New analysis from personal finance company NerdWallet has found that while homeownership rose to 75% among white Americans in 2020, only 44% of Black Americans owned homes. This puts Black Americans at the lowest homeownership point of the minority groups studied by NerdWallet, behind Asian Americans (60% homeownership rate) and Hispanic Americans (49%).
While the reasons behind such a stark racial disparity are complex and highly intersectional, analysis from NerdWallet points to the ongoing structural legacy of redlining as a key reason Black homeownership rates have lagged for decades.
Redlining originated during the New Deal when new government institutions, including the Home Owners Loan Corporation (HOLC) and the FHA, were created to back up the then-suffering housing market. Those institutions rolled out some of the first government-insured mortgages at low rates to homeowners nearing foreclosure. In doing so, they assessed mortgage risk by neighbourhood. That assessment was explicitly racist. Predominantly white neighbourhoods were considered “less-risky” and marked on HOLC maps in green or blue. Areas with large numbers of Black, Jewish, and Asian families were typically shaded in red, giving rise to the term ‘redlining’ and meaning, for whole populations across America, getting a home loan became effectively impossible.
While title VIII of the Civil Rights Act of 1968 (commonly called the Fair Housing Act) prohibited housing discrimination on the basis of race, color, religion, or national origin, many analysts have noted that the long-term legacy of redlining has never been fully dismantled. Between inadequate enforcement and the simple fact that Black Americans were prevented from building generational wealth through homeownership at a time of rapid economic growth, the legacy of redlining appears to be alive and well in American homeownership rates today.
“Even though the redlining maps are no longer used by lenders, the remnants exist today,” said Linda Bell (pictured), NerdWallet spokesperson and the author of its recent analysis on redlining. “We see it in pair testing studies across the country where equally qualified people of different races are shown different properties in white neighborhoods. We see people of color discriminated against here, being shown fewer homes in these white neighborhoods. We’ve even seen racially restrictive covenants still contained in deeds. They’re no longer enforceable under the law, but they’re still in the deeds, preventing sales to Blacks and other minorities.
“The remnants of redlining still exist today, and it’s quite unfortunate.”
Bell attributes the lasting legacy of this racist policy to a failure of enforcement on the part of federal and state governments. Between the Fair Housing Act, the Equal Credit Opportunity Act and the Community Reinvestment Act, the legal framework exists to more meaningfully dismantle the legacy of redlining and systemic racism in American housing. To Bell, these laws just need to be properly enforced.
Beyond enforcement, Bell believes legislation aimed at repairing the damage done during the redlining decades could make a meaningful impact as it might make homes currently unaffordable to many Black Americans with no family history of homeownership more accessible. From a lender’s perspective, Bell believes that offering smaller-dollar loans will improve the overall affordability picture for housing across America, while helping to lift up Black homeowners in particular. She emphasized, as well, that lenders and underwriters can start looking at metrics beyond credit score when assessing borrowers. While credit is obviously crucial in assessing a borrower, Bell believes that track records of rent and utility payments should be more meaningfully factored into assessments.
Bell also explained what individual mortgage professionals can do to help rectify the difficult situation facing aspiring Black homeowners. Through outreach and education efforts, she said, mortgage professionals can make a meaningful impact. As MPA has reported in the past, families that have been excluded from the housing market on a generational basis lack the ability to inform their children about the mortgage process. By offering personal financial resources and education to more Black Americans, mortgage professionals can close the knowledge gap. Bell believes that for any mortgage professional, making that effort is both the right thing to do, and a means of growing your volume even further.
“It’s important for Black households because it can close the racial wealth gap,” Bell said. “But that gap holds back the growth of the economy and the housing market as a whole. We need to take ownership of this situation and ask how we can improve it, because it’s everybody’s responsibility to make homeownership accessible to all Americans.”
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