African American Homeownership Declines
The credit crunch, declines in home equity, student loans, and high unemployment rates have dealt a disproportionately high blow to African American homeownership. How can the decline in be turned around?
If there were ever a time that African Americans needed solutions for improving their rate of homeownership, that time is now. The Urban Institute (“Headship and Homeownership: What Does the Future Hold?” Urban Institute, June 2015) reported that from 1990 to 2010, African American/Black homeownership declined from 45.2 percent to 44.3 percent while Caucasian/White homeownership increased from 70.1 percent to 72.2 percent and Hispanic homeownership increased from 43.3 percent to 47.3 percent.
The projections for 2020 and 2030 are far starker. African American homeownership is trending to drop below 40.0 percent for the by 2030. This disproportionate loss of wealth created by declines in homeownership rates has decimated African American’s equity, their ability to retire, as well as their ability to create the fundamental jobs and businesses required in their communities.
Searching for Reasons
The credit crunch has certainly exacerbated the situation. Twenty percent minimum down payments, high credit scores, and more stringent requirements for Freddie Mac, Fannie Mae, and FHA loans have resulted in a 37 percent drop for borrowers with 660-720 credit scores versus a nine percent decrease for borrowers with scores higher than 720 (Urban Institute, June 2015). Experts now anticipate that only 21 percent of the African American/Black households formed between 2010 and 2020 will become homeowners as compared to 51 percent from 1990 – 2000.
According to the Urban Institute’s prediction, the current 3.9 million affordable units available today will decline by 2.2 million in the next decade due to the conversion of affordable units to market-rate units. The scarcity of affordable rental units of course doesn’t make this any easier for anyone, but this problem is compounded exponentially for African Americans. According to NAREB’s The State of Housing in Black America Report 2015, “Rental prices will remain high due to supply and demand, especially in terms of affordable rental units. High rents prevent people from saving for down payments, plus having less money for food, college savings, health care, and retirement.”
African American/Black unemployment rates are at 9.5 percent is also higher as compared to 4.4 percent for Caucasians/Whites in August 2015. (U.S. Bureau of Labor Statistics).
Initiatives in Organized Real Estate
The National Association of Real Estate Brokers (NAREB), whose members are known as REALTISTS®, was founded in 1947. The organization played a pivotal role resulting in the Fair Housing Bill in 1968.
Their primary education initiative is known as the SHIBA (State of Housing in Black America) seeks “to educate real estate professionals and consumers about the intricacies of home buying and homeownership out of our belief that the lack of real estate and financial literacy in our communities is the primary contributor to our low rates of homeownership.”
On the lending side, NAREB is fighting against lending schemes that siphon off billions of dollars through predatory mortgages, payday, and car title loans. The average predatory lending scheme charges 300-525 percent (The State of Lending in American & Its Impact on U.S. Households, Center for Responsible Lending, June 2015). Advocates against these schemes seek to cap them at a maximum interest rate of 36 percent.
Donnell Spivey, Past President of NAREB, described another major NAREB initiative that seeks to rectify an onerous rule change that impacts all low down payment homeowners. Prior to 2013, the Mortgage Insurance Premium (MIP) for buyers with down payments less than ten percent could be cancelled once the borrower reached a loan-to-value (LTV) ratio of 78 percent. From 2014 forward, most FHA borrowers who place less than 10 percent down will have to pay the annual MIP for the life of the loan. The low down payment is what triggers the lifetime premium requirement.
To illustrate this point, a borrower with a four percent interest rate under the 2013 rules would pay $15,500 in MIP. Under the 2014 rules, that same borrower will now pay $31,000. That’s an additional $16,000 in mortgage insurance that could have been funneled into forming new businesses, sending children to college, medical expenses, or retirement savings. “NAREB will not stop until the homeownership rate for our communities is in an equitable position says ” Andrea Hilliard Cooksey, NAREB Board Chair.
Increased awareness and an insistence by the real estate community in general would be a first step in in having more people be aware of the disproportionately large hit African American homeownership rates have taken.
Secondly, “fair housing” needs to expand. Instead of just training real estate agents how to avoid discrimination and monitoring them for compliance, agents need to be educated and enabled to help their clients understand how homeownership benefits both the individual and the community.
Third, organized real estate (NAR and NAREB) needs to exercise its lobbying power to persuade FHA to change the MIP rules back to 2013 standards as well as have Freddie Mac, Fannie Mae, and FHA eliminate the overlays (the additional requirements they place on borrowers not required by the CFPB) that make it so difficult for minority borrowers to obtain loans.
If we would like to keep homeownership as a core component of the American Dream, the decline in African American homeownership needs to be addressed immediately.