URBAN INSTITUTE & THE NATIONAL COMMUNITY REINVESTMENT COALITION

Reducing the Racial Homeownership Gap https://www.urban.org/policy-centers/housingfinance-policy-center/projects/reducing-racialhomeownership-gap. https://ncrc.org/60-black-homeownership-aradical-goal-for-black-wealth-development/.

Published: March 2021

Summary

• A decline over the past 20 years left the Black homeownership rate at 42% in 2018, as low as it was in 1970. The rate for white homeownership was 73% in that same year.

• A 20%–30% gap between Black/white homeownership rates has persisted for more than 100 years, despite Black homeownership increases in the mid-1900s.

• African Americans go into greater debt for less valuable homes and receive less of a return on homeownership than whites.

• If holding the current rates of Black homeownership formation and loss constant, then it would require approximately 165,000 additional new Black homeowners annually over the next 20 years to get to 60% Black homeownership by 2040.

• Bold new approaches to housing finance and investment in community development are required to get to a 60% homeownership rate for African Americans.

• Even getting to a record-level Black homeownership rate of 60% will not bridge the Black and white wealth divide. Additional bold programs like baby bonds, full employment, and reparations are needed to close the Black/white wealth divide in the foreseeable future.

• Black populations with moderate incomes in geographic areas with affordable housing and low Black homeownership rates offer strong opportunities to increase African American homeownership.

Introduction

Data from a report by Urban Institute show that today, the homeownership gap between the non-Hispanic whites and the African American population in the United States is bigger than it was more than half a century ago when it was still legal to segregate people on the basis of color, religion and ethnic affiliation.

In the 1960s, the rate of homeownership between the African Americans and the nonHispanic whites was a “not-so-large” margin of 27 percentage points, standing at 38 percent. Today, more than 50 years later, the rate has grown wider. After the passing of the Fair Housing Act of 1968, it was automatic that minority communities in America, especially the Black community would start seeing significant gains in many fronts of life, given the fact that homeownership is an integral part of wealth building, but the gains made in the last three decades were proactively erased after 2000. It would seem that forces in the housing industry aligned themselves strategically to reduce the Black homeownership rate.

The Housing Crisis of 2008–2010

This is one event that took the African American community far back, and even before the community fully recovered from this blow, the COVID-19 hit, destroying the numerous efforts by the community to build itself back up again. At the height of the 2008–2010 recession, many African Americans bought their homes at a higher interest rate than any other community, that is the non-Hispanic whites and Asian communities. Ultimately, this meant that African American buyers were disproportionately the victims of a predatory ‘cartel’ that offered subprime loans even to the people who were well able to afford prime loans at the time. It doesn’t stop there; the African Americans who were lucky at the time to have bought their first home, the ‘industry’ aggressively solicited for unsafe refinance products. Consequently, these actions culminated in the deterioration of equity for the African American community and fueled a foreclosure crisis.

(i) Subprime Lending Practices against the Black Community

It is not a new phenomenon; it has been there before, and it still is despite promises of protecting the vulnerable communities. Unscrupulous lending and lenders dominated the housing boom of the 2000s. This led to having spurred significant damages to the people who fell prey in terms of social costs as many were misled into accepting the loans with inferior properties subject to the mortgage products that they had qualified for. While much of the evidence of predatory lending is anecdotal and primarily analyzes differential loan terms of a broad group of borrowers, there is compelling evidence during the height of the housing boom, ten years before the financial crisis, Black homeowners and buyers were subjected to unfair lending practices. One report, the Loan Product Steering in Mortgage Markets, finds that many borrowers were charged 40-60 bps high APR and were 2 percent less likely to default compared to similar borrowers who were not steered into such loans. Strong evidence points to the fact a vast majority of African Americans were subjected to excessive fees, high-interest rates, prepayment penalties, and clauses that barred them from seeking judicial redress for such actions. While at the time steering potential borrowers to such loans were not necessarily nefarious, especially where the loan product could benefit a person who wouldn’t qualify for a prime loan, it had adverse consequences if there was direct exploitation by steering people to particularly loan products that they were overqualified for.

(ii) Since the housing crisis of 2008-10, the tight lending and credit environment has disproportionately affected the Black and Latino communities in the United States. Consequently, these communities have been forced to find other means of ‘survival’ oftentimes opting for higher-priced homes since they cannot fully take advantage of the low home prices and low interest rates that followed the financial crisis of 2008-10. This meant that a huge number of well-qualified individuals from these communities missed out on wealth-building opportunities through homeownership. Today, credit and lending remain constrained while home prices shoot up beyond their pre-crisis peak, which further means that more African Americans and other minorities have limited access to affordable housing options.