Housing Policy

PolicyCast: Why the Deck is Stacked Against Minorities

Episode 4 – 10/12/2020

The Struggle for Homeownership: Why the Deck is Stacked Against Minorities

On Episode 4, Alanna McCargo of the Urban Institute in Washington, D.C., discusses homeownership trends affecting minorities with PolicyCast host Kirk Willison. McCargo is Vice President of the Urban Institute’s research-focused Housing Finance Policy Center.

Episode 4 Transcription

Kirk Willison: The great recession of the last decade wreaked havoc on America’s housing economy, home values tanked, foreclosure soared, millions of homeowners returned into renters or worse yet became homeless. We’ve largely reversed those trends since the depths of the recession in 2008. Home prices now sit at all time highs and the value of homeowner equity in the US has skyrocketed to about $19 trillion dollars. Three times the level at its nadir. Many Americans would call the economic recovery, remarkable. Minority Americans might use a different word, frustrating. While white home ownership rates have reached an all time high, the rates of Black and Hispanic home ownership sit thirty and twenty-five percentage points lower respectively. In fact, Black home ownership is barely above the level it was in 1968 at the enactment of the Fair Housing Act, which was designed to eliminate housing discrimination even more staggering household wealth for whites is ten times higher than for Black families.


Kirk Willison: I’m Kirk Willison, on this episode of the Arch Mortgage Insurance PolicyCast. I’ll speak with one of the nation’s foremost experts about the historic and troubling racial divide in homeownership. Alanna McCargo is Vice President for Housing Finance Policy at the Urban Institute, where she frequently authors studies and reports on her findings to Congress and the media. In this the first of a two-part Policy Cast, Alanna and I will talk about the state of minority homeownership. In a future PolicyCast, we’ll talk about potential solutions that could make homeownership more equitable for all Americans. Well, Alanna, thank you very much for joining us on this episode of the PolicyCast. I’m very eager to begin a discussion to get into really learning a lot about the state of minority home ownership. But before we do that, why don’t we learn a little bit about you and the Urban Institute? The Urban Institute in Washington is a think tank, but what makes it unique? And what’s your role there?


Alanna McCargo: Well, first Kirk, thank you for having me, it’s great to be with you. I really appreciate Arch covering these important conversations. So I work for the Urban Institute. I run what is called our Housing Finance Policy Center. We are an economic and social policy research institute. We do a lot of work around the most critical sorts of social issues of our time. We do evidence-based analysis, using all kinds of wonderful data assets, whether it’s government data, private data, to really try to answer hard questions and provide information and evidence for policy makers to make better decisions with. And so as a think tank, we think really long and hard about hard questions, and grapple real big issues. And obviously my role in my center is focused primarily on the issues of housing policy and housing finance. But we work a lot at the intersection of a whole lot of other issues as well.


Kirk Willison: What’s the history of the Institute?


Alanna McCargo: The Institute had its 50-year anniversary last year. We were established in 1968 under President Johnson during the real civil rights unrest in American cities. And we were really established to do some research work and reporting around some of the critical unrest that we were seeing, really racial tensions and other significant unrest that was happening after the assassination of Martin Luther King, Jr.


Kirk Willison: And Alanna, how about yourself? Where did you work before you joined the Institute?


Alanna McCargo: So I’ve been with the Institute for almost five years. I had a career in the housing and housing policy and finance space that goes back a long time. Right before I was here, I actually ran a government solutions business at a company called CoreLogic that does a lot of real estate data analytics and insights work. Then I spent over a decade working for Fannie Mae in the secondary market. And I also worked for JP Morgan Chase.


Kirk Willison: So you’ve been in the housing world a long time. You’ve seen certainly from your experience at the GSEs, both a real housing boom and a bust. How does that influence your feelings about housing or home ownership and sustainability?


Alanna McCargo: I have learned through my career and particularly going through the last housing crisis, just how incredibly important focus on sustainability is. We understand and see over the last 20 years and obviously working at Fannie Mae during the last crisis, just took an incredible significant impact on certain populations that either have as much income, as much wealth built ,or just not as established lose their homes. And I think it’s a really important consideration that we really think about sustainability. As we go through cycles like what we’re experiencing right now with the COVID-19 pandemic, that we understand that people are more vulnerable and it is because of all the systemic and kind of historical issues that have led us to huge wealth gaps and huge home ownership gaps that persist in America today.


Kirk Willison: Well, you mentioned it and it’s really, it’s unbelievable. We have such a glaring crisis in the nation. The gap in home ownership between Black and white people is roughly 30 points and it’s getting worse, not better. The rate of Black home ownership is as low today as it was when the Fair Housing Act was signed by President Johnson. The housing crash of the last decade devastated Black wealth. It really begs the question, is home ownership still something worth striving for and, how did we get to this point?


Alanna McCargo: So the answer to your first question is absolutely, we know if you go through history looking at lots of data, you can go back as far as data will allow from the census, but home ownership has been a stable and consistent wealth building tool, for all families, for white families, and for generations. And for families of color in more recent history, when home ownership was made available to them in a more equal and free society, since the passage of the Fair Housing Act. We know that the disproportionate amount of net worth in black and Hispanic families is made up of home equity. So those families that own, and it’s far less than we like, to just take an example from what you just said about gaps. There’s a 30 point gap between Black and white homeowners.


Alanna McCargo: And the homeownership rate for blacks is roughly 42% today and 72% for whites. So that rate of those that are homeowners, we know that over 50% of net worth in those families is made up of home equity. And families of color are less likely to save or have wealth in more traditional senses, retirement accounts, buy stocks and bonds and those kinds of traditional things. So, it’s just a critically important piece and it’s why it’s so important that we continue to find ways and build new policies that will allow us to expand access to opportunity, access to credit, and make homeownership a viable option for all families. You know, as we move forward, because it has been such a stable source of wealth building through history.


Kirk Willison: Looking back in time, how did the federal government actually contribute to this problem?


Alanna McCargo: That’s a loaded question, Kirk. There are so many things that contribute to this problem. If you go back in time, there are just a lot of really federal, state, and local policies that had been put in place over the years that have had unintended consequences, and in some cases intended consequences. In terms of whether it’s access, access to credit, what communities people can live in, how segregated our nation is in terms of highly concentrated by race in different communities, as well as just a whole host of things. The passage of the Fair Housing Act was a step forward, but there were so many programs that were put in place throughout history that have advantaged white people. That were exclusively for white people and did not give an opportunity for black and brown people to take advantage of, whether it was down payment assistance programs, or to buy into neighborhoods that were rapidly appreciating and rapidly growing communities.


Alanna McCargo: One great example I would like to talk about is like the GI bill. There was an unequal access to that. And so some of the benefits for home ownership that came to soldiers that were returning back from service, and kind of getting their lives started. Those opportunities were not afforded to our Black soldiers. You know, that’s just one concrete example of just did not getting an opportunity to really start that base. That’s where it all began, and just decade after decade we’ve compounded that problem. Making it very easy for white households to establish, build wealth, and very difficult for everybody else. It’s been difficult to really close that gap.


Kirk Willison: So we actually did see signs of improvement though, about a decade ago, Black home ownership rates were on the rise. What happened?


Alanna McCargo: One of the things that is interesting about the nineties is that we really saw a rapid rise or growth. Now the black homeownership rate in America has not, as far all of the data we’ve seen, has not ever reached 50%. So it’s always been very depressing, but there was this period of real growth that happened. It happened under presidential mandates. President Bush made it a focus of his administration, President George W. Bush, President Clinton had also made this a priority. We had the leader of our country talking about the importance of building wealth and the importance of home ownership, and making that opportunity available to all families. So when you had that kind of attention, it really lit a fire, and it was an opportunity for people to start to think about homeownership in a different way, and really understand how it can really create generational wealth as an important thing for everybody to do. What also happened is there was a lot of the markets responding to that as well, different lending, new products and all kinds of different things were happening. Some of those things were great and got a lot of people into home ownership. A lot of those things, and especially for Black and Latino families were predatory products and things that were not good and that were not sustainable. And so what we saw happened in 2008, but really it started in like 2006 was just this erosion that was happening through really bad products that were made, and the targeting of people in the subprime market. Once that crashed and home prices went down, for black people everything that was built up over those previous 10 years was lost in one fell swoop during the last recession. So it was a very difficult situation for families of color. And so that’s again why sustainability is so important. Not only do we want to get people in homes, we absolutely have to figure out ways to keep them there and continue to see that upward mobility.


Kirk Willison: So, when we saw that development, I mean, clearly the loss of a home and the loss of equity in a home, it has ramifications beyond just losing shelter. What are some of those things that are lost when a minority family no longer has a home that they own?


Alanna McCargo: It’s devastating. There’s so many things that owning a home brings in terms of stability for the family, the schools your kids are in, support services that are around whether it’s your daycare, your childcare, it might be having your family living nearby. Just all healthcare services, your doctor, all of the things that are just kind of normal. Once you disrupt a household in that way it takes a huge financial toll on the family. Overall, it takes a toll on credit scores and it makes everything else very expensive. Foreclosure on your credit is incredibly damaging. So a lot of those families ended up going back into becoming renters again and had to rent. Some of them ended up renting the homes that they were foreclosed on when other investors bought those properties and turned their once homes into single family rental properties.


Alanna McCargo: The implications for that are just devastating. And they’ve lost all the wealth and the potential in that. But still have to, you know, write a check every month for a housing payment that may have been higher than what it was when they owned the home. So the ripple effects of that are real, it’s a real sad story. It’s devastating to families, housing security and stability is such a critical thing. And then your ability to really regain your footing and buy another home or move on is completely delayed. You gotta wait seven, ten years before you can clean your credit up and get back on your feet and get back at it. So it’s a really devastating thing. And it’s really important that we continue to find ways to keep people in their homes.


Kirk Willison: Intergenerational hit that takes place. You have people who aren’t homeowners find it much more difficult to send their kids to college. Those kids that do go to college end up assuming much higher debt, and then we have the situation that appears that if your parents were homeowners, it’s much more likely that you too will be a homeowner.


Alanna McCargo: That’s absolutely right. And the intergenerational effects are great. We’ve seen wealth destruction in black families that is going to be generations before you can catch up. So the interesting thing to say about the moment that we’re in now with the COVID-19 crisis is that black households hadn’t even recovered from the last crisis when COVID hit. I would say they were getting up and they were on their knees and then COVID happen. They hadn’t quite gotten to their feet yet. So Covid happened, and now they’re kind of back on the ground. And so this is a real, really trying time and we’re starting, and we do see through this crisis disproportionate impacts again on black and latino families. Much higher rates of unemployment and industries that were impacted that black and latino workers work in. So just a whole host of things, as well as just the rate of coronavirus that is striking families of color at a much higher rate than others are just all these things that are working against the ability to recover when you hadn’t even recovered from the last crisis are real concerns. I think those are really areas where policy makers should be focused at this point, ensuring that people can stay stable and stay in their homes and have the time they need to recover appropriately.


Kirk Willison: From a wealth building standpoint, you’ve pointed out data that demonstrates that even when they are homeowners black families and hispanic families don’t tend to generate the type of home equity that white families do. Why has that happened?


Alanna McCargo: We always look at this, we looked at it through a number of different lenses, but it is true home ownership as a wealth builder does not accrue equally for black and latino families as it does for white families. There’s a number of reasons for that, the biggest though is that I’ll just talk about just black families that tend to buy homes, their first homes are less expensive, but higher leveraged. So they take on higher debt. So a hundred percent or ninety-eight percent LTV FHFA product. So low down payment products, that means that you’re highly leveraged, that means that your wealth is tied up in a mortgage. You’re not really experiencing the wealth of your property until you pay that mortgage down or off. So highly leveraged because they don’t have the bank of mom and dad to give or help them put 20% down on the property just one example.


Alanna McCargo: So you’re essentially higher leveraged, meaning that you’re delaying your wealth accumulation in that property while you’re borrowing against it. So that’s one thing. The other thing is simply a lot of studies have been done, particularly for black people who buy in black neighborhoods and black communities that home price appreciation, appraisals, and the valuations that happen on properties in those communities is not equal. So it’s a very different situation. You’re seeing lower home price appreciation. And takes away from your wealth, the faster your home appreciates, the more wealth that you’re putting in equity and in your bottom line. So those are just a couple of factors that are really crucial indicators that and reasons why  black people aren’t accruing wealth as fast as white people are through home ownership.


Alanna McCargo: But that is not to say that Black people should not own homes nor should is that to say that black people shouldn’t own homes in black neighborhoods. We’ve got to fix those structural issues. It’s silly that a perfectly fine house in a Black neighborhood, that is two blocks away from a white neighborhood with the same kind of house, appraises differently. So we’ve got some structural issues and some things in our system to fix, that really help to remedy that issue. And the other thing I think is figuring out when Black people are buying their first home, ensuring that they’re not totally over leveraged while low down payment programs are absolutely necessary, especially in this high cost environment. Options to give more down payment assistance so that people are at ninety percent versus a hundred percent LTV when they buy that property. That puts them in a much better, stronger position, especially if the market shifts or home prices decline or anything happens like that. They’re just less vulnerable in that situation.


Kirk Willison: The Urban Institute is a reservoir, not only of historical information, but you have led a real strong outreach to understand the impacts of COVID. Has there been an outsized impact on minority communities and particularly those who were either homeowners or seeking to become homeowners?


Alanna McCargo: Yeah, both. So the pandemic has really had, um, it’s remarkable because the housing market through this pandemic has been very healthy. We’ve had historical low rates, lots of people are fleeing and flocking to buy homes. It’s been a really interesting thing to watch that on the one hand, but on the other hand I know that there is this huge vulnerability, especially in the rental market with millions of people that are literally facing eviction as we speak here today. And the only reason they’re not evicted is because thankfully there have been a few provisions put in place either through the Cares act or through the recent actions of the CDC to put a stay on evictions until the end of the year. So it’s being delayed. If anything that may happen next year, but at least for now people are able to stay in their homes for the most part.


Alanna McCargo: And then on the home ownership side, we have forbearances in place. So people have this option to enter forbearance if they are not able to make their payments because they’re unemployed or because they’ve been sick and have not been able to work. So the data has really shown us throughout this entire pandemic that millions of people are vulnerable. Millions of people are at risk of losing their home and unable to make their payments. We see in the data also that two to three times, especially on the renter side, Black and Latino households are two to three times more likely to report inability to make their next rental payment. So we’ve been tracking this, there’s a number of different studies out there that have been tracking this. And when you start to look at the demographic data, you really do see it’s certain pockets, certain kinds of communities and people that are most disproportionately impacted by this pandemic, because of loss of income. Because they don’t have a wealth of savings to tap into to help them through this to get through these months of emergency. Those are the most vulnerable places and people that we really need to think about in terms of policy, rent relief, and potential future action and appropriations that Congress might put in place.


Kirk Willison: A year and a half ago you told Congress we are on a dangerous trajectory that will not result in an equitable future for all Americans. Is it too late to address this crisis?


Alanna McCargo: I don’t think so. So one other thing is I’m an optimist Kirk, so I don’t think it’s too late. But I do think it’s going to take some radical things that we hadn’t maybe tried in the past or done to get it to kind of right the wrong. We’ve got to look at just how deeply entrenched in systems the ways we have always done things for the last hundred years. We’ve got to really think about how you can apply policy in a way that brings equity to those that have not had it in the past. We are not working from an equal place. So we’ve got to figure out ways it’s just very similar to what happened with lower income white people back during the New Deal.


Alanna McCargo: You’ve got to start somewhere. So the FHFA was building houses for people, giving them a hundred percent financing and getting them started and getting them going. We need to think about some things that we’ve done in the past that really has given the head start and created this opportunity and prosperity for white people and white communities that should be expanded. And so looking at these issues through a racial equity lens and making policy that really helps to kind of remedy and restore some of that equity, I think is really hard, but I actually do think it’s possible. And, you know, I don’t know if it’ll be in our lifetimes or before we retire from this business. But I do think that a lot more people are thinking and talking about it, and we actually have a lot more data today to really understand and unpack these issues in a way that could really be helpful to policy makers as we move forward and really try to remedy some of this and put some programs in place.


Kirk Willison: Well that truly could be, and will be another podcast opportunity for us. Let’s take the time to explore the solutions on a future one. I really appreciate you today going through and really detailing the troubling and challenging situation that we face right now regarding the state of minority homeownership. So thanks very much.


Alanna McCargo: Thanks for having me and thanks for covering this topic. It’s just so critically important now. Thanks Kurt.


About the author

Kirk Willison

Kirk Willison is Arch MI’s chief advocate on Capitol Hill and before regulatory agencies. He also fosters relationships with trade groups, community organizations and think tanks to enhance Arch MI’s profile, influence and reputation as a thought leader in housing finance.