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Low minority homeownership reverberates for generations

In the second quarter, the gap widened between low homeownership rates for African Americans (41.6 percent) and Hispanics (46.6 percent), compared with the traditionally much-higher white homeownership rate, which was at 72.9 percent for the period. Cy Richardson, a senior vice president with the National Urban League, discussed the reasons for this wide gap and its consequences.  

What are some of the reasons for the gigantic gap in the homeownership rates between white Americans, and African American and Hispanic households?

cyrichardsonWe could spend a long time speaking about this. There are structural reasons, but I think you have to be a student of history to understand the political and policy antecedents that have led us to where we are today. The two themes for us deal with the ability to build wealth intergenerationally, and how that can arrest or accelerate the racial wealth gap. Historically, the homeownership rate among people of color has lagged behind the homeownership rate of white Americans, in part, because of institutional boundaries to entry. Really, until the late 1960s, federal government-backed subsidies, many of them funded through FHA [Federal Housing Administration], were just off limits to people of color. And the FHA, which you know, was established to help people remain in their homes during the Great Depression, and began then to promote homeownership in the post-World War II period. But the lagging homeownership rate isn’t just the result of just that one program. There were others created to boost homeownership that resulted in similar outcomes for people of color. Black veterans, for example, were not able to borrow money through the GI bill to purchase homes. 

So, middle- and lower-income white households benefited most from federal programs, including low-cost mortgages [and] subsidies for homebuilders to construct affordable homes in relatively racially segregated communities. This is kind of government-backed discrimination de jure [by law] but also de facto [in reality]. Even today, minorities still face many more hurdles similar to the ones they experienced in the past. When blacks and Hispanics try to secure FHA loans, they are denied at about twice the rate of their white peers today. So [these] denials ... can sometimes be linked to injustices outside of housing. All these things are interrelated.

The problem also has to do with [the fact] that trust has been eroded, particularly coming out of the unpleasantness of the Great Recession. A lot of the households that we are seeing still cannot conclude that the purchase marketplace is a safe one to be in. Now, you couple that fear with volatility in the employment markets, asymmetrical patterns of household formation, people getting together later in life — we have all these factors layering on the challenge of homeownership attainment.

What are the consequences of having the majority of these households not participate in homeownership?

Substantively, it has to do with the inability to enter and sustain themselves in the middle class. Homeownership is the tried and true way that households do that. For those who are trying to build wealth and sustain wealth-building practices outside of the guardrails of homeownership, there are few alternate options. You have the mattress. You have the sock drawer. You have savings accounts, and long-term savings are not throwing off the dividend interest that they had.

And so, the multiplier effect of that is that communities fall farther and farther behind. The racial wealth gap — the economic life chances of white America and the economic life chances of black and brown America — are racing away at light speeds. It is homeownership that is really the wedge in that. The consequence really is that a second-class citizenry is created and accepted. And really, the ability and capability of folks to do other things in life, to finance a daughter’s wedding, finance a small-business purchase, to support higher-education attainment, all these things require a nest egg. All of this is not just because white people can save better than black people. It is about the means. It is the mechanisms, and homeownership has been the primary mechanism for which responsible households build wealth intergenerationally. So we are deeply concerned with the black homeownership rate that is mirroring that of the mid-1970s.

Lenders say that they would like to serve as wide a population as possible, but they are also federally mandated to ensure that people can repay the loans. Do you believe there is a large pool of Hispanic and African Americans who present a reasonable credit risk, but are under-served?

Absolutely. Again, I know we have to balance compliance standards and suitability standards, safeness and soundness, but I have to say in every age group, the current trends and policies are widening the homeownership gap between African Americans and other groups. The pendulum has obviously swung too far back in terms of risk aversion. I think that is a canard, that they [banks and financial institutions] can’t underwrite. You have to find the household of tomorrow. Again it is assymetrical. It may be nonconforming but again, if the notion is around risk and the ability to fulfill an obligation and to repay, I think we have to be a little bit more nuanced about the data we use to reach those equations and fill in the black box that banks employ to make these underwriting decisions. There are thousands of households that are poised to wade into the homeownership pool were it not for [for the fact that they don’t] think they are going to get a fair shake. The mental residue of that is something that we have to work on here as a civil rights organization, as a housing-counseling network.  

What policies could be implemented to help more African Americans and other people of color become homeowners?

We can overthink this sometimes but, at the end of the day, we need to believe in this as a society and really hunt for efficiencies and ways to be more effective to serve our fellow citizens. Banks say they want to me to think outside the box. Well, why does it have to be a box? Again, that is old-school thinking in terms of how we support community building and homeownership, [which is] an important leg in that stool. I think the coming CRA [Community Reinvestment Act of 1977 to address discriminatory lending]  modernization conversation will really help inform this question, particularly within the beltway in Washington. Because I think we are looking for these new actors on the block, these new financial-services firms that don’t have brick-and-mortar presence, yet are lending or would like to do more lending, and get credit for that, in these communities on the margins. So, how do we give them the incentive and the structure and the right compliance guardrails to ensure they are doing the right thing? I think you will see homeownership crop up as a major part of that conversation in the next six to 12 months.

Why have you said you are bearish on the outlook for the homeownership rate for African Americans and Latinos?

I am pessimistic because I am seeing the focus-group data we have, in places like Atlanta, Chicago, and Los Angeles, Washington and Detroit. Young black households are stating that homeownership is no longer a top two or three household objective. It has to do more with employment, education. Usually those things are in tandem with the asset building through homeowership. But it is the homeownership piece, and the residue from all the unpleasantness that we have been through, the wealth loss, the gentrification and the community change, all of those things have been, in many ways, marketed in the black community [as] cautionary tales, what can happen.

The nonprofit sector was accused of ginning up interest artificially and wedging square pegs in circle holes, getting people into homeowership who were not prepared, and they lost. That is a very convenient meme in the press. The reality is far from that. In many cases, people were overextended because of their refinance positions. In most cases, it is not black and brown families that caused the crisis, or that have caused the community disintegration that usually goes hand in hand in some of these places. It has to do, as I mentioned earlier, it is the historical connections here. But again, African Americans continue to lag other races and ethnicities in employment, wages and income.  All those things are working against not only the capability, but the desire for homeownership.


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