COVID-19 could impact racial homeownership gap: report
One result of the COVID-19 pandemic could be a growing racial homeownership gap according to a new report.
The COVID-19 pandemic continues to be worse for Black communities and a new report details how the impact on health and employment could make it difficult for many families to purchase new homes, or remain living in their current residence.
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The Wall Street Journal reports a combination of tighter lending standards for Black borrowers, plus the impact coronavirus has had on Black Americans’ health and employment could potentially grow the racial homeownership gap. This contributes to the overall racial wealth gap between Black and White Americans as the WSJ notes homeownership is a key source for wealth.
“The opportunity for people to use this as a time to transition into buying is probably going to be less for Blacks. How great that difference is, it’s too early to say,” said Chris Herbert, managing director at the Harvard Joint Center for Housing Studies.
Although mortgage rates are dropping, the credit requirements for approval are not. According to the outlet, the economic crisis threatened by the outbreak of COVID-19 lead to standards already stacked against Black people raised. Tomeka Givens, a Realtor with Guerilla Realty LLC Baltimore area, told the WSJ many lenders raised the minimum requirements for credit scores to 700 from the 620-to-680 range when the pandemic hit.
“The vast majority of my clients of color were in that 620-to-680 range, so it knocked a lot of people out of the running for mortgages,” she said to the outlet.
According to the WSJ in 2018, the median FICO credit score for Black borrowers was 691, compared with 748 for their white counterparts. The newly tightened requirements are only one aspect of the economic downfall impacting Black people harsher than other populations.
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The news platform reports, at the end of 2019, as Black unemployment fell to historic lows, the Black homeownership rate began to rise, hitting 47% in the second quarter of 2020, the highest since 2008. The gap between Black and white families narrowed to 29 percentage points. Experts believe the rate will grow not only due to pandemic related unemployment preventing Black buyers from purchasing new homes, but also maintaining the expenses of homes already owned.
“The pandemic and the ensuing economic crisis now threaten to reverse that progress,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association, to WSJ explaining how Black people saw more pandemic-related job losses and eventually a greater loss of income.
Fratantoni notes, mortgages supported by the Federal Housing Administration are also in danger. Since FHA loans typically have a lower down payment and credit requirements and are considered to be high-risk people seeking these loans may no longer being able to afford the higher fees associated charged by the federally controlled loans. According to WSJ, Black borrowers accounted for 41% and Latino borrowers 39% of FHA loan originations in 2019.
“Way too many people of color lost their homes during the last crisis,” said Alanna McCargo, vice president at the Housing Finance Policy Center at the Urban Institute, to the WSJ. “If you continue to lose people, we’re going to continue to see the disparities.”
McCargo cites a study that shows that during the pandemic, more Black and Latino Americans deferred or didn’t make their mortgage payments. These populations were also less confident about making future mortgage payments the WSJ reports.
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