Michelle Aronowitz ♦ Jung Hyun Choi ♦ Edward Golding Morgan Green ♦ Richard K. Green ♦ Maurice Jourdain-Earl Ashlyn Aiko Nelson ♦ Lauren Rhue ♦ Lisa Rice
Taylor and Riley are a Black couple in their early 30s. After renting a 2-bedroom apartment in a major West Coast U.S. city for several years, they wanted more space for their 3-year old child in day care, and for Taylor’s mother, age 68, who has suffered complications from diabetes. A Realtist friend suggested that they consider buying their own home. Although Taylor and Riley are college-educated professionals, they have considerable debt, little wealth, and negligible savings. It was a challenge for them to save enough for a down payment due to their student loan payments and other obligations, but finally they were able to qualify for an FHA mortgage loan at a low interest rate. In late 2019, they purchased a single-family home in the neighborhood where Riley grew up.
In March 2020, the COVID-19 pandemic began to spread through communities all over the U.S. Taylor and Riley's community was hit especially hard. Riley was exposed to COVID-19 at work as a health care provider and was quarantined for 2 weeks in late March. Several of Riley's co-workers have tested positive, and there have been concerns about the lack of personal protective equipment and safety protocols. In April, Taylor’s employer, a personal-service business, went out of business, taking with it their subsidized health insurance coverage and retirement contributions. And, since then, despite the forbearance on their mortgage, other loans and the payments from the CARES act, they are not sure how or when they will recover financially.
Why has this pandemic had such a devastating impact on this family? How would their situation differ if they were white? Neither Taylor nor Riley’s parents were homeowners. Black working-class families during that time had fewer educational or advancement opportunities or access to credit. They lived in predominantly Black neighborhoods that had been ‘redlined’ in the 50s and 60s. Thus, over time, similarly-situated White families who purchased homes nearby have accumulated hundreds of thousands of dollars of wealth while Taylor and Riley's families had no home equity with which to fund their childrens’ college educations. Taylor and Riley now owe over $120,000 in student loan debt. Their city remains highly segregated by race and income, their predominantly Black neighborhood lacks many of the public services or private-sector amenities that are available in other areas. House prices there have yet to fully recover from the 2008 financial crisis. Although various Federal and State consumer protections have been put in place to prohibit discrimination and redlining, these practices persist.
Fast forward to 2020-- rates of COVID-19 infection in their neighborhood have been significantly higher than other parts of the area. Taylor works in an industry that has sustained disproportionate losses due to the pandemic. Riley is still working but faces a high risk of exposure to the virus, and is concerned about infecting family members, especially Taylor’s immuno-compromised mother. The challenges facing Taylor and Riley, similar to many other households in the Black community, began with intergenerational economic and social disadvantages that have impeded their opportunities to obtain and sustain homeownership. How do Taylor and Riley’s circumstances differ from those of White families? What does the mortgage market look like for them? What public policy interventions would help Black families achieve and sustain the American dream of homeownership?
Introduction
Homeownership enables families to build wealth, helps stabilize communities, and has been linked to access to educational, employment opportunities, increased safety as well as physical and mental health.1 The market for single-family homes and their financing are key components of a strong economy; the housing market also provides employment for thousands of professionals as well as earnings for industry practitioners and returns for investors. Despite the emphasis on this aspect of the ‘American Dream’ in popular culture and among scholars and policymakers, Black and other minority families have faced a number of barriers to homeownership, most of which can be traced to cumulative disadvantage and structural inequalities.2
Figure 1 - Black borrowers face challenges in access to mortgage credit and homeownership.
Figure 1 shows the direct and indirect links between race, access to mortgage credit, and homeownership. Mortgage lenders and investors use statistical techniques to model the probability of default based on multiple indicators of the ‘3 C’s of mortgage lending,’ Credit, Capacity and Collateral. Each of these components of underwriting requirements vary by race, and as a result, race affects the pool of potential Black homeowners who can qualify for a mortgage as well as the characteristics of mortgage loans. Racial differences in mortgage credit access have led to the homeownership gap, and ultimately, the stark disparities in wealth between Black and White households in America.
Despite these challenges, there are significant untapped opportunities for Black homeownership. There are 11 million Black Millennials, between the ages of 24 and 39, representing 22 percent of the Black population.3 In addition, according to recent research sponsored by Freddie Mac, there are nearly 3 million Black Americans that meet the criteria to qualify for a mortgage.4
In this report, we will examine the current state of homeownership for Black households in the U.S., as well as the factors that influence access to the mortgage market for prospective homebuyers. Because of cumulative disadvantage, Blacks accrue fewer benefits of higher earnings, education, and homeownership than do Whites. Simply put, the effects of discrimination and inequality-- in housing, education, employment, health care, the justice system and other institutions-- suppress access to and the accumulation of wealth. These intergenerational problems get passed down to new generations of Black Americans, which means that even with higher levels of educational attainment, employment opportunities and access to economic and social capital, because they started at a deficit, it is difficult if not impossible to catch up to similarly-situated others. This disadvantage occurs for Blacks in their interactions with many different institutions and entities, including, for example, landlords, real estate agents, banks, and mortgage companies, and regulators.5 It is important to acknowledge that race-based disadvantage is dynamic -- race can affect a person’s wealth level at a point in time, but also can affect changes in wealth over time, e.g., house price appreciation is lower on average in predominantly Black neighborhoods,6 and Blacks are more likely to face financial disruptions. The graphic in Figure 2 compares interest rates, property taxes, neighborhood house price appreciation, and rent savings for Black versus White homeowners over a 30-year period. Because of lower initial equity, house price appreciation, and because Black borrowers pay higher mortgage interest rates on average, Black homeowners accrue about one third of the financial benefits of Homeownership as White homeowners over 30 years.
Figure 2 Disparities in homeownership and access to credit contribute to cumulative wealth inequality.7
In the years since the 2008 crisis, homeownership opportunities for Black Americans had begun to take a promising turn. However, in early 2020, the onset of the COVID-19 pandemic very quickly began to threaten the lives, health, and economic viability of Black households across the U.S. Some of the same systemic inequities that have affected Black homeownership and wealth have over time resulted in inadequate access to health care. As a result, Black people are at higher risk of chronic health conditions, and are, according to the Centers for Disease Control, at increased risk of getting COVID-19 or experiencing severe illness. For example, in June of 2020, non-Hispanic Black persons had a COVID-19 hospitalization rate that is nearly 5 times higher than non-Hispanic White persons.8 Black workers have experienced higher rates of job loss and unemployment during the pandemic. Black Workers are also more likely to work in ‘front-line’ jobs that carry a higher risk of infection. Black persons make up 11.9 percent of the workforce, and 17 percent of jobs in these industries, and constitute even higher proportions of workers in public transit, childcare, healthcare and social services.9 In addition, Black-owned small businesses have been less likely to survive during the pandemic. According to a study released in April 2020, the number of small businesses in the U.S. had fallen 22 percent during the first two months of the shutdown, while the number of Black owned businesses fell by 41 percent.10 These economic shocks have had differential effects on the ability of households to make timely mortgage payments. According to the Census in June 2020, 7.9 percent of Black households and 8.2 percent of Hispanic households had deferred last month’s mortgage payments compared to 3.7 percent of White households.11 In terms of expectations for next month's mortgage payments, 8.5 percent of Black borrowers reporting having had no confidence in their ability to pay their mortgage compared to 2.8 percent of White borrowers, and 3.6 percent of Black borrowers were planning to defer their next mortgage payment compared to 1.8 percent of White borrowers. While the long-term effects of the pandemic are difficult to predict, judging from past experiences with economic crises, the implications for the sustainability of Black homeownership as well as new opportunities are likely to be significant without substantial, deliberate, and targeted public policy interventions.
The purpose of this annual report is to present the current state of homeownership for Black Americans, while highlighting current challenges as well as opportunities for closing the homeownership gap. In the section that follows, we highlight homeownership rates over time, market opportunities for Black homebuyers, as well as the demographic and economic characteristics that differentiate Black homeowners and underlie homeownership disparities. We then examine the state of the mortgage market for Black homebuyers and provide a profile of Black mortgage loan applicants and borrowers based on the criteria used for mortgage loan underwriting. Throughout this report we present special sections that provide a deeper examination of current market phenomena that suppress access and opportunity to homeownership for Black households, including loan pricing, market structure, credit scoring, fair lending regulation, housing discrimination, and COVID-19 pandemic regulation. The last section includes a set of recommendations for impactful public policy interventions.
