A new analysis from personal finance company NerdWallet found that while homeownership rose to 75% among white Americans in 2020, only 44% of black Americans owned a home. This places black Americans at the lowest level of homeownership among minority groups studied by NerdWallet, behind Asian Americans (60% homeownership rate) and Hispanic Americans (49 %).
While the reasons for such a racial disparity are complex and highly intersectional, NerdWallet’s analysis indicates that the current structural legacy of redlining is one of the main reasons why homeownership rates among Blacks have been lagging behind for decades.
Redlining was born during the New Deal when new government institutions, including the Home Owners Loan Corporation (HOLC) and the FHA, were created to support the then struggling housing market. These institutions put in place some of the first government insured mortgages at low rates to homeowners near foreclosure. In doing so, they assessed the mortgage risk by neighborhood. This assessment was explicitly racist. Predominantly white neighborhoods were considered “less risky” and marked on HOLC maps in green or blue. Areas with large numbers of Black, Jewish and Asian families were generally shaded in red, giving rise to the term “redlining” and meaning, for entire populations across America, obtaining a home loan became effectively impossible.
While Title VIII of the Civil Rights Act of 1968 (commonly known as the Fair Housing Act) prohibited discrimination in housing 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 have been prevented from creating generational wealth through homeownership in an era of rapid economic growth, the legacy of redlining appears to be alive and well in mortgage rates. American homeownership today.
“Even though redlining cards are no longer used by lenders, the vestiges exist today,” said Linda Bell (photo), spokesperson for NerdWallet and author of her recent analysis on redlining. “We see this in paired test studies across the country where equally skilled people of different races are shown different properties in white neighborhoods. We see people of color discriminated against here, being shown fewer houses in these white neighborhoods. We have even seen racial restrictive covenants still contained in the deeds. They are no longer enforceable under the law, but they are still in action, preventing sales to blacks and other minorities.
“The remnants of redlining still exist today, and that’s pretty unfortunate.”
Bell attributes the lasting legacy of this racist policy to an enforcement failure by 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. For Bell, these laws just need to be properly enforced.
Beyond law enforcement, Bell believes that legislation aimed at redressing the damage done during the red decades could have a significant impact as it could make homes currently unaffordable for many black Americans without a family history of more accessible property. From a lender’s perspective, Bell believes that offering lower loan amounts will improve the overall picture of housing affordability across America, while helping to uplift black homeowners in particular. She also pointed out that lenders and underwriters can begin to consider metrics beyond credit score when assessing borrowers. While credit is obviously crucial in a borrower’s assessment, Bell believes that the history of rent payment and utilities should be considered more meaningfully in assessments.
Bell also explained what individual mortgage professionals can do to help rectify the predicament facing aspiring black homeowners. Through outreach and education efforts, she said, mortgage professionals can have a significant impact. As MPA has reported in the past, families who have been excluded from the housing market on a generational basis lack the capacity to educate their children about the mortgage process. By providing personal financial resources and education to more black Americans, mortgage professionals can bridge the knowledge gap. Bell believes that for any mortgage professional, making this effort is both the right thing to do and a way to increase your volume even further.
“This is important for black households because it can close the racial wealth gap,” Bell said. “But this gap is slowing the growth of the economy and the housing market as a whole. We need to take ownership of this situation and ask ourselves how we can improve it, because it is everyone’s responsibility to make homeownership accessible to all Americans.