A recent report, commissioned by National Association of Real Estate Brokers, shows that African-Americans still face significant barriers to homeownership.
In particular, the report found that blacks have a harder time qualifying for conventional mortgages — a reality that forces them to obtain high-interest rate loans, many of which are exploitative. Even those blacks who qualify for conventional mortgages tend to pay more interest than their white counterparts, the report found.
On Feb. 28, state Representative La Shawn K. Ford (8th) and the Dearborn Realtist Board, a group of African-American real estate professionals who have been fighting against barriers to black home ownership since 1941, convened a forum at Malcolm X College to discuss the report’s findings. Realtors, housing counselors, bankers and activists were invited to give their input and work toward developing solutions.
According to the report — entitled, “2016 State of Housing in Black America” — black homeownership rates were at 41.2 percent in 2014, compared with 68.5 percent among non-Hispanic whites. The report attributed the disparity to the fact that blacks often have a harder time obtaining conventional mortgages, so they have to apply for loans with higher fees and stringent penalties.
The report also highlighted predatory lending practices, such as contract selling. The practice was prominent in Chicago in the mid-20th century but appears to be making a comeback. According to a recent report on the return of contract selling by the Chicago Reader, homeowners don’t actually own their homes on these installment contracts. In actuality, they’re bound to a payment plan with predatory landlords. One missed payment can trigger severe penalties, including eviction.
In the past, contract selling was something done by small-time landlords seeing to make a quick buck on the backs of blacks in areas such as North Lawndale, which were rapidly becoming predominantly African-American as whites and other ethnic groups fled to other areas of the city when they didn’t leave the city altogether.
Now, the Chicago Reader reports, Wall Street is getting in on the act.
“This time, as the New York Times has reported, it’s large firms — many of them formed following the foreclosure crisis and helmed by Wall Street veterans — that are selling large numbers of houses on contract. ‘The companies have attempted to give the old practice a new spin. South Carolina-based Vision Property Management manages more than 5,500 homes nationwide and, with its associated companies, has purchased at least 330 in Cook County. The company emphasizes its role in reducing blight, operating under the slogan ‘restoring America’s neighborhoods.’
“But an investigation by the Chicago Reader and the Investigative Fund has found that while contract-for-deed deals can be immensely profitable for the investors who have flocked to them, they rarely pan out for would-be home buyers.”
The 2016 SHIBA shows that, despite being trapped in predatory loan arrangements, blacks are no more likely to default than racial groups that with better aggregate credit ratings. In other words, predatory credit arrangements — not bad borrowing — are what largely determine the blockades to better credit among blacks.
The SHIBA report also faults lenders for relying on what it describes as “outdated” credit score metrics. For example, credit scores don’t count whether applicants regularly paid their rent on time, even though that habit is as good an indicator of financial prudence as paying down a car note.
What’s more, the report adds, the fallout from the collapse of the housing bubble only made matters worse for black homeowners and aspiring homeowners.
“The share of all applications for conventional loans coming from black applicants decreased from 8 percent in 2004 to three percent in 2014,” the report stated. “In 2014, 68 percent of applications coming from black prospective borrowers were for non-conventional loans, compared with just 19 percent in 2004.”
As the report explains, during the recession, lenders tightened their mortgage requirements. Although this tightening affected borrowers of all races, African-Americans were affected worse than whites. In addition, a significant number of black applicants were steered towards sub-prime loans.
“These borrowers, disproportionately black, still carry a significant negative blemish in their credit records,” the report states. “As a result, these borrowers are all but prohibited from accessing a conventional loan.”
While the report notes that African-Americans “are over-represented in the low and moderate income bracket” compared to whites, even the more well-off black applicants tend to pay more to get mortgages than their white counterparts.
“Twenty-seven percent of black borrowers received high-cost loans compared with 10 percent of non- Hispanic white borrowers,” the report stated. “In neighborhoods with very high incomes, high-cost loans were more common for black borrowers. “
And even high-income African-Americans appear more likely to be denied mortgages due to credit history. Regardless of income, the report showed, blacks are more likely to apply for loans at smaller, independent mortgage companies rather than large ones. Those companies, such as the now-defunct black-owned bank Seaway Bank & Trust, were more likely to be affected by the collapse of the housing bubble.
“The American reality [for African-Americans is that] trust has been broken repeatedly,” said Tracey Traylor, the owner of TN Taylor Reality. “People of color have been disproportionately impacted by unfair housing practices.”
Courtney Jones, the president-elect of the Dearborn Realtist Board, said that the report offered concrete proof of something that he and other black real estate professionals have long suspected. He emphasized that it wasn’t just about individual homeowners; rather, it was about black communities as a whole, which suffer disproportionately from vacancies after the housing bubble burst. Jones said that Dearborn, NAREB and other organizations are lobbying the federal government to reform credit score metrics.
Joyce Gibson, owner of J.A. & Associates, Inc., and a housing counselor, said that one of her critical priorities is to educate first-time home buyers.
“We’re going to be working very closely with housing agencies and the banks to help us educate homebuyers,” she said. “I can put you in the home, but I can’t help you after the sale is closed to keep the home. You lived in an apartment all your life. You don’t understand you have to hire someone to do lawn care, you have to pay a water bill.”
Jean Webber, a counselor at the NID Housing Counseling Agency, said that teaching financial literacy to prospective homeowners is important, too.
Phyllis Logan, who was speaking in her capacity as the executive director of Universal Housing Solutions, a housing advocacy organization, said that housing counselors can’t do it alone.
“This is just us saying that we’re in the communities, we’re doing all we can to cure the ills that exist,” she said. “We need our lenders and those financial institutions to please support us, so we can rebuild our community.”
Ford agreed, arguing that it would be in those institutions’ best interests.
“It’s important that if you’re an investor, you’re invested in the community and the loan, why don’t you take out insurance on the persons you’re invested in?” he said. “That’s what this group does. I think it’s important for people to have housing counselors. This is the biggest purchase in a person’s life.”
Ben Jackson, the vice president of government relations for the Illinois Bankers Association, said that the SHIBA report was eye-opening.
“I think I learned a lot and a lot of bankers [in this room] learned a lot,” he said, adding that he would be open to working with other organizations in the room to advance some of the changes Dearborn was looking for.
“We do think there’s a need for mortgage lending reform,” Jackson said. “Another issue is the use of alternative [credit] scoring models. We do need to work with [government-sponsored enterprises] and other federal agencies.
Willie “J.R.” Fleming, head of the Chicago Anti-Eviction Campaign, suggested that banks “get creative” and start piloting programs to attack the problem.
Community activist Mark Carter had a dimmer view.
“We need to take over the housing processes, because [banks] aren’t friends of yours,” he said. “We have to have a mindset where we got to take over the communities.”
Joseph Ziegler, a realtor and head of the AmeriSafe Development construction firm, said that he’s been selling real estate since 1962 and marched with Dr. Martin Luther King Jr. He said that he has heard conversations like this before and mere talk won’t cut it.
“I appreciate all of us coming and making those promises — but deliver,” he said. “Our black brothers want to go to work. They need housing. Any bank that’s not going to work with us, go home.”
