Here’s one way the 2008 financial crisis is still very much with us: For black Americans, homeownership is more out of reach than it has been in almost six decades. And so far, there’s no recovery in sight.
Owning a home has long been a challenge for black families in the United States. Generation after generation, institutional racism has made them targets for financial predation. In the middle of the 20th century, when the government effectively refused mortgage credit to black people, this took the form of contract-for-deed, a sort of rent-to-own arrangement that entailed all the burdens and none of the benefits of ownership. It later evolved into other schemes, such as the Federal Housing Administration machinations of the 1970s, in which an ill-designed federal loan program allowed speculators – sometimes with the help of corrupt government officials – to sell inner-city homes to black buyers at astronomical prices. The result: foreclosures, blighted neighborhoods and a persistent wealth gap between blacks and whites.
In the early 2000s, though, black homeowners appeared to be making progress. Thanks in large part to a boom in subprime mortgage lending and securitization, which channeled the money of global investors into some of the country’s most disadvantaged communities, credit became abundant. Suddenly, mortgage brokers were taking out ads and going door to door, vying for the business of people they had previously avoided. As of June 2004, the Census Bureau estimated the black homeownership rate at 49.7%, up from 41.8% a decade earlier. Policymakers touted the gains as a major economic success.
The black homeownership rate … has given back the gains of the 2000s and more.
Sadly, it proved to be yet another episode of exploitation. Brokers frequently steered black customers into unduly expensive loans, with high-risk features – such as low introductory rates or interest-only payments – that made default all but inevitable once the initial rates reset or principal repayments came due. As in the 1970s, artificially inflated prices made debt burdens larger and further increased the chances of failure. Worse, the onslaught of credit encouraged many people to borrow against their existing equity. This meant that bad lending could do more than produce a temporary surge in ownership: It could also remove people from homes they already owned.
The repercussions are evident in the black homeownership rate, which has given back the gains of the 2000s and more. As of June, it stood at just 40.6%, the lowest since 1960, when racial discrimination in mortgage lending was actually federal policy. That’s almost 33 percentage points short of the white homeownership rate, the biggest gap on record.
It could get worse. Black families’ incomes have improved in recent years, but mortgage credit remains much tighter than it was before the subprime boom – a constraint that has an outsize effect on minority borrowers. In areas where bad lending was most prevalent, houses have fallen into disrepair or been demolished. Others now belong to investors, who either rent them out or – in some cases – strike agreements with tenants similar to the predatory contracts of the 1950s and 1960s.
There’s plenty policymakers can do to address the homeownership gap. A responsible expansion of government mortgage guarantees, better credit-scoring models and more comprehensive enforcement of fair-lending laws could all help improve access for creditworthy borrowers. Cracking down on zoning rules, which often stipulate minimum lot sizes or maximum building heights, could increase supply by allowing more construction of affordable housing in economically attractive places.
Unfortunately, neither Congress nor the Trump administration seem likely to take up such proposals anytime soon. They’re actually moving in the opposite direction – for example, by eliminating the data needed to know whether mortgage lenders are complying with anti-discrimination laws. One must hope that their successors will do better.
Mark Whitehouse is a Bloomberg Opinion editor.