We recently debated Kamala Harris’s $100 billion housing plan in my debate club. The plan is designed to help low-income and minority households buy homes by providing up to $25,000 down-payment assistance for eligible families and changing the way credit scores and debt-to-income ratios are calculated, The plan’s rationale is that the legacy of redlining, flawed implementation of the GI Bill, and unfair lending practices is responsible for the current white-black gap in home ownership, which accounts for most of the white-black wealth gap. And wealth facilitates social mobility. See https://kamalaharris.org/homeownership-gap/ for more on the plan and the rationale.

So many questions! For instance, why do government policies that ended over 50 years ago count more towards the “legacy” than more recent policies? Is homeownership a necessary condition for social mobility? When does homeownership undermine social mobility? How much does wealth facilitate social mobility? What other factors come into play?

But for the sake of this post, I’m just going to deal with the legacy of redlining, which was extensive from the 1930s until it was outlawed in 1968. The practice of redlining clearly created a barriers to homeownership for African-American families, as well as reduced the value of their homes. Per Harris’s website:

“One major cause for this [low Black homeownership rate] is historic redlining – the Home Owners’ Loan Corporation’s practice of identifying neighborhoods, often majority Black neighborhoods, where traditional lenders should not lend.  Redlining has resulted in households of color receiving just 2% of the FHA loans extended between 1934-1962, and formerly redlined neighborhoods are sites of deep racial disparities in home value and lending activity.”

Okay, let’s look at the homeowner numbers:

_2019 Black Homeownership by State History.png

For the nation as a whole, Black homeownership increased by 20% from 1950 to 1968 but has barely budged since. Note, though, that in the South homeownership rates rose much faster prior to 1968 and remain higher than rates in California and New York to this day. I doubt that redlining or other forms of housing discrimination were less prevalent in the South than the other states, so other factors are likely to account for the difference in homeownership rates.

These days the Federal Housing Administration (FHA), now part of the Department of Housing and Urban Development (HUD), continues to offer a range of products for low-income families, including:

  •  Fixed Rate FHA Loan

  • Adjustable Rate Mortgage

  • FHA Secure Refinance Loan

  • FHA Reverse Mortgage

  • Energy Efficient Mortgage

  • Graduated Payment Mortgage

  • Growing Equity Mortgage

  • FHA Loans for Condominiums

These products are designed to help low-income families buy homes – very often families that would have difficulty qualifying for conventional mortgages on the open market. As one lender puts it: “If you want to buy a home but you don’t have 20% down or perfect credit. No worries. With a low 580 credit score requirement and just a 3.5% down payment, FHA mortgages are the easiest type of mortgage loan to qualify for.” Other HUD programs, such as the American Dream Downpayment Initiative, are designed to provide assistance with downpayments, closing costs and, if necessary, rehabilitation work done in connection with a home purchase.

From HUD’s very beginning, addressing historic wrongs against minority communities has been an important part of its mission. Per HUD’s first Director, George Romney: “FHA personnel were encouraged to begin to do what they had not been doing; namely, to put families into homeownership situations in the central city in areas that had previously been redlined.” In line with this mission, a greater percentage of minority than white families have received FHA products over the past 50 years. Here’s the distribution since the early 1990s:

_2019 HUD Help by Race.png

So what has been the legacy of 50 years of mortgage subsidies and loan assistance to low-income and minority communities? That will be the subject of Part II of this series.