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This week, hundreds of communities across the country will celebrate national homeownership week. And there is some reason for merriment. Homeownership is on the rise. Today, a record 68 million American families own their homes. Interest rates are at a favorable low, and the economy is strong. Not since the 1960s has the nation experienced such a boom in the housing market.
But it’s still too soon to break out the champagne. Like the housing market of the 60s, the picture is mixed. Although the 60s decade marked an important turning point in our nation’s policies on housing—the passage of the Fair Housing Act in 1968 to eliminate housing segregation being the most significant event—it also highlighted a stark reality. The Kerner Commission Report, released thirty years ago, revealed entrenched poverty in the inner cities and an increasing divide between blacks and whites in areas of housing, employment, and education.
When we scratch beneath the surface, the housing market of today is still fraught with housing discrimination and lending bias. A recent study by the Texas Community Reinvestment Coalition (TCRC) titled, “Access to the Dream: Home Mortgage Lending in Texas,” suggests problems persist. While the American Dream may mean homeownership for some, for many Texans, it’s a mirage.
Statewide, lenders continue to deny loans to low income and minority applicants at higher rates than the rest of the population. According to the study, the highest disparities occurred in Abilene, Austin, Lubbock, San Angelo, and Victoria. Although this is not a new revelation, it is troubling that African American and Hispanic applicants continue to be rejected for home loans in larger proportions that white applicants, despite 30 years of the Fair Housing Act and 20 years of the Community Reinvestment Act (CRA), federal laws passed to encourage fair lending.
Even more shocking is the finding that higher income minorities fare comparatively worse in loan approvals than lower income minorities. Yes, you read right. African-American and Hispanic families earning over $50,000 face a harder time getting into a home. For these more affluent families, the effect of earning a better wage amounts to nil when they are unable to get a home loan.
There is no question that homeownership is a deeply held American value. Major pieces of legislation have been adopted to encourage homeownership including the creation of the savings and loan system in the 1930s and the VA programs after World War II, the mortgage interest federal tax deduction, tax-exempt mortgage revenue bonds, and support of secondary mortgage markets through institutions like Freddie Mac and Fannie Mae. So why is the ability to own a home still often governed by the race and income of the borrower?
One reason is the neighborhood bank—if one still exists in your neighborhood—is no longer the main avenue to homeownership. The study shows mortgage companies and builder-affiliated lenders—which are not covered by CRA—accounted for approximately half of the mortgage lending in Texas in 1996. These options, however, are not easily accessible or fairly priced for low income and minority borrowers.
Many builder-affiliated lenders do not market to these consumers largely because they compete with the banks for the same upper income, suburban market. In contrast, manufactured housing lenders have carved out a niche market among low income and minority borrowers, but these loans may come at a higher cost. Under state law, manufactured lenders can charge as high as 18 percent for their loans. Currently, the national average interest rate for a 30-year fixed-rate loan is around 7 percent.
In the home loan market in Texas, low income and minority consumers are relegated to fewer, more expensive options—in effect, restricting their choices of home loan products and curbing their opportunity for homeownership and community development.
How do we begin to change this reality? The first step is admitting that lending discrimination is a statewide problem with real consequences. In the end, we all lose when a segment of our population is deprived of access to homeownership. When credit stops flowing in a neighborhood, the local economy begins to fall apart. This lack of credit in many low income and minority communities creates a vicious cycle. Buildings deteriorate, homes become vacant, units go unrehabilitated, businesses leave, and banks relocate or close down. What is left are abandoned, impoverished communities.
Our home lenders in Texas are failing some Texas families. The fact that some low income and minority families pay higher interest rates demonstrates both that a market exists, and the lengths families will go to realize their dream of homeownership. Fair housing laws and CRA may have eliminated overt discrimination, but they did not legislate away unfair treatment against people who play by the rules.
Maybe we should rename the week to “National Homeownership Week For Some.”
