Black Wealth Destroyed

Even before the crash, decades of discriminatory policies had depressed African-Americans’ housing wealth. New Deal federal housing subsidies — the bedrock of the postwar middle class — largely locked out African Americans. Racist housing covenants forbade neighborhoods from selling or renting to black families, back up by the threat of riot. Black families that could buy were often brutally exploited by contract sellers.

The mortgage bubble fostered similar abuses. Originators, looking for anyone to take subprime mortgages, handed them out to disproportionately black lower-class people, and steered black middle-class families who would have qualified for ordinary mortgages into subprime loans as well.

Former Wells Fargo employees later testified that the bank deliberately tricked middle-class black families (who they called “mud people”) into subprime “ghetto loans.” Overall, a Center for Responsible Lending study found that from 2004 to 2008, 6.2 percent of white borrowers with a credit score of 660 and up got subprime mortgages, while 19.3 percent of such Latino borrowers and 21.4 percent of black borrowers did.

The effects of the foreclosure disaster are starkly apparent in Survey of Consumer Finances data. To start, the homeownership national rate shows a marked decline over almost the whole Obama presidency, reaching the lowest rate since 1965 (before slightly rebounding).

Broken down by race, the overall story for homeownership is similar for all groups, but black homeowners started lower and stayed lower than white ones, with no rebound at all from 2013 to 2016.

However, the total homeownership rate can be misleading in that it includes people with negative equity, which is worse than owning no home at all — it is merely “a rental with debt.” After the crisis, the percentage of black homeowners with negative equity exploded by twenty-fold, from 0.7 percent to 14.2 percent — and unlike white families, did not reach its peak until 2013.

Next we examined home equity by race. Here is average white, black, and Latino home equity by year:

The sharp decline from 2007 to 2013 is readily seen, as well as partial recovery through 2016, and the large racial wealth gap. Average white home equity in 2016 is 3.5 times greater than the same black figure, and it has regained 84 percent of its 2007 value, compared to a black figure of 73 percent.