October 29, 2014
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Unequal Mortgage Market No Coincidence
Losing ground
on home
ownership
by M ichela
Z onta
Persistent racial and
ethnic inequality in the
mortgage market is not a coinci
dence. Nearly 50 years after the
adoption of the Fair Housing Act,
newly released federal data indicate
that people of color continued to
lose ground in the homeownership
market in 2013.
In particular, black and Hispanic
households continued to represent
a shrinking fraction of the mortgage
market and received higher-cost
loans compared with white borrow
ers. Tragically, many prospective
black and Hispanic homeowners
never reach the loan-decision stage
of the home buying process. People
o f color are still being treated un
equally in the home mortgage mar
ket, even when they demonstrate an
ability to repay their loans.
Blacks and Hispanics are more
than twice as likely to be denied a
mortgage as non-Hispanic whites
with comparable incomes and risk
profiles. However, the disparate
treatment received by people of
color is not confined solely to
the loan approval stage of the
mortgage lending process and
does not necessarily take the
form of a loan denial. Discrimi
n a tio n b ased on race or
ethnicity can take several forms
during any stage of the process.
D u rin g the p re -a p p lic a tio n
stage, for exam ple, lenders may
discourage borrow ers o f color
from continuing with the loan
application process even though
they may qualify for a loan. Lend
ers also may not provide the same
inform ation to applicants of color
that they provide to white appli
cants. Further, pair testing stud
ies— in which tw o individuals
pose as equally qualified borrow
ers in every respect except their
race or ethnicity and inquire about
the availability and terms of home
m o rtg ag e lo a n s— d e m o n stra te
that people of color are consis
tently treated differen tly than
equally qualified whites.
W hen people of color do end
up at the lending table, they are
much more likely to receive costly
subprim e loans and loans with
features that are associated with
high er fo reclo su res than their
white counterparts. A Wall Street
Journal study found that most
borrowers who received preda
tory loans in 2006 would have
qualified for better, more sustain
able loans. M ore recently, the
Center for Responsible Lending
dem onstrated that racial dispari
ties are evident even when com
paring borrowers within the same
credit score ranges, and especially
for borrowers with higher credit
scores.
For exam ple, among borrowers
with good credit— a FICO score
o f more than 660— African Ameri
cans and Latinos received a high
interest rate loan more than three
tim es as often as white borrowers.
Blaming people of color for low
FICO scores and insufficient fund
ing for a down paym ent repre
sents a m yopic perspective of
unequal access to hom eownership
in the United States. Instead, a
num ber o f other factors contrib
ute to inequality in the m ortgage
market.
First, people o f color’s inabil
ity to pay higher down paym ents
is due in large part to decades, if
not centuries, o f discrim ination
that have created ex cep tio n al
wealth gaps between com m uni
ties o f color and white popula
tions. Second, credit scoring is
not the best m easure o f risk and
often has a discrim inatory effect
on com m unities of color, as a
National Fair Housing Alliance
study shows.
Third, racial segregation— cre
ated and perpetuated by both in
stitutionalized public and private
d isc rim in ato ry p ra c tic e s— has
historically precluded com m uni
ties o f color from accessing safe
and affordable home purchase fi
nancing. It has also lim ited their
opportunities and conditions for
wealth accum ulation. As Jacob
Rugh and Douglas M assey ex
plain, residential segregation and
the ongoing lack of access to m ort
gage credit in black and Hispanic
neighborhoods have com bined to
create the ideal conditions for
predatory lending in those com
m unities.
People o f color— who will ac
count for three-quarters o f h o u se
hold grow th over the com ing de
cade— represent the future o f the
housing m arket and the econom y
as a whole. Housing represents
the foundation o f the n atio n ’s o p
portunity structure since it d eter
m ines o n e’s access to education
and jo b opportunities, as well as
the related ability to accum ulate
wealth. Yet, people o f color still
lag behind whites in the housing
market.
Contrary to what some argue,
the housing industry and C on
gress should indeed pay m ore
attention to the m assive dispari
ties that persist in the housing
m arket and the econom y based on
th e c o lo r o f o n e ’s sk in . If
policym akers do not recognize
and address racial and ethnic dis
parities in access to housing and
the opportunities attached to it,
the nation will not be able to re
duce in e q u a lity , im p ro ve the
e c o n o m y , o r s tre n g th e n th e
middle class.
Michela Zonta is a Senior Policy
Analyst fo r the Housing Finance
and Policy team at the Center fo r
American Progress.
Reserve Chair Talks about Income Inequality
Speaking
honestly and
openly
by M arc H. M orial
With all the politi
cal, national security
and disease news re
cently flooding the
airw ay s, you m ay
have missed one of the most impor
tant American speeches from one of
the world’s most powerful economic
leaders.
In a speech at the Federal Re
serve Bank of Boston earlier this
month, Janet Yellen, who in Febru
ary became the first woman Federal
Reserve Chair, bravely waded into
the national debate on income in
equality. Her remarks echoed many
of the opportunity themes that have
been championed by the National
Urban League throughout our 104-
year history.
D raw in g from the F ed eral
Reserve’s triennial Survey of Con
sumer Finances, Yellen documents
that “The past several decades have
seen the most sustained rise in in
equality since the 19th century...”
She also outlines what she calls
four “building blocks” of opportu
nity to help improve the economic
circumstances of individuals and
families. These building blocks
closely align with the National
Urban League’s long-stand
ing economic empowerment
agenda: Resources available
to children; higher education
that families can afford; busi
ness ownership; and inherited
wealth.
The average income of the top 5
percent of households grew by 38
percent from 1989 to 2013, while the
average real income of the other 95
percent of households grew less
than 10 percent.
The average real worth of fam i
lies in the top 5 percent has nearly
doubled, on net- from $3.6 million
in 1989 to $6.8 m illion in 2013,
while the average net worth of the
lower half of distribution, repre
senting 62 million households, was
$11,000 in 2013.
W hile A m ericans in all eco
nomic groups were adversely af
fected by the h o u sin g c risis,
hom eow ners in the bottom half of
households by wealth reported
61 percent less home equity in
2013 than in 2007. The next 45
percent reported a 29 percent loss
o f housing wealth, and the top 5
lost 20 percent.
Research tells us that inequal
ity tends to persist from one gen
eration to the next. One study
found that 4 in 10 children raised
in fam ilies in the lowest-incom e
fifth o f households remain in that
quintile as adults.
Again, while Yellen points out
that “to the extent that opportu
nity itself is enhanced by access
to econom ic resources, inequal
ity of outcom es can exacerbate
inequality o f opportunity, thereby
perpetuating a trend of increas
ing inequality,” she does not at
tem pt to directly link how much
the opportunity factors influence
income and wealth inequality. But
we do.
We know that opportunity is
not equal when affluent fam ilies
have sig n ifican t resources for
things like better nutrition, health
care and early childhood educa
tion, while many other households
have very little, if any resources,
to spare for these purposes.
We know that low-income fami
lies face an unfair disadvantage
when public funding for safety
net program s and public educa
tion is cut. We also know that the
rising cost o f college, the slow
down in business form ation for
low-incom e Am ericans, and the
huge gap in inheritances between
the top and bottom rungs o f the
econom ic ladder directly impact
econom ic prosperity and m obil
ity.
W hat m akes Janet Y ellen ’s
com m ents about incom e inequal
ity so rem arkable is the fact that
rarely, if ever, has a Fed C hair
spoken so honestly and openly
about such a hot-button issue.
We applaud her for speaking out,
and this is an issue that should
“greatly concern” us all.
Marc H. Morial is president and
chief executive officer o f the Na
tional Urban League.
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