Home ownership is taken for granted as a rite of passage — both of social and financial establishment. Home purchases are part of the American wealth generation process: What would otherwise be short-term and long-term profit creation for landlords work to the benefit of the homeowner often.
Given sharply increased profit margins for rental property owners since the recession, home ownership has become even more important in establishing personal and family wealth. (Interestingly, there’s an increasing drone of advice to rent rather than buy these days, which might make one wonder whose interests are at the forefront.)
A recent report from the Consumer Financial Protection Bureau looked at mortgage activity last year. The data shows how small a share of mortgages minorities take and the importance of so-called nonconventional loans — those with federal mortgage insurance from the FHA, VA, Farm Service Agency, or Rural Housing Service — are to minority home ownership. And as someone reminded me, these programs generally have options for low down payments.
Minorities generally have small percentages of home-purchase loans for “one-to-four-family, owner-occupied, site-built properties,” compared to their representation in the population. Blacks received 6.4% of such loans last year and are 13.3 percent of the population. Hispanics and Latinos are 17.8% and received 8.8% of the mortgages. Non-Hispanic whites, who are 61.3% of the population, received 64.9% of the mortgages, while Asians, at 5.7% of the population, had 5.8% of the loans.
Denial rates for blacks and Hispanics were relatively high, as the report explains.
“As in past years, black, Hispanic white, and “other minority” borrowers had notably higher denial rates in 2017 than non-Hispanic white borrowers, while denial rates for Asian borrowers were more similar to those for non-Hispanic white borrowers.
“For example, the denial rates for conventional home-purchase loans were about 19.3 percent for black borrowers, 13.5 percent for Hispanic white borrowers, and 14.9 percent for other minority borrowers. In contrast, denial rates for such loans were 10.1 percent for Asian borrowers and 7.9 percent for non-Hispanic white borrowers.
“Previous research and experience gained in the fair lending enforcement process show that differences in denial rates and in the incidence of higher-priced lending (the topic of the next subsection) among racial and ethnic groups stem, at least in part, from factors related to credit risk that are not available in the 2017 HMDA data, such as credit history (including credit score), ratio of total debt service payments to income (DTI), and [loan-to-value, or] LTV ratio.
I’ve frequently seen people try to blame such differences on personal behavior and a lack of discipline. However, the more you look at historical records and, yes, enforced enrichment of some groups at the devastating cost to others, such reasoning seems more like the artifacts of previous and ongoing systemic discrimination. The less people had in the past, the less their progeny generally hold today.
For those who pat themselves on the back for their own success, a sober assessment of their comparative head start in life might be like a bucket of cold water tossed on the head.
These historical differences and the responsibility to address them helps explain why government-provided mortgage insurance — and heading off the likely plug-the-ears criticism, the default rates tend to be relatively low — continues to be necessary.
In 2017, 64.9% of black borrowers and 55.5% of Hispanics mortgage recipients took out these types of loans, versus 33.1% of whites and 13.4% of Asians. If it weren’t for the programs, the percentage of minority home mortgages would probably be even lower than it is.
High levels of income and wealth inequality, which have continued to grow, can’t be solved in short order. Restoring balance will take time. One of the requirements will be stable and long-term policies that encourage and enable stronger personal and intergenerational wealth growth. If the majority has benefited mightily from the imposed ill-fortune of minorities, it is morally obliged to correct the situation.