The nation’s housing boom, fueled by a muscular economy that has expanded for eight straight years, has come largely because minority families are buying homes in record numbers.
But despite progress in the number of mortgages sold to minorities, and in their perceptions of their ability to buy a home, inequalities persist. For example, a 1998 study released by the Joint Center for Housing Studies at Harvard University showed that the nationwide home ownership rate for whites is one-third greater than that of minorities.
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And as some of the gains of the mid 1990s begin to level off, some now question whether the country will be able to continue to expand home ownership opportunities, or if the gaps will widen when the economy takes a dive.
“On the one hand, minorities are participating like never before in the home-ownership boom,” said Nicholas P. Retsinas, director of the Joint Center at Harvard. “On the other hand, even though we’ve had this prosperity, there remain substantial disparities. And it makes me wonder: ‘If these are the best of times, what will it be like when it’s not the best of times?'”
The best of times began early this decade, as minority buying spurred much of the 1990s housing boom. Of the four million households that became new home owners between 1994 and 1997, 42 percent were minorities – though minorities make up just 17 percent of all U.S. home owners, according to the Harvard study
The study also showed that lending to minorities jumped by 45 percent between 1993 and 1996, compared to only a 20 percent increase for whites.
And as lending patterns have changed, so have attitudes about home ownership. A 1998 study released by the Federal National Mortgage Association (Fannie Mae) said 34 percent of black respondents said now is a “very good time to buy” a home, up from 23 percent who said so in 1997.
Meanwhile, 34 percent of Hispanics said this is a “very good” time to buy, up from 29 percent in 1997, Fannie Mae reported.
But recent studies indicate that the gains of the 1990s may be leveling off. For example, a study by the Massachusetts Community and Banking Council found that the number of home mortgages sold to blacks and Hispanics in Boston declined in 1997 compared to 1996, halting a trend of steady progress since the early 1990s.
And in Rhode Island, where the overall home ownership rate is 58.7 percent, compared to the national rate of 66.8 percent, according to the U.S. Department of Housing and Urban Development, the disparity between white and minority home ownership is pronounced. According a federal survey, only 3.7 percent of Rhode Island home owners are minorities.
“Traditionally, statewide minority home ownership ranks well below white home ownership,” said Brenda J. Clement, executive director of the Housing Network, a group of nonprofit organizations statewide that helps low and moderate-income persons move into their first homes. “We’ve seen steadyincreases in the amount (of people) we’re able to serve, but we’re still just touching the surface.”
Nationally, the debate is on about how the country should go about getting beyond the surface. Generally, experts say the strength of the economy, the success of the 1977 Community Reinvestment Act (CRA) – which requires banks to loan to their entire constituencies, consistent with sound operating procedures – competition among lenders, and the emergence of community groups like the Housing Network have cooperated to boost opportunities for blacks, Hispanics, Asians, American Indians, and other minority and low-income groups.
But experts warn that these factors could be in trouble. The economy, for one, is bound to slow. The reinvestment act does not apply to mortgage companies, which have replaced banks as the top home mortgage lenders. Also, according to Retsinas, the percentage of funds kept in CRA regulated institutions has plunged from 70 percent in 1977 to just 30 percent today, meaning the law has lost much of its potency.
And some, like Retsinas, also question whether mortgage products for low and moderate-income buyers – featuring low down payments and flexible underwriting criteria – will continue to be successful when the economy heads south.
Still, new mortgage programs have helped lenders in Rhode Island and nationwide reach new populations. For example, in 1997 Citizens Bank, Fleet Bank, and BankBoston teamed with PMI Private Mortgage Insurance Co., the Providence Neighborhood Housing Corp., and the Rhode Island Housing and Mortgage Finance Corp. to form BankLincs II, which offers low-interest loans, down payment assistance, and relaxed lending standards to income-eligible people looking to buy a home in Providence.
And the ‘second look’ program used by Citizens Bank, for example, calls for every denied mortgage application to be reviewed by a committee. The committee checks to see if the original inspectors missed anything that shows the applicant is in fact a good risk, said Cheryl Perrino, vice president of CRA administration for the bank.
Nationally, such programs, along with other factors, have helped swell the ranks of minority home buyers. But that’s not to say minorities no longer battle obstacles. Though the percentages are dropping, Fannie Mae nonetheless found that 48 percent of blacks and 36 percent of Hispanics “perceive special obstacles to people of their racial and ethnic background.”
Indeed, in a Sept. 18, 1998 speech to the 100 Black Men Organization, housing and urban development Secretary Andrew M. Cuomo said: “The simple, plain, ugly truth is that racism is alive and well in America in 1998, and it’s not going to go away if we don’t have the courage to admit it, and then the courage to address it.”
Said Barry Zigas, senior vice president and executive director of Fannie Mae’s National Housing Impact division: “There’s no question that there are some parts of the market where discrimination remains an issueThere’s no question that a number of people confront a number of obstacles.”
Credit problems and saving money for the down payment are among them. But the problem goes beyond discrimination and money. Zigas and Clement both noted that many minority and low-income families do not come from a tradition of home ownership, and therefore lack the benefit of years of accumulated wealth.
Nationally, one issue of much debate – Congress is expected to take it up again this year – is whether CRA regulations should be extended to mortgage companies and other financial institutions. Banks’ CRA performance is used by regulators to determine if the bank will be permitted to merge with another bank – that’s the teeth of the law.
Among the proponents of extending the CRA to mortgage companies is University of Massachusetts, Boston, economics professor James Campen, author of the recent Massachusetts Community and Banking Council study on mortgage lending trends in and around Boston.
According to Campen, Boston’s large banks – Fleet, BankBoston, Citizens – in 1997 had a better track record in minority lending than mortgage companies and smaller banks. For example, black borrowers received 29.4 percent of the loans made by the big Boston banks. But they received just 9.5 percent of those made by mortgage companies, and just 7.3 percent of the loans made by all other banks, according to his study.
“I’ve been arguing that for a long time,” Campen said, when asked if CRA should be extended. “Mortgage companies should have some obligations to make those loans to all different kinds of borrowers.”
But Zigas, who said most of the mortgages Fannie Mae buys on the secondary market are from mortgage companies, added that these companies are attempting to serve minority and low income people.
“The major players in mortgage companies today clearly are very interested in reaching out and serving under-served markets,” he said.
The Joint Center at Harvard attributes the shift in mortgage lending dominance from banks to mortgage companies as part of the changing nature of capital markets – part of the overall shift of funds from regulated to non-regulated institutions. He noted, for example, that many depositors now keep funds in money-market accounts, which are not federally insured and not covered by CRA.
Still, Retsinas said it is worth considering whether CRA should be extended to cover other kinds of funds.
“I think that’s worth debating,” he said. “Otherwise we’ll wake up one morning and realize that there are no funds left in regulated institutions.”
