenders like Hope and Truecore aren't able

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Speaker 1: to access as much of this money from the home

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Speaker 1: loan banks as they want or need, it raises a

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Speaker 1: question what are the federal home loan banks doing with

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Speaker 1: their money.

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Speaker 3: They've sort of strayed from that mission where they were

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Speaker 3: focused really entirely on housing, and these banks changed and

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Speaker 3: started lending almost to help banks with any kind of

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Speaker 3: needs that they might have.

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Speaker 1: Heather and Noah report that the federal home loan banks

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Speaker 1: became a go to for big firms in need of

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Speaker 1: quick cash at cheap rates. They gave billions of dollars

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Speaker 1: in financial support to now failed companies like Silicon Valley

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Speaker 1: Bank and Signature Bank.

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Speaker 3: People stopped and kind of scratched their heads and thought,

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Speaker 3: what are these banks playing in crypto and lending to

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Speaker 3: the one percent and these niche institutions that really had

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Speaker 3: nothing to do with home lending getting all of this

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Speaker 3: government subsidized cheap, cheap money. And that was part of

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Speaker 3: what sparked our interest in this in the first place.

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Speaker 1: When we come back, what a fix to this massive

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Speaker 1: financial system might look like, Heather, how is it that

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Speaker 1: this system, which was started explicitly to help people buy

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Speaker 1: homes now lends out so much of its money to

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Speaker 1: things that have nothing to do with buying homes.

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Speaker 3: That's just a flaw in the way the system operates.

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Speaker 5: They are in this sort of nebulous area.

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Speaker 3: They also have little quirks like once you become a member,

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Speaker 3: sort of like tenure if you're a professor, so you

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Speaker 3: don't really get kicked out, And there are insurance companies

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Speaker 3: that used to be a big part of the housing

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Speaker 3: market ninety years ago when this thing was started, that

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Speaker 3: now don't give any home loans, but they got kind

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Speaker 3: of grandfathered in, so now they're still benefiting from access

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Speaker 3: to this really cheap money.

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Speaker 1: But all of this is legal, we should say, Is

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Speaker 1: that right?

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Speaker 5: It's all legal.

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Speaker 6: Yeah.

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Speaker 3: So everyone's making a lot of money, including banks, smaller banks,

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Speaker 3: and it's hard to shut something down or even change

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Speaker 3: it a little bit when the status quo has been

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Speaker 3: working quite.

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Speaker 5: Well for some time.

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Speaker 1: Noah, what do the federal home loan banks say about

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Speaker 1: their lending?

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Speaker 6: Basically, they say that they need to maintain tight credit

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Speaker 6: standards to run institutions that don't fail and don't cause

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Speaker 6: tax bearers money if they need to be bailed out, which,

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Speaker 6: by the way, they have run safe institutions for a

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Speaker 6: long time. They've lent a lot of money successfully over

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Speaker 6: many many years, and so basically what they're saying is

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Speaker 6: that they're responding to the rules that Congress and their

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Speaker 6: regulator have made for them over the years, and they're

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Speaker 6: really focused on running safe institutions.

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Speaker 3: They're regulated by the FAHFA, which is the Federal Housing

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Speaker 3: Finance Agency, the same group that oversees Fannie May and

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Speaker 3: Freddie Mac.

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Speaker 5: If those names are more familiar.

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Speaker 1: I know, what does this regulator have to say about

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Speaker 1: out how they're lending money.

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Speaker 6: The FHFA has for the past year been studying the

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Speaker 6: home loan bank system. Remember this is a ninety plus

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Speaker 6: year old institution. They are trying to make it work better.

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Speaker 6: And when we put a series of detailed questions to them,

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Speaker 6: they told us that they very much are interested in

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Speaker 6: making the home loan banks work better for community focused lenders,

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Speaker 6: those that are actually helping to create home ownership opportunities.

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Speaker 6: So there's likely more to come there. But a lot

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Speaker 6: of this stems from Congress. You have to realize that

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Speaker 6: this system has been around for so long. Congress has

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Speaker 6: fiddled with it for years, and there are rules upon

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Speaker 6: rules that have been codified over the years saying how

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Speaker 6: the banks have to operate, who their members can be,

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Speaker 6: how they can lend, what sort of collateral they can

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Speaker 6: accept to make loans, and a lot of that. When

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Speaker 6: you talk with experts in this field, they'll tell you

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Speaker 6: it doesn't make a whole heck of a lot of

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Speaker 6: sense anymore. Or there's a lot of contradictions in the

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Speaker 6: system because the mortgage market frankly, has just changed a

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Speaker 6: lot in the last ninety years, and lawmakers and regulators

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Speaker 6: just haven't kept up with that change.

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Speaker 1: What might the system look like that they changed it.

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Speaker 1: What are some of the reforms they're considering.

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Speaker 6: Well, frankly, we don't know, but some of the ideas

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Speaker 6: that have been floating out there in Washington, or maybe

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Speaker 6: the test periodically that the financial institutions that are members

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Speaker 6: of the home loan banks that they continue to be

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Speaker 6: in the mortgage business. You have some institutions that have

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Speaker 6: been in this system for a long time that have

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Speaker 6: just really moved away from mortgage lending, and so maybe

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Speaker 6: that shouldn't be I think there are some things that

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Speaker 6: have been discussed around the edges which might make it

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Speaker 6: cheaper and easier for some of these community lenders to

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Speaker 6: borrow money from the system, to acknowledge the fact that

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Speaker 6: they have good underwriting track records and should be able

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Speaker 6: to get greater access to funds.

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Speaker 1: Heather, we've heard how this system has affected people like

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Speaker 1: James Green and Tara Carmichael. Are their broader implications to

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Speaker 1: the system not operating as originally intended.

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Speaker 3: Well, we're struggling with a huge affordable housing crisis, so

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Speaker 3: it's hard to think about an institution that was set

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Speaker 3: up directly to solve some of these problems, that has

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Speaker 3: the means to tackle a lot of this all throughout

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Speaker 3: the country and.

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Speaker 5: Is really falling short.

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Speaker 3: And that's where regulator like the FHFA can step in

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Speaker 3: and really do something to change this if they choose to.

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Speaker 1: Heather Noah, thanks so much for sharing your reporting. Thank you,

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Speaker 1: thanks for listening to us here at The Big Take.

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Speaker 1: It's a daily podcast from Bloomberg and iHeartRadio. For more

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Speaker 1: Email us questions or comments to Big Take at Bloomberg

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Speaker 1: dot net. The supervising producer of The Big Take is

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Speaker 1: Vicky Virgolina. Our senior producer is Katherine Fink. Our producers

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Speaker 1: are Michael Falero and Moe Barrow. This episode was edited

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Speaker 1: by Caitlin Kenney. Raphael mcili is our engineer. Our original

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Speaker 1: music was composed by Leo Sidrin. I'm west Kasova. We'll

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Speaker 1: be back tomorrow with another Big take