OAKLAND, Calif. – Three credit unions are among the organizations that have been selected to participate in the Beneficial State Foundation’s Underwriting for Racial Justice Lender Pilot Program, a two-year endeavor composed of 20 diverse lenders the organization said is “focused on dismantling racially-inequitable underwriting practices in the financial industry and increasing capital access and wealth for people of color.”
The credit unions chosen to participate include New Orleans Firemen’s FCU, Rivermark Community CU, and Washington State Employees Credit Union.
According to the Beneficial State Foundation, “The U.S.’s history of systemic racism has shut people of color out of the financial system, which results in fewer home, business, and personal loans—hampering their ability to build long-term wealth and financial stability.”
Most ‘Consequential’
In response, the Beneficial State Foundation said it is working to reform lending’s “most consequential” step–underwriting.
Traditionally, the organization added, underwriters “look unfavorably” on factors like smaller down payments and higher debt-to-income ratios, which are more prevalent among nonwhite borrowers due to longstanding systemic racism.
“There are fairer methods to determine an applicant’s likelihood and ability to repay their loans,” said Erin Kilmer Neel, executive director of Beneficial State Foundation. “Our Lender Pilot Program will help lenders develop more equitable underwriting approaches, like evaluating credit histories instead of using hard credit score cutoffs. The result is high-performing and more racially diverse portfolios.”
‘Demonstrated Commitment’
According to the Beneficial State Foundation, the banks and lenders selected have already demonstrated their commitment by actively implementing changes to help people of color access greater wealth.
“Some lenders have diminished the significance of credit scores in loan evaluations to improve the chances of loan approval for people with lower credit scores,” the organization said. “Others have established programs designed to increase lending opportunities for marginalized communities.”
The foundation said its Lender Pilot Program gives participating lenders the tools, templates, and technology they need to implement new underwriting approaches designed to increase access to fair loans for people of color.
Experiences to Be Shared
Lenders will then share their experiences and results to help learn from each other in peer-group spaces, the foundation added.
The Beneficial State Foundation said it evaluates loan performance and impacts on borrowers, communities, lending institutions, and the financial industry.
“The Foundation will then share what it learned across the industry to spark change nationwide and offer policy or regulatory recommendations to foster more equitable practices,” it explained.
Additional Participants
In addition to the credit unions listed above, other participants include:
- Beneficial State Bank
- Berkshire Bank
- BetterFi
- Chehalis Tribal Loan Fund
- Community Vision
- Eastern Bank
- Enterprise Community Loan Fund (ECLF)
- Leech Lake Financial Services
- LISC
- Montecito Bank & Trust
- NBT Bank, NA
- REDF Impact Investing Fund
- Texas National Bank
- Twin Cities Habitat for Humanity Lending
- Urban Redevelopment Authority
- Vermont Community Loan Fund
- Working Solutions CDFI
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