HOMEWEALTHPG

by BreAnna Bell
Howard University News Service

They go into the lender’s office looking for a mortgage, and they get one—only it’s
going to be much more expensive than it could be, and they may not be able to pay it
off before it goes into default. But the lender won’t mind, because the lender will
make more money all along the way.

The reason why is easy to see: the borrowers are black or Latino. That shouldn’t be,
according to the federal Fair Housing Act. Yet it happened again and again in two of
the wealthiest suburbs of the nation’s capital, according to lawsuits filed late last
month in U.S. District Court.

And it happens similarly and often elsewhere, too. Researchers at the University of
California at Berkeley said the same predatory lending practices that have plagued
black and brown in-person loan applicants are taking place online because of the
algorithms used to evaluate borrowers.

“Even if the people writing the algorithms intend to create a fair system, their
programming is having a disparate impact on minority borrowers,” Adair Morse, a
finance professor at the university and a co-author of the study, told ​The Washington
Post.
https://www.washingtonpost.com/business/2018/11/15/even-machines-are-disc
riminating-against-black-latino-homebuyers/?utm_term=.acf200b937c2

Montgomery and Prince George’s counties in Maryland accused Wells Fargo and
Bank of America of selling black and brown homebuyers higher cost subprime
mortgage loans that they knew would fail or were not in the best interest of the
borrowers.

“The discriminatory equity stripping housing practices engaged in by the banks and
their affiliates greatly damaged our communities,” Montgomery County Executive
Isiah Leggett (D) told Patch.com.

“We cannot allow this to continue to harm the finances of the county and shift the
costs that the defendants are responsible for onto our taxpayers,” Leggett added.
https://patch.com/maryland/rockville/2-md-counties-accuse-banks-predatory-len
ding-minorities

Leggett said that both counties had incurred additional municipal services costs
because of the “increased numbers of home vacancies and foreclosures’” stemming
from the lending practices of the two banks.

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 The two counties also claimed financial damages through what Leggett described as
“erosion of the tax base, the loss of property tax and other revenue, and from the
resources they have had to shift to address urban blight and the racially segregative
effect on their respective communities and neighborhoods.”

Lending practices like those alleged in the suits also have an impact on black and
Latino families to close the net worth gap between themselves and whites.

Data released by the Federal Reserve in 2017 found that median net worth for
whites was tenfold greater than that of blacks, and one of every five black families
had no net worth at all.

Home ownership is a principal reason for the disparity. Nearly three of every four
white families own their own homes, compared to not quite two over every four
among blacks and Latinos, the data showed. And white families also had higher
levels of equity in their homes.
https://www.washingtonpost.com/news/wonk/wp/2017/09/28/black-and-hispa
nic-families-are-making-more-money-but-they-still-lag-far-behind-whites/?utm_ter
m=.1c9467d8330c

Over the years, home ownership has been the most important route for building
generational wealth among black people, because it was the best way to establish a
predictable expenditure for living quarters during life, and upon death, could easily
be passed on to children as an asset.

Before the recession, the ready availability of subprime loans lured large numbers of
black folks into buying new homes. The teaser rates on those loans rose after two or
three years, however, and a disproportionate number of black and brown
homeowners found themselves struggling to avoid delinquency and foreclosure on
properties suddenly loosely referred to as being ‘underwater.’

Jesse Van Tol, president and CEO of the National Community Reinvestment
Coalition, said during a recent interview that such hardships are no reason for black
families to change course.

“Home ownership is the foundation of wealth building in America,” he said.

“Without it, the racial wealth gap is growing.”

The University of California researchers looked at 30-year, fixed-rate home loans

made between 20008 and 2015 and found that blacks and Latinos were charged 5.6
to 8.6 points higher than other borrowers with similar credit histories.

The study also said that black and Latino borrowers also received higher rates
because lenders factored in the racial make up of the neighborhood into which they
were buying.

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One result of such higher rates in a place like Montgomery County is that the total
payout over the life of the average mortgage could be as much as twice the value of
the mortgage itself, according to one local lending officer.

The researchers found that mortgages in census tracts with high foreclosure rates
“have a substantially higher chance of defaulting, and that home purchase
mortgages in predominantly black neighborhoods have a substantially higher
chance of defaulting regardless of the borrower’s race.”

Samuel Taylor, a loan officer at the historically black Industrial Bank of Washington,
played down the relevance of neighborhoods to the creditworthiness of loan
applicants. “Big banks have hurt people of color because they deem you live in a bad
neighborhood,” he said in an interview.

A Brookings Institution study released last month asserted that “anti-black bias”
contributed to “under evaluation of housing in black neighborhoods.”

“If properties in black neighborhoods were priced equally as those in white

neighborhoods,” researchers said, “black children coming of age in the 1990s and
2000s would have had much more wealth to draw upon to pay for things like
private schooling, tutoring, travel, and educational experiences, as well as higher
education and greater access to higher scoring schools in the suburbs.”
https://www.brookings.edu/wp-content/uploads/2018/11/2018.11_Brookings-M
etro_Devaluation-Assets-Black-Neighborhoods_final.pdf

Concern about black wealth surfaced recently following the death in August of
singer Aretha Franklin, whose net worth was estimated at around $80 million but
died without a will. The dispersal of her assets among her four sons was not
expected to be problematic, however, as often can be the case.
https://www.washingtonpost.com/lifestyle/style/aretha-franklin-died-without-a-
will-leaving-her-estates-future-uncertain/2018/09/03/a6bbe0be-af8c-11e8-9a6a-
565d92a3585d_story.html?utm_term=.a83069464c5c

Franklin apparently also had not established any trusts, which some financial
planners say is an even better way to pass on net worth because the parceling out
process is more private, and fewer court costs are involved.

Nevertheless, many consider home ownership to be the most reliable way for black
families to close the wealth gap.

Research indicates that “for every hundred dollars every white family has in savings,
every black family has seven or eight dollars,” Van Tol of the National Community
Reinvestment Coalition said. “Home ownership was, and still is, the way out for
many minority families.”

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