Racial Disparities Found in Servicing, Lending, & Credit Access

The wealth gap among Americans widened dramatically after the housing market collapse. This placed many black homeowners at a huge economic disadvantage, leaving them with limited access to servicing, lenders, and credit.

Recent research titled “Impact of the US Housing Crisis on the Racial Wealth Gap Across Generations,” released by Sarah Burd-Sharp of the Social Science Research Council (SSRC) and Rebecca Rasch of the American Civil Liberties Union (ACLU) identified the growing disparities among blacks and how these issues should be addressed.

"Not only were black homeowners devastated by the housing market collapse, they are now being left behind,” said Rachel Goodman, staff attorney with the ACLU's Racial Justice Program. “It is very much a tale of two recoveries."

The study, conducted for the ACLU by the SSRC, reviewed data from the longitudinal Panel Study on Income Dynamics, focusing on black and white households that owned a home between 1999 and 2011. It also delves into the dramatic changes in wealth and home equity for these families over the course of that time period, and predicts how those changes might affect their children and grandchildren.

The research found that all households lost wealth from 2007 to 2009 at the height of the housing bust and recession. However, in 2009, median white household wealth ceased to decrease, while median black household wealth dropped steadily. Black households lost an additional 13 percent of their wealth between 2009 and 2011.

The SSRC and ACLU determined that the cycle of racial disparity will flow into generations to come. A black household’s wealth is expected to be nearly 40 percent lower than it would have been without the Great Recession by 2031. This will result in overall wealth disparity between black and white homeowners to grow to 4.5. It was originally forecast to drop to 4 by 2031.

"This study makes clear that the devastating impact of the financial crisis on black families' wealth will continue until policymakers address this pressing issue," said Goodman.

A number of factors contributed to the deeply unequal economic opportunities including the large proportion of black families that had a larger portion of their wealth tied up in home equity pre-crisis, so the decrease in housing prices affected them severely. Black families were also more likely to receive pricier predatory loans during the subprime boom than similarly creditworthy white Americans.

"Steps can be taken right now to help close the growing racial wealth divide, and to ensure that the next generation has the benefits of assets and savings that bring a more secure future," said Sarah Burd-Sharps, co-director of the Social Science Research Council's Measure of America project.

The SSRC and ACLU Recommended the Following Actions:

• Regulate Mortgage Servicing: Government enforcement agencies should focus special attention on identifying and stamping out racial disparities in servicing practices. Policy reforms aimed at strengthening regulators or addressing abuses in the mortgage servicing industry should be specially attuned to the civil rights consequences of unequal exclusion from housing opportunity.
• Reform the Secondary Mortgage Market: Reforms should ensure that mortgage securitizers operate in a way that encourages inclusive lending and discourages discrimination by originators.
• Open Access to Credit: Policymakers should carefully monitor current lending practices to ensure that low-income and minority communities are not being unfairly denied mortgages, and to clarify that recent legislation does not support racially disparate limitations on access to credit.

Click here to view the complete SSRC and ACLU research.