2020 State of Housing in Black America

Vanessa Gail Perry

Michelle Aronowitz ♦ Jung Hyun Choi ♦ Edward Golding
Morgan Green ♦ Richard K. Green ♦ Maurice Jourdain-Earl
Ashlyn Aiko Nelson ♦ Lauren Rhue ♦ Lisa Rice

Directions for Public Policy and the Real Estate Industry

Taylor and Riley bought their first home last year. Although Taylor and Riley possess many of the attributes of similarly-situated White middle-class families, they have considerable debt, little wealth, and negligible savings. As a result, once the loan forbearance, credit scoring adjustments and other short-term pandemic benefits expire, they will have less of a financial cushion to fall back on. The value of their home will appreciate more slowly, while their property taxes will rise more quickly than in predominantly White areas. Due to the history of racism in the banking and real estate markets, the effects of inequality in employment, education and health care, along with the present-day effects of the pandemic, Taylor and Riley like many others face challenges in the mortgage and housing market which existing public policies cannot resolve. Advancing Black homeownership requires public policy solutions that intentionally and explicitly address housing supply, affordability, access to credit, assistance due to the COVID-19 pandemic, fair housing regulation, and other manifestations of systemic inequality.

The analyses presented in this report shed light on the current state of Black homeownership as well as conditions in the mortgage and housing markets that affect Black households. In the second quarter of 2020, the homeownership rate was 47 percent for Black and 73 percent for White households. The recent uptick in Black homeownership due to a strong economy and low interest rates has ended abruptly due to the COVID-19 pandemic and its far-reaching and devastating effects, particularly to the Black community. However, as in past economic crises, the adoption of substantial, immediate, multi-level, and coordinated policy interventions directed towards boosting homeownership could ‘save the day’ by driving economic growth and opportunity for Black households and families. Taxpayers subsidize housing for the wealthy via the tax code, zoning restrictions, and other mechanisms. These benefits should be extended to those who face historical disadvantages.

The following policy recommendations are intended to address the current and systemic issues presented in Sections I and II of this report.

1. Aggressive loan forbearance and credit reporting mandates are necessary to protect Black homeowners and potential homebuyers from financial devastation due to the COVID-19 pandemic.

One recommended approach, described as ‘suppression and deletion,’ restricts lenders’ reporting of late payments to credit bureaus during the pandemic. Due to discrepancies with consumer dispute resolution processes and other potential data inaccuracies, legislators and regulators will need to be more specific and vigilant about protecting consumers. 1

2. Federal-level rent relief and eviction bans are necessary to help Black homebuyers and potential homebuyers nationwide.

The CARES Act includes a moratorium on evictions for rental properties financed by Freddie Mac, Fannie MAE or FHA loans, or Low-Income Housing Tax Credits. These only accounts for approximately 28 percent of rental units.2

3. Restoring fair housing regulatory protections and increasing enforcement can reduce barriers to homeownership due to historical redlining and discrimination. `

4. Regulatory reforms can improve access to and costs of mortgage credit in the conventional market for Black homebuyers.

5. FHA and HUD could increase Black homeownership opportunities with additional resources.

6. Down payment assistance can offset wealth constraints for Black homebuyers.

Evidence suggests that wealth constraints, i.e. downpayments, are the most significant impediment to homeownership for income-constrained households and minority households in particular.5 Several studies have found that down-payment assistance provided by non-profit or government grants significantly increased access to homeownership for lower income and Black borrowers.sup>6

7. Student loan relief can alleviate debt burdens due to wealth constraints of Black homebuyers.

Student loan payments are included in debt-to-income calculations used for mortgage underwriting.   

8. Accounting for race in credit scoring and underwriting models can reduce negative disparate impact.

Credit models currently in place in the mortgage market should account for advances in financial technology or alternatives to traditional banking. Elsewhere, new models that go beyond credit repository data are being developed that allow rental payments, utilities, remittances, and digital transactions to be used to establish credit histories. These innovations would benefit unbanked consumers, who are disproportionately Black. It is also important to address formally the hidden biases in the algorithms used to develop these tools and to assess disparate impact on all protected classes of borrowers.8

9. Increasing the supply of affordable housing can increase opportunities for Black homeownership.

Experts suggest that approximately 5 million new or rehabilitated affordable housing units will be needed over the next decade.  While Federal Government programming can support and incentivize this development, given the diversity of these housing needs (e.g. New York City vs. Houston) there is no single existing program that can solve these issues.  Thus, part of the policy strategy needs to be coordination between federal, state and local governments as well as localized public-private partnerships. 

10. State and local governments should examine the effects of inclusionary zoning programs on Black communities.

Inclusionary zoning programs, typically introduced by local or city governments, include requirements or incentives for developers to build affordable housing units. Although these practices have been prohibited in several states, and many argue that single-family zoning restrictions result in increased housing prices and the preservation of segregation, many policymakers and consumer groups support these programs.

11. State and local governments should update their fair housing and fair lending laws to add needed protections not found in federal law and should leverage their sovereign power to hold accountable lenders/insurers/brokers doing business in their states.

State and local governments should step up enforcement of these laws, by requiring more training, conducting more investigations, and sanctioning violations.

12. States also need to Banks and other lending institutions should expand self-regulation.

The industry should create stronger structures for self-regulation to prevent adoption of discriminatory practices, such as arbitrary underwriting guidelines. For example, during the COVID-19 pandemic, some lenders are reportedly requiring a minimum of 700 FICO score and a 20 percent downpayments—others have opted out of making jumbo loans.10

13. Real estate professionals should leverage their influence to demand that industry participants comply with Fair Housing or other laws that affect Black communities.

14. Increasing diversity in the real estate and mortgage industry, especially in senior leadership, and encouraging minority business utilization will improve performance.

In addition to increasing representation of Black professionals to reflect the characteristics of the markets served by the industry, there is evidence that diversity in leadership has a positive impact on organizational performance.11

In summary, there are several key directions for policymakers which need urgent attention to enhance homeownership opportunities for Black Americans and to prevent devastating consequences of the COVID-19 pandemic. In the immediate future, we need enhanced relief for Black homeowners and renters who are disproportionately affected by the pandemic. Going forward, thoughtful implementation of the additional policy interventions described above, including the restoration of Fair Housing laws and enforcement, housing finance reform, changes in credit scoring, underwriting, and pricing models, increasing supply, and improving industry diversity, will go a long way towards increasing Black homeownership.

In the sections that follow, housing industry experts highlight key policy issues related to Black homeownership, including the COVID-19 pandemic, recent developments in fair housing legislation and regulation, and HUD’s proposed changes to the disparate impact standard for discrimination.