Segregation and housing discrimination are affecting Black homeownership today as much as in the days before the 1964 Civil Rights Act. What happened and how can this be reversed?
GREG WILPERT It’s The Real News Network and I’m Greg Wilpert in Baltimore.
Segregation in the United States 55 years after the passage of the 1964 Civil Rights Act is alive and well. Not only is school segregation a major problem, as we have reported here on The Real News Network many times, but so is segregation in the housing market. Some studies show that neighborhoods in the US are just as segregated today as they were in the 1940s. One indicator for this is that according to census data, black homeownership reached its lowest level on record in the first quarter of this year. Also, a new study that the Center for American Progress released on Monday shows that while homes owned by whites have increased in value, those owned by blacks have actually decreased in value since before the 2007 housing crash.
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The CAP study, titled “Racial Disparities in Home Appreciation,” was written by Michela Zonta. And according to Zonta, homes and neighborhoods with a high concentration of whites have seen prices appreciate three percent between 2006 and 2017. However, homes and neighborhoods with a high concentration of blacks are on average worth six percent less now than there were in 2006. So why has there been such a large difference in housing appreciation, and what impact does this have on black communities? Joining me now to help make sense of this is Bill Black. Bill is a white-collar criminologist, former financial regulator, and Associate Professor of Economics and Law at the University of Missouri-Kansas City. He’s also the author of the book The Best Way to Rob a Bank is to Own One. Thanks again for joining us, Bill.
BILL BLACK Thank you.
GREG WILPERT So the Fair Housing Act, which is part of the Civil Rights Act, was designed to reduce and even eliminate housing discrimination and segregation. It outlined redlining, which is the practice of discriminating against minority groups when buying homes in certain neighborhoods, as well as prohibited discrimination in the financing of housing and in the provision of brokerage services. Now, it seemed to work to some extent. As matter of fact, Donald Trump was sued in the 1970s for engaging in this kind of discrimination for one of his properties. And nationally, black homeownership actually rose, reaching a peak of 50% in 2004. Now it’s at its lowest level ever, while white homeownership though has largely recovered since the great financial crisis of 2007, and is near 75% once again. So what has happened? Why hasn’t black homeownership recovered?
BILL BLACK So the great financial crisis did not hit the American people equally. It was massively more harmful to black and Latino communities. So black and Latino communities, in a study by the Federal Reserve Bank of St. Louis, were shown if the household had at least a college degree, they lost a much higher percentage of their wealth than if it was a household that didn’t have a college degree. That was the reverse of the pattern for whites, and the losses were staggering. Where were more than 60% of the total wealth of the entire household was lost during about the decade from the beginning of the great financial crisis to basically 2017-ish. So, A, the harm to blacks was massively greater. B, one of the reactions of lenders was let’s not lend to people who are anywhere near as risky, and they coded that as black as well. So it’s somewhat harder to get a mortgage if you’re black and Latino.
But the third thing is that blacks pulled back in particular— and I mean black middle-class, working-class people— and said, this is not a great investment. If I buy a home in a primarily white community, I may face racism again. And of course, the most vulnerable part of our household is our kids. And as parents, that’s what, you know, drives us immensely. So I may not want to risk that experience. And so if I’m going to buy, it’s going to be in a black community, but appreciation of homes in black communities, as a result a part of all this, is dramatically reduced. Millennials in general are delaying and perhaps putting off in, you know, permanently purchasing homes to a greater degree as well. So the overall numbers you gave show that there’s been exceptionally little appreciation in home value, of course, over a very long time period in the United States. It’s that it is on top of that bad news, particularly bad news within black communities.
GREG WILPERT Well, let’s dig a little bit deeper. I mean, that’s exactly the issue that this Center for American Progress Report looks at. And I mentioned the statistics, that it actually lost an average of six percent, whereas white-owned home prices rose an average of three percent. Now, the debate among policymakers and academics on this is often about whether this is attributable mainly to economic factors versus factors rooted in discrimination. How do you see this? I mean, what are the factors that lead to this decline in values in black neighborhoods versus the increase in white neighborhoods?
BILL BLACK Right. So it is overwhelmingly a matter of race, and it’s overwhelmingly a matter of predation. So we didn’t go within the numbers yet to ask, well, why did blacks and Latinos have massively greater losses during the period of the great financial crisis? And, you know, why in particular blacks relative to Hispanics had even greater losses in terms of housing? And again, racism isn’t all the same. It’s most intense in terms of residential segregation to people who are more obviously dark-skinned. And Latinos, of course, come in all kinds of varieties of the amount of melanin you have, and that determines your skin color. So lots of Latinos are able to buy in white areas more easily and such than are black people. Black people obviously come in different degrees of skin color as well, but it’s a statistical thing at this regard. Predation was a huge factor, and that means that losses are going to be much greater in black communities, and were much larger in Latino communities as well at the peak of the recession.
GREG WILPERT What do you mean by “predation”?
BILL BLACK So what I mean by predation is—And by the way, there’s much better evidence coming out on this. We know, and if appropriate investigations had been done, we would know vastly more, and it would be public, and we wouldn’t have to have this discussion. So the reason we are having this discussion is part of the problem, right, that it hasn’t been brought up. But we actually have from a number of the failed entities how they went about targeting blacks and Hispanics. So first, why did they target blacks and Hispanics? Because you could— again, not everyone, but statistically— you could charge blacks and Hispanics a higher interest rate than you could whites. Now, that gets a little complicated in itself. The racists don’t need to be right that blacks and Latinos are actually more vulnerable. They simply have to believe that they are, right? And then they will target primarily blacks and Latinos, and predation will be successful in whatever percentage it is.
It could be that whites would have been equally susceptible to this, but that’s not who was targeted. So we have the list of, for example, they would purchase— when I say “they” I mean the lenders— the specialized mailing list that target primarily Latino populations, primarily black populations. So different kinds of—If you bought certain newspapers, for example, that would indicate that you are much more likely to be Latino or black. They’d buy the mailing list for those newspapers. They would see who did certain activities that they thought were more common. They would in particular in the black community use the black churches. All right. So they would go into the black churches, and the black churches would not always, but many times allow them to hold wealth seminars. And of course, the wealth seminar is how you should be buying a much bigger house, and you should borrow everything you could possibly borrow and do this. And then, they would charge you a significantly higher interest rate. And this was set up, this mechanism, to incentivize this predation set up by the lenders.
So the lenders would pay you, the mortgage broker, and this was a big part of getting into black and Latino communities. So places that don’t have regular branches of banks, overwhelmingly black and Latino poorer neighborhoods, they would hire— “they,” the banks— would hire loan brokers. And the loan brokers are not employees. They work out of little storefront offices or sometimes their house, and they’re black and Latino themselves in many cases. So if you’re making a pitch to Latinos, and it’s a part of the Latino community that primarily speak Spanish, you make the pitch in Spanish. And then you get to the loan closing, and all the documents are in English. Otherwise, you do it to the black community, and you often do it—You don’t try to go to people’s greed often. You often go to people’s best instincts. So you go to widows, right?
They really, really like to go after black widows. They’re older. The first thing we lose with age tends to be not general cognitive skills, but cognitive skills involving finance. And, you know, most of your grandmothers, they’re not experts in finance to begin with, so they think this is the most vulnerable portion of the population. And the pitch particularly in the black community would often go, “you’re a widow, you and your former husband when he was alive lived here for 30 years, and now you can no longer keep up the place in quite the same way. You’re not as strong, and you don’t know how to repair various things, and the house is running down. And that’s a shame to the memory of your husband who helped keep it so nice, but it hurts all of your neighbors, right? If you have a rundown house in the neighborhood, it hurts the value of them. You should do the right thing and pay us to repair it.”
Well, the repair itself was a scam, but the repair was a way of, well, you’ll have to borrow money to do this scam, and then they do lousy repairs. And so then it’s, well, you are going to default and lose the entire home, so you better get a home loan in addition to your prior construction loan so that you can pay off the construction loan. And of course, what it ends up is you take all the equity out of the home that’s been built up over 30 years. And that’s, sort of, the nasty part about this. So this isn’t the big bucks. They’re only taking $30,000, you know, sort of, for the average widow in these circumstances. But they so incentivize these little brokers whose prior job was typically flipping burgers, so it doesn’t take a whole lot of money to incentivize them.
You got to think of it like a giant vacuum cleaner taken by the lending industry and put into black and Latino communities to take even the nickels and dimes type of thing from widows. It’s some of the most disgusting predation we know about. So the broker was incentivized by the lender to charge an above market interest rate, and I don’t mean because it was subprime. If it was subprime, they would still add on. And if it wasn’t prime, they would, A, make it subprime. And, B, do a special add-on in the interest rate, right? And in jargon, that’s called a yield spread premium. The bottom line is, you got paid as a broker a percentage of the value of the home in the deal basically, the amount borrowed to be more specific, but you also got a special bonus if you could convince people to pay an above market interest rate.
Now obviously, you didn’t convince them by saying, hey, I’d like you to pay an above market interest rate, right? [laughs] So it was easier to con people who didn’t know what market interest rates were. How often were they successful? Well, we know from New Century— one of the most notorious entities and one that targeted blacks and Latinos— that they were successful in overcharging in the manner I’ve described almost exactly half the time. So it’s a predatory scheme that works really well, is the bottom line. Why blacks and Latinos? Because they were subject to a whole bunch of different forms of predation. Why so much even now in terms of black communities? Because we do all kinds of things based on local real estate.
We decide where your kids go to school, and we finance your school largely out of that. What is the value of your home? Ask any middle-class person who’s about to buy a home. Typically the first question is, what school district is it going to be in? And so as school districts decline, as their income from property taxes declines, you tend to get a really nasty mechanism. They opt a vicious cycle, instead of a virtuous cycle in all of this. And so, that helps drag down black home values in particular.
GREG WILPERT Now, everything that you’re describing sounds like it’s basically various ways of circumventing essentially the rules and regulations of the Civil Rights Act. That is, it used to be that, you know, it was supposed to be that you couldn’t do this, but in a way, they found ways around it. Now, I’m wondering just very briefly in the little time that we have remaining, if you could say what needs to be done in order to stop this and maybe even reverse these trends?
BILL BLACK Well, first, you need not a Trump administration because the Trump administration will never enforce these laws and regulation. And second, then you have to, yes, use the laws, but more generally you have to change the way we fund primary education and secondary education so that isn’t tied to local home values. As long as you have that, you have these strong incentives to put poor people in one particular part of the neighborhood and rich people in other parts. And it’s always going to be not just poor, but of course black people will be put at the bottom of that.
GREG WILPERT I think that’s a very good point to keep in mind when we look also at school segregation. Well, we’re going to leave it there for now. I was speaking to Bill Black, Associate Professor of Economics and Law of the University of Missouri-Kansas City. Thanks again, Bill, for having joined us today.
BILL BLACK Thank you.
GREG WILPERT And thank you for joining The Real News Network.