Although many American families have modest financial means, there is nothing small about their hopes. Owning a home has long been an important part of the American Dream.
Just as a college education can open doors to America’s middle class, a home is more than just where families come at the end of the day. It is also where children are raised, memories are created and – how, historically, most American families built wealth.
Discriminatory government policies of the past prevented many Blacks and Latinos from building wealth via homeownership. Older consumers may still recall the difficulties of obtaining a mortgage loan before laws were enacted to require equal credit access.
Despite these laws, discriminatory lending practices during the recent era of subprime loans erased many of the financial gains that Black and Brown families made since the enactment of the Community Reinvestment Act. Instead, these consumers were targeted for predatory, unsustainable loans. A key measure of the foreclosure crisis is that these families lost $1 trillion in wealth.
Even families whose homes were preserved, but located nearby multiple foreclosures also lost wealth. Many of these families still remain underwater on their homes – owing more than they are now worth.
Nowhere is this reality truer than in America’s most populous state: California. New research by the Center for Responsible Lending (CRL), highlights how post-housing crisis lending trends perpetuate racial wealth gaps and housing segregation. Additionally, these practices erect yet another barrier to wealth creation for these communities.
CRL’s analysis of first-lien, owner-occupied home purchase mortgages made from 2012-2014, reveal a lack of access to conventional mortgages for many Black and Brown consumers – even when these consumers had higher incomes greater than the median areas where they live.
“These post-crisis mortgage lending trends in California help to inform our continuing national discussion of homeownership and the importance of responsible mortgage credit,” commented Sarah Wolff, report author and a CRL senior researcher. “The communities that lack access to mortgages post-crisis are the very same communities that were disproportionately affected by foreclosures and lost wealth during the housing crisis.”
CRL’s analysis of Home Mortgage Disclosure Act (HMDA) data in California found that:
• More than two-thirds of homebuyers in every race or ethnic group had middle or high incomes for their area;
• Among Black consumers receiving mortgages, 79 percent had middle or high incomes relative to other households in their areas. Similarly, among Latino borrowers, 66 percent had these same income levels.
• Few conventional mortgages, the most affordable and sustainable loans, were made to African-American and Latino consumers; and
• The dearth of access to conventional mortgage loans shifted Black and Latino homebuyers to higher-cost, government-insured mortgage loans such as VA and FHA. Most of the homes purchased were also in majority minority census tracts.
“Recent law [Dodd-Frank Wall Street Reform Act], has made today’s loans much safer for borrowers than those of the past,” states the report. “Most importantly, the law’s Ability-to-Repay requirement ensures that lenders confirm that a potential borrower can afford the loan. However, restricted access to credit in the post-crisis period has resulted in the very same families and communities which have been historically disadvantaged finding it difficult to access today’s responsible mortgages.”
CRL’s analysis found that Asian-Americans were the only consumers of color to enjoy broad mortgage access in California. Whites and Asian-Americans combined accounted for more than 75 percent of all mortgage loans reviewed during the study period.
The report also analyzes four large California counties: Alameda, Fresno, Los Angeles and Solano. While regional differences are apparent, statewide trends were also evident in these counties. For example, Black consumers who represent 14 percent of Solano’s population, received only 8 percent of that county’s loans and 72 percent of those were government-insured loans.
Similar figures for Blacks were consistent in the other three counties studied, with African-American borrowers in both Los Angeles and Alameda Counties receiving 4 percent of respective county loans. In Fresno County, Blacks received only 2 percent of that county’s mortgage loans.
Smaller lenders focused on these populations and geographies compared with larger lenders. Although California’s largest lenders made the greatest number of loans to Blacks and Latinos, these populations, they represented a much smaller share of overall originations for the state’s largest lenders. By contrast, some smaller lenders, though generating fewer loan totals, appeared to focus on serving Latino borrowers in particular.
Over the coming decade, people of color are expected to represent three-quarters of all household growth. The report also connects its findings to these shifting national demographics.
“If the trends found here continue, few families will become homeowners, with implications for overall national wealth and for the health of the real estate market,” concluded the report.
Charlene Crowell is the Communications Deputy Director for the Center for Responsible Lending. She can be reached at