Why the black housing crisis is about to get worse
Since June is National Homeownership Month, there’s no better time to examine the state of homeownership in the U.S.
Unfortunately, for many blacks, the American dream of homeownership is quickly fading.
After peaking at 50 percent in 2006, the African-American homeownership rate has now fallen to 44.8 percent, Census Bureau data show. By comparison, the homeownership rate for whites in the U.S. is 74.1 percent, and the nation’s overall homeownership rate currently stands at 66.4 percent.
Near-term, the outlook for black homeownership isn’t good. Over the long run, it’s downright scary, according to consumer advocates, civic leaders and others.
The Center for Responsible Lending calculates that about 11 percent of African-American homeowners are in some stage of foreclosure, and that 1.1 million black families will lose their homes by 2012.
Sadly, the alarmingly low number of black homeowners is likely to dip further this decade due to a variety of factors.
First, politicians are proposing to drastically revamp rules concerning mortgages, making it tougher to get loans by requiring all homeowners to put at least 20 percent down when buying a property. That would take the vast majority of blacks — and indeed all consumers — out of the pool of potential homebuyers.
If the new requirement — known as the Qualified Residential Mortgage Rule, or QRM — takes effect, “homeownership, as we know it, could be a thing of the past,” says Marc Morial, President and CEO of the National Urban League.
Housing experts agree.
In April, a coalition of trade groups including the National Association of Realtors, the National Association of Homebuyers and the Mortgage Bankers Association issued a joint report, opposing QRM and saying it would take 14 years for the typical American family to save enough money to amass a 20 percent down payment.
Should QRM pass, “that would pretty much shut down the real estate market,” says Julius Cartwright, President Elect of NAREB, the National Association of Real Estate Brokers, a black trade group. “Even when the economy was at its best, few blacks had a 20 percent down payment,” Cartwright notes.
A series of ongoing challenges from the banking industry is also eroding black homeownership. As the collapse of the housing market lingers on, African-Americans are being disproportionately impacted by bank lending practices, including stricter credit score requirements, a severe decline in loans made to blacks, and predatory lending that has made it difficult for black homeowners with costly subprime loans to swap out of those mortgages and exchange them for more affordable home loans.
“The subprime lenders came in and gave us loans,” says Cartwright. But once the subprime market dried up, and FHA loans insured by HUD became “the only game in town,” new bank guidelines once again tripped up many renters looking to make the leap to homeownership, he says.
For instance, even though qualifying for FHA loans is supposed to be based on affordability — as indicated by one’s debt-to-income ratio – these loans are increasingly being granted only to those with excellent credit scores.
In years past, the typical borrower who received a government-backed HUD loan had a FICO credit score of 573, Cartwright says. (FICO scores range from 300 to 850 points). These days, the average HUD loan recipient has a 729 average credit score.
HUD hasn’t changed its guidelines. It still says borrowers with credit scores as low as 580 are eligible for mortgages. But lenders have imposed their own, tougher criteria on consumers — demanding ever-higher credit scores of mortgage applicants. (Read these tips to improve your credit score).
Needless to say, its not just blacks who struggle with low credit scores. A recent Zillow study found that 30 percent of all homebuyers seeking home loans are locked out of the mortgage market because of poor credit.
Finally, current and prospective African-American homeowners are being hurt by high levels of unemployment. The jobless rate for blacks now tops 16 percent nationwide. It’s obviously tough to buy or refinance a home – much less save it from foreclosure – if you don’t have a steady paycheck.
Add it all up and it’s no surprise that many blacks who do already own homes are struggling to save those properties.
Amid the national debate over housing policy, some people say that certain blacks — and others who lack substantial savings or great credit — simply aren’t prepared to be homeowners.
“It angers me because many people miss the boat,” says Jourdain-Earl. “We should have a system in place where home ownership is attainable for everyone who wants to own — as opposed to immediately saying: ‘Well, they just need to rent an apartment.”
“It’s like saying: ‘We just need to go put them back on the plantation,’” Jourdain-Earl says, adding that owning and renting are two hugely different things — particularly since a home provides an enormous opportunity for wealth building and creating a strong financial legacy.
Overall, Jourdain-Earl characterized as “bleak” the economic outlook for African-Americans — largely due to the housing meltdown.
“Looking at historical data,” he said, “credit is tight and access to credit is diminished. Thus access to home ownership, which leads to an access to wealth, has been disrupted.”