Looking at some key statistics, you might not guess that the federal government banned housing discrimination 50 years ago.
The African American homeownership rate is no higher than it was when the Fair Housing Act was passed in 1968, while the wealth of the typical African American family is only one-tenth the wealth of the typical white American family, according to new figures compiled by the Economic Policy Institute (EPI).
The black homeownership rate was 41.2 percent in 2016, virtually unchanged from 41.1 percent in 1968, EPI reported. During the same period, white homeownership increased 5.2 percentage points to 71.1 percent in 2016.
This inequality reflects the legacy of African American exclusion from wealth-building housing programs; inadequate enforcement of fair lending and housing laws; and the disproportionately negative impact of the mortgage meltdown on communities of color, said Lisa Rice, executive vice president of the National Fair Housing Alliance, a consortium of non-profits and agencies throughout the country dedicated to fighting for equal housing opportunities.
Title VII of the Civil Rights Act of 1968, known as the Fair Housing Act, “prohibits discrimination in the sale, rental and financing of dwellings based on race, color, religion, sex or national origin.”
Policymakers may have anticipated that the law would boost African American homeownership and narrow the wealth gap, including by banning discriminatory lending that had long choked off mortgage credit to communities of color.
But the law has largely failed to deliver, Rice said.
Historical exclusion still impacts today’s market
While the wealth of a typical black family rose six-fold from $2,467 in 1963 to $17,409 in 2016, the median black family still held only one-tenth the wealth of the median white family ($171,000) in 2016, EPI reported.
Civil rights legislation has not made up for the exclusion of African Americans from federal programs enacted during the Great Depression and after World War II to boost homeownership, according to Rice.
The programs were run by individuals that “inculcated racist ideologies into [their] development and design,” such as Federal Housing Administration (FHA) policies that discouraged banks from lending to predominantly African American communities–a practice known as “redlining,” Rice said.
“People of color were not able to participate in those programs and so we’ve lost generations of wealth attainment,” Rice added.
During FHA-subsidized white migration from cities to suburbs in the 1940s and 50s, homes purchased by white working-class Americans for roughly $100,000 when adjusted for inflation are now worth around $500,000 today, said Richard Rothstein, author of “The Color of Law: A Forgotten History of How Our Government Segregated America.”
“The FHA even required that every home in these suburbs have a clause in the deed prohibiting resale or rental to African Americans,” Rothstein said.
Predatory lending and the housing crisis
Also helping to explain the wealth gap is that African Americans are no more likely to own homes today than they were in 1968.
These statistics mask what appeared to be a promising trend in the run-up to the financial crisis, when the black homeownership rate reached nearly 50 percent, Rice said.
But the increase turned out to have been driven by shady lenders that often steered minority borrowers who would have qualified for traditional mortgages into riskier loans, she said.
Consequently, she said, the foreclosure crisis hit African Americans even harder than white Americans.
“The predatory lending phenomenon is a major reason why the homeownership gains that African Americans and Latinos were able to achieve all got wiped out,” she said.
A string of lawsuits have centered around these alleged practices.
For example, JP Morgan Chase, while denying wrongdoing, recently shelled out $55 million to settle charges that the bank had discriminated against thousands of African American and Hispanic mortgage borrowers.
A New York state attorney alleged in the suit that the average black or Hispanic homebuyer paid the bank $1,000 more than white borrowers with the same risk profile from 2006 to 2009, according to USA Today.
Despite many settlements of this kind, discriminatory lending doesn’t seem to have disappeared. A 2015 study, for example, found a “persistent pattern of racial disparity in mortgage approvals” in greater Boston and Massachusetts, even when borrowers earned roughly the same income as whites.
“The major challenge has been that the federal government has not committed enough resources to adequately address fair housing issues and to push against redlining practices and discrimination,” Rice said.
An enforcement provision wasn’t even added to the Fair Housing Act until 1988, Rothstein noted.
Today’s bifurcated credit market is further cementing housing inequality, Rice said.
African Americans are substantially more likely to borrow from “unsavory financial institutions,” such as payday, subprime auto and title-money lenders, in part because of a scarcity of banks and credit unions in communities of color, she said.
According to Rice, this can weigh on the credit scores of African Americans, making them less likely than white borrowers to qualify for the most affordable types of low down-payment mortgages, she said.
It also doesn’t help matters that the Consumer Financial Protection Bureau recently stripped its fair lending office of enforcement powers, she added.
Where do we go from here?
To better address housing inequality, the government should step up enforcement of fair housing and lending laws, including by providing ample support to private fair housing organizations that flag bad actors, Rice said.
In addition, federal mortgage guarantors Fannie Mae and Freddie Mac should encourage lenders to use their newly updated underwriting systems that allow borrowers to be assessed based on untraditional measures of creditworthiness, such rent, utilities and insurance premium payments, she said.
But, she added, Fannie and Freddie must scrap their current policies of assessing surcharges on borrowers who are evaluated in this manner, she said.
The government could also provide more assistance to low-wealth mortgage borrowers (who are not necessarily low-income) and support housing counseling programs, while eliminating some barriers that prevent “sound lending institutions” from expanding affordable lending programs, she said.
Rothstein argues for government subsidies to African American first-time homebuyers “as a remedy for prior exclusion” from previous government-subsidized housing programs.
Courts currently ignore the “history of unconstitutional policy by the FHA that justifies such a remedy,” he said.