For generations of white American families, homeownership has been a fundamental means of accumulating wealth. Their homes have grown in value over time, providing security in retirement and serving as an asset against which they can borrow for education or other purposes.
But African-Americans were essentially shut out of early federal programs that promoted homeownership and financial well-being — including the all-important New Deal mortgage insurance system that generated the mid-20th-century homeownership boom. This missed opportunity to amass wealth that white Americans took for granted is evident to this day in a yawning black-white wealth gap and in worse health, living conditions and educational opportunities for African-Americans.
The Fair Housing Act, which turned 50 years old last week, ended the most egregious forms of discrimination and brought a modest rise in black homeownership. But those gains — and the hard-won wealth they represented — were wiped out a decade ago in the Great Recession, which reduced the African-American homeownership rate to levels not seen since housing discrimination was legal in the 1960s.
These losses reflect the persistence of financial racism in America and the fact that black people who were eligible for affordable credit were victimized by predatory loans that paid off handsomely for brokers and lenders but led borrowers to foreclosure.
This well-documented cycle of predation ravaged the fiscal health of entire cities by impoverishing families and leaving once-solid communities strewn with abandoned homes. Unless state and federal governments make it a priority to prevent a replay of this damage — and to begin to close the black-white homeownership gap — the social tensions that flow from economic inequality will continue to fester.
A LEGACY OF ECONOMIC RACISM
In the 2017 volume “The Fight for Fair Housing: Causes, Consequences and Future Implications of the 1968 Federal Fair Housing Act,” the housing expert Lisa Rice notes that federal programs created to support homeownership dating to the 19th century “largely, and in some cases, exclusively benefited whites” while making it difficult for black citizens to achieve the dream of owning homes and land.
As enslaved people, she writes, black Americans were initially unable to take advantage of the Homestead Act, under which the government encouraged westward migration by giving away tens of millions of acres — to settler citizens. Former slaves gained full citizenship with the 14th Amendment and became eligible for land grants, but that right became irrelevant with the collapse of Reconstruction, the rise of Jim Crow and the limitations on the rights of black people that the Southern states placed in their constitutions.
The pattern of exclusion continued into the Great Depression, when programs aimed at rescuing homes from foreclosure were carried out in a patently racist fashion. The Homeowners Loan Corporation, established in the 1930s to refinance mortgages, set a discriminatory pattern when it drew lines around black communities — a system known as “redlining” — and decreed them unsafe for federal investment.
That system of exclusion was picked up with disastrous effect by the Federal Housing Administration, created in 1934 to encourage homeownership with federally backed mortgage insurance. A 2017 study by the Federal Reserve Bank of Chicago found “evidence of a long-run decline in homeownership, house values and credit scores” that persists to this day in the formerly redlined neighborhoods.
The Fair Housing Act of 1968, which outlawed housing discrimination on paper, might have made amends for some of this history had the federal government actually enforced it. But studies continue to show pervasive discrimination in housing, and lower-income whites still have greater access than middle-class African-Americans to healthy mixed-income communities.
A study by the National Fair Housing Alliance of a dozen metropolitan areas — including Atlanta; Austin, Tex., Birmingham, Ala.; Chicago; Dayton, Ohio; Detroit; New York; Philadelphia; Pittsburgh; San Antonio; and the District of Columbia — showed that real estate discrimination was pervasive.
The alliance filed a federal fair housing complaint against a real estate group in Jackson, Miss., charging that real estate agents were denying African-Americans the right to buy homes in high-value areas that would provide greater returns on their investments after testers posing as home buyers established that black and white clients were treated very differently. The real estate group settled the case by agreeing to specific steps to expand equal housing opportunities.
A HOME MORTGAGE ‘BLACK TAX’
African-Americans who had amassed equity in their homes and who should have been offered safe, reasonably priced loans were set up for default in the run-up to the recession, when they were targeted for predatory loans that were often deceptively marketed. A study of the problem in Baltimore found that black residents were charged higher rates and discriminated against at every stage of the transactions compared with comparably qualified white customers.
The authors determined that the loan default rate would have been considerably lower for black customers had they been treated in the same fashion as whites. Most tellingly of all, the study took into account factors like credit scores, income and down payments that would have been known to brokers and lenders when these abusive loans were made.
It comes as no surprise that such tactics took a heavy toll on black homeowners, who already lagged far behind whites in terms of wealth and homeownership levels. An analysis by the nonprofit Urban Instituteshows that between 2001 and 2016 the homeownership rate for African-Americans declined about five percentage points, to 41 percent, as opposed to just one percentage point for whites, whose rate fell to just over 71 percent. The nine percentage point decline for middle-aged black homeowners is particularly ominous, given that these people are closer to retirement with fewer resources to rely on.
The Urban Institute’s analysis of the black-white homeownership gap in 100 cities across the country shows that none have actually closed the ownership gap. The gap was widest in Northeastern and Midwestern cities — with the widest gaps, listed in order of severity, found in Minneapolis; Albany; Buffalo; New York; Salisbury, Md.; and Bridgeport, Conn. The cities with the smallest gaps were Killeen, Tex.; Fayetteville, N.C.; Charleston, S.C.; Austin; and Augusta, Ga.
Minority communities that were ravaged by predatory lenders during the run-up to the recession have now been shut out of the credit market entirely because of tightened lending standards. Some of these communities have seen the return of a particularly pernicious predatory lending system — known as “contract for deed” — that hollowed out black communities, in Chicago and Baltimore in particular, during the mid-20th century.
Under this system, a naïve buyer agrees to pour money into an often dilapidated house while also making high interest payments, with the aim of eventually owning the home. But the buyer can be evicted, losing all of his or her equity, if even a single payment is missed. In the past, this system has both accelerated urban decline and looted the financial resources of ambitious but vulnerable families.
In a sensible world, the federal government would be suppressing predatory lending while beefing up programs that provide affordable home mortgages and refinancing arrangements. Instead, the Trump administration and Congress are gearing up to gut federal fair lending protections and make it easier to hide emerging patterns of predatory financing.
In the absence of federal leadership, mayors and governors will be left holding the bag when default and declining ownership levels hollow out more communities. So it is up to them to find and root out abuses in real estate lending and to close the racial gap in homeownership. They can expect no help from the Trump administration.