One of the ways young black folks who do all the right things are held back is by a system of predatory credit based on race. In America it is virtually impossible to generate Generational Wealth without credit as the principal vehicle for the middle class gathering that wealth has been their homes.
Back when I was a youngster making very good money in my first professional job, as well as bankable money in several side enterprises. I wound up at 22 years old with about $6k in savings – which was a fairly tidy sum in the early 70’s for a guy just starting out. Now, my parents, despite being homeowners, never taught me about how to buy a house – but I recognized, with the advice of friends what a tremendous investment it could be. I owned an old ’75 Mustang I had bought used, and which ran pretty well. A fairly fancy new car at that point was about $3500 – and in terms of Pony cars that was one with a few upgrades in terms of horses. Working a side job as a DJ in the emerging Disco scene, I noticed the previously run down portion of town (Georgetown for those who know DC) was undergoing a transformation as hip white adults began to buy up the old Townhouses. Prices on the main drag were far beyond my reach – but 3 blocks off, there were a group of unrestored – dilapidated townhouses, which had been cut up into rentals.
The owner held the entire block. Most of the residents were black, which for white investors presented a problem in terms of doing anything less than taking out the whole block. Asked the owner if he would consider selling a smaller portion of the property. He agreed on a block of 3 houses for $21,000 or two for $17,000. I had $6k, and anyway you look at it that is nearly a 30% down payment on the block of 3. I would have to decide what to do with them – and decided, being handy with tools, I could renovate them and sell them while living in one.
Could not get a loan. Really didn’t matter that I made $12k a year in my “day job”, 30% or better down… Nyet!
Very few banks loaned to black folks in those days…And the few that did didn’t loan money to us 22 year old tech upstarts, because they had no comprehension that I would double my income in less than 2 years. No way to raise the money before he sold those houses as a block to a developed… They sell for about $2 million per house now.
Seems that things haven’t really changed. Meanwhile US Home ownership has dropped to its lowest level since 1967.
A recent study in the Journal of Real Estate and Finance Economics finds that black home loan borrowers are charged higher interest rates than their white counterparts—and that black women pay the highest rates of all.
The three finance professors who authored the study analyzed the mortgages and demographic characteristics of more than 3,500 households during the height of the housing boom—2001, 2004, and 2007—using the Federal Reserve’s triennialSurvey of Consumer Finances. They found that on average, black borrowers were charged between 0.29 and 0.31 percentage points more in interest than whites, even after controlling for their debt and credit history.
The racial disparity was most pronounced for subprime borrowers who couldn’t qualify for low-interest mortgages (the left side of the chart above), with black borrowers paying interest rates that were at least 0.4 percentage points higher than whites in the same group.
Within this group paying the highest interest rates, black women paid the highest rates of all, at an average rate of 7.9 percent. But a statistically significant disparity persisted even among those who paid lower interest rates (the right side of the chart), the study notes. In this group, black borrowers paid interest rates between 0.1 percent and 0.4 percentage points higher than their white counterparts.
Over at Quartz, Melvin Backman explains how these disparities translate into dollars: According to Freddie Mac’s mortgage cost calculator, a $200,000, 30-year mortgage would cost a black man about $3,000 more than a white man over the course of the loan. A black woman getting the same loan would pay nearly $9,000 more than a white woman.
The study adds to a body of research showing that black mortgage applicants aremore likely to be denied credit than white applicants, and are more likely to be charged higher interest rates than whites. It also appears to confirm the racial disparities identified in lawsuits against several of America’s top mortgage lenders, including Wells Fargo and Bank of America’s Countrywide, which faced hefty payouts in a slew of discrimination lawsuits following the housing-market crash. The lawsuitshad even prompted the Obama administration to set up a new unit in the Department of Justice’s civil rights division to deal with the caseload.
But the new study also suggests more granular disparities between black and white borrowers. Among black borrowers, for example, younger homeowners without a college education paid some of the highest interest rates. And among those paying higher interest rates, black women, who already face stiff obstacles to economic mobility, were likely to be charged interest rate premiums two to three times that of what black men were charged. While they do not speculate about the causes of these racial and gender gaps between borrowers, the authors conclude, “it is the more financially vulnerable black women who suffer the most.”