Tag Archives: Black Home Buyers

The Retirement Crisis Facing African Americans

Credit: Shutterstock

There’s a saying: When white America catches a cold, black America catches pneumonia. So, if there is an impending retirement crisis in America, what does that mean for African Americans? The answer to that question is discouraging.

There is a huge gap in retirement preparation of African Americans compared to white Americans, generally speaking. According to the Urban Institute’s Nine charts about wealth inequality in America:

The Retirement Savings Racial Disparity

The average white family had more than $130,000 in liquid retirement savings (cash in accounts such as 401(k)s, 403(b)s and IRAs) vs. $19,000 for the average African American in 2013, the most recent data available.

The wealth gap is growing. The average wealth of white families in 2013 was more than $500,000 higher than that of African American families ($95,000). In 1963, the average wealth of white families was $117,000 higher than for black families.

White families accumulate more wealth over their lives than African American families, on average, which widens the wealth gap as they age. In their 30s, whites have an average of $140,000 more in wealth than African Americans (three times as much). By their 60s, whites have over $1 million more in wealth than African Americans (11 times as much).

“The American dream has not happened for African Americans and Hispanics,” says Signe-Mary McKernan, economist and co-director, opportunity and ownership initiative at the Urban Institute. “Retirement wealth is at the end of the cycle. A lot of things can happen along the way before you get there.”

The pay gap and the wealth gap are among the many reasons African Americans enter retirement in poor financial shape, says Maya Rockeymoore, President of Center for Global Policy Solutions in Washington, D.C. Other explanations include financial literacy and investing habits.

The Pay Gap

“There is a pay gap when it comes to what African Americans earn when it compares to whites, even when you control for education,” says Rockeymoore. “We are starting with less.”

The hourly pay gap has widened to the worst in 40 years, according to the Economic Policy Institute (EPI) — a roughly 27% difference in 2015. Whites earned an average of $25.22 an hour vs. $18.49 for blacks, the EPI says. Declining unionization, the failure to raise the minimum wage and lax enforcement of anti-discrimination laws have contributed to the growing black-white wage gap, according to the EPI.

“We need to be having forums addressing labor-market decisions,” Rockeymoore says. Blacks are earning less than whites and it is not a reflection of talents or skills, she notes. “It is a reflection of discrimination in the labor market. We talk about the gender-pay gap, but we need to talk about the racial-pay gap.”

The Wealth Gap

According to the Federal Reserve’s Survey of Consumer Finances, in 2013, the median white household had $13 in net wealth for every $1 in net wealth of the median black household. Also, according to a Pew Charitable Trusts report, What resources do families have for financial emergencies, the typical white household has slightly more than one month’s worth of income in liquid savings, compared with just five days for the typical African-American household.

The Federal Reserve report said that whites are five times more likely to receive large gifts and inheritances than blacks and the amounts tend to be much larger for whites. “That is one of the main issues,” says financial planner Nick Abrams of AJW Financial Partners in Columbia, Md. “We [African Americans] are starting at ground zero every generation. That is hurting us financially.”

Rockeymoore agrees. “The wealth gap is serious,” she says, pointing to disparities between blacks and whites regarding employer-sponsored retirement plans.

“A significant number of us [blacks] are in jobs where we do not have access to pre-tax preferred retirement vehicles like 401(k) or 403(b) accounts,” says Rockeymoore. Many blacks work in small businesses where such plans frequently are not offered.

“If we do work in jobs that offer tax-preferred vehicles, we tend to not contribute at rates that whites do. And we take out loans out at higher rate,” adds Rockeymoore.

One solution, she notes, would be more access to such employer-sponsored plans.

Home ownership also plays a big part in the wealth gap. The typical white household aged 47 to 64 has housing wealth of $67,000; the typical household of color in this age group has zero home equity, according to the December 2016 report, Social Security and the Racial Gap in Retirement Wealth, from the National Academy of Social Insurance.

Debt can limit the ability to achieve other financial goals, especially retirement planning, too. “Among African American employees surveyed who are offered an employer-sponsored retirement account but contribute less than the employer match or do not contribute at all, 40% say that paying down debt is a higher priority for them than making retirement contributions, according to Prudential’s 2015-2016 African American Financial Experience.

Financial Literacy

There are also big differences in financial literacy between blacks and whites. Only one in 10 African Americans work with a financial professional compared with one in four white Americans, the Prudential report said.

“Many African Americans have had no history of someone who was a grandfather or someone who gave them some level of financial education in that household,” says James Brewer, president of Envision Wealth Planning in Chicago and president of the Association of African American Financial Advisors. “So, one of the challenges is around some level of financial education.”

Theodore Daniels, president of the Society for Financial Education and Professional Development agrees. “There has got to be more education. People have got to be willing to attend financial education workshops. Some people don’t know what they don’t know. Once they attend, they say ‘I can do this.’ If they are not educated, they are not comfortable making decisions, and they won’t do it,” Daniels notes.

African Americans Tend Not to Invest in Stocks

Some analysts also say that African Americans often shy away from investing in the stock market. “Whatever discretionary income we have, we tend not to invest in equities,” says Rockeymoore. “We don’t have a diversification.”

This may be due to a lack of comfort with the stock market.

“African Americans are risk-averse,” says Deborah Owens, a former Fidelity Investments vice president who calls herself America’s Wealth Coach. “So, one of the major reasons they have less in retirement savings is they are ultra-conservative, particularly African Americans who work in the public sector and nonprofit organizations.”

Owens says black investors typically focus on guaranteed or fixed investments that are low-risk or no-risk. As a result, their retirement funds aren’t compounding at a high rate of return.

According to the Federal Reserve, the average balance of African Americans in 401(k)s is only $23,000. And Social Security and the Racial Gap in Retirement Wealth found the average balance for African Americans in pensions and IRAs was $10,300, vs. $105,600 for white Americans.

Owens believes many African American workers don’t take full advantage of all the choices in their employer-sponsored plans because they don’t understand them. “The tendency to be risk averse is directly correlated to their lack of knowledge,” she says.

What Employers and Policymakers Could Do to Help

Brewer believes employers could play a bigger educational role.

“It is important for companies or organizations who have higher percentages of African American employees to realize that there are some differences, and they need to bring in people who have some cultural sensitivities to those differences, and come up with a plan to help those groups,” says Brewer.

He says African Americans need financial advice on issues such as having higher student loan debt than white counterparts and, often, a greater need to financially assist less affluent family members. Rockeymoore says African Americans, even in retirement, tend to support other family members, including children and adult children. Also, they are disproportionately taking care of grandchildren, making them unable to save more for retirement.

All in all, says Rockeymoore: “There needs to be a national campaign to encourage young African Americans to save and invest. Home ownership is the pathway to wealth. They [blacks] need to be educated in the homebuying process and also to diversify their investments to include stocks and bonds.”

McKernan believes policymakers also need to take action to close the racial retirement security gap. “This country is built on the premise that it provides economic opportunity,” she says. “But this country continues a history of discrimination and the result of that is passed from generation to generation.”

Source: Forbes.com – By Rodney Brooks, Next Avenue Contributor 

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Report: No progress for African Americans on homeownership, unemployment and incarceration in 50 years

A woman walks by housing projects in the Brownsville section of Brooklyn. (Spencer Platt/Getty Images)

Convened to examine the causes of civil unrest in black communities, the presidential commission issued a 1968 report with a stark conclusion: America was moving toward two societies, “one black, one white — separate and unequal.”

Fifty years after the historic Kerner Commission identified “white racism” as the key cause of “pervasive discrimination in employment, education and housing,” there has been no progress in how African Americans fare in comparison to whites when it comes to homeownership, unemployment and incarceration, according to a report released Monday by the Economic Policy Institute.

In some cases, African Americans are worse off today than they were before the civil rights movement culminated in laws barring housing and voter discrimination, as well as racial segregation.

  • 7.5 percent of African Americans were unemployed in 2017, compared with 6.7 percent in 1968 — still roughly twice the white unemployment rate.
  • The rate of homeownership, one of the most important ways for working- and middle-class families to build wealth, has remained virtually unchanged for African Americans in the past 50 years. Black homeownership remains just over 40 percent, trailing 30 points behind the rate for whites, who have seen modest gains during that time.
  • The share of incarcerated African Americans has nearly tripled between 1968 and 2016 — one of the largest and most depressing developments in the past 50 years, especially for black men, researchers said. African Americans are 6.4 times as likely than whites to be jailed or imprisoned, compared with 5.4 times as likely in 1968.

“We have not seen progress because we still have not addressed the issue of racial inequality in this country,” said John Schmitt, an economist and vice president of the Economic Policy Institute, citing the racial wealth gap and continuing racial discrimination in the labor and housing markets. “One of the key issues is the disadvantages so many African Americans face, right from the very beginning as children.”

The wealth gap between white and black Americans has more than tripled in the past 50 years, according to Federal Reserve data. The typical black family had zero wealth in 1968. Today the median net worth of white families — $171,000 — is 10 times that of black families.

The wealth black families have accumulated is negligible when it comes to the amount of money needed to meet basic needs during retirement, pay for children’s college education, put a down payment on a house, or cope with a job loss or medical crisis, Schmitt said.

The lack of economic progress is especially startling, given that black educational attainment has improved significantly in the past five decades, Schmitt said. African Americans are almost as likely as whites to have completed high school. In 1968, 54 percent of blacks graduated from high school, compared with 75 percent of whites. Today, more than 90 percent of African Americans have a high school diploma, 3.3 percentage points shy of the high school completion rate for whites.

The share of young African Americans with a college degree has more than doubled, to 23 percent, since 1968, although blacks are still half as likely as whites to have completed college.

Yet the hourly wage of a typical black worker grew by just 0.6 percent a year since 1968. African Americans make 82.5 cents of every dollar earned by the typical white worker, the report said. And the typical black household earns 61.6 percent of the annual income of white households, with black college graduates continuing to make less than white college graduates.

Despite the poverty rate dropping from more than a third of black households in 1968 to about a fifth of black households, African Americans are 2½ times as likely to be in poverty than whites.

“We would have expected to see much more of a narrowing of the gap, given the big increase in educational attainment among African Americans,” Schmitt said.

A book, “Healing Our Divided Society,” to be released Tuesday at a D.C. forum, also examines how little progress has been made in the past 50 years.

Housing and schools have become resegregated, “locking too many African Americans into slums and their children into inferior schools.” White supremacists have become emboldened. And there is too much excessive use of force — often deadly — by police, especially against African Americans, notes the book, co-edited by Fred Harris, a former U.S. senator and sole surviving member of the Kerner Commission.

“Whereas the Kerner Commission called for ‘massive and sustained’ investment in economic, employment and education initiatives, over the last 50 years America has pursued ‘massive and sustained’ incarceration framed as ‘law and order,’ ” the book says. “Mass incarceration has become a kind of housing policy for the poor.”

The 1968 Kerner Commission report ended on a note of deja vu, citing a witness who recalled similar analyses, recommendations and, ultimately, inaction following a government investigation nearly 50 years earlier after the 1919 Chicago riot.

“The destruction and the bitterness of racial disorder, the harsh polemics of black revolt and white repression have been seen and heard before in this country,” the report concluded.

Source: The Washington Post –  February 26

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For people of color, banks are shutting the door to homeownership

Fifty years after the federal Fair Housing Act banned racial discrimination in lending, African Americans and Latinos continue to be routinely denied conventional mortgage loans at rates far higher than their white counterparts.

This modern-day redlining persisted in 61 metro areas even when controlling for applicants’ income, loan amount and neighborhood, according to a mountain of Home Mortgage Disclosure Act records analyzed by Reveal from The Center for Investigative Reporting.

The yearlong analysis, based on 31 million records, relied on techniques used by leading academics, the Federal Reserve and Department of Justice to identify lending disparities.

It found a pattern of troubling denials for people of color across the country, including in major metropolitan areas such as Atlanta, Detroit, Philadelphia, St. Louis and San Antonio. African Americans faced the most resistance in Southern cities – Mobile, Alabama; Greenville, North Carolina; and Gainesville, Florida – and Latinos in Iowa City, Iowa.

MODERN-DAY REDLINING

No matter their location, loan applicants told similar stories, describing an uphill battle with loan officers who they said seemed to be fishing for a reason to say no.

“I had a fair amount of savings and still had so much trouble just left and right,” said Rachelle Faroul, a 33-year-old black woman who was rejected twice by lenders when she tried to buy a brick row house close to Malcolm X Park in Philadelphia, where Reveal found African Americans were 2.7 times as likely as whites to be denied a conventional mortgage.

The analysis – independently reviewed and confirmed by The Associated Press – showed black applicants were turned away at significantly higher rates than whites in 48 cities, Latinos in 25, Asians in nine and Native Americans in three. In Washington, D.C., the nation’s capital, Reveal found all four groups were significantly more likely to be denied a home loan than whites.

“It’s not acceptable from the standpoint of what we want as a nation: to make sure that everyone shares in economic prosperity,” said Thomas Curry, who served as America’s top bank regulator, the comptroller of the currency, from 2012 until he stepped down in May.

Yet Curry’s agency was part of the problem, deeming 99 percent of banks satisfactory or outstanding based on inspections administered under the Community Reinvestment Act, a 40-year-old law designed to reverse rampant redlining. And the Justice Department has sued only a handful of financial institutions for failing to lend to people of color in the decade since the housing bust. Curry argued that the law shares part of the blame; it needs to be updated and strengthened.

“The Community Reinvestment Act has aged a lot in 40 years,” he said.

Since Curry departed nine months ago, the Trump administration has gone the other way, weakening the standards banks must meet to pass a Community Reinvestment Act exam. During President Donald Trump’s first year in office, the Justice Department did not sue a single lender for racial discrimination.

The disproportionate denials and limited anti-discrimination enforcement help explain why the homeownership gap between whites and African Americans, which had been shrinking since the 1970s, has exploded since the housing bust. It is now wider than it was during the Jim Crow era.

This gap has far-reaching consequences. In the United States, “wealth and financial stability are inextricably linked to housing opportunity and homeownership,” said Lisa Rice, executive vice president of the National Fair Housing Alliance, an advocacy group. “For a typical family, the largest share of their wealth emanates from homeownership and home equity.”

The latest figures from the U.S. Census Bureau show the median net worth for an African American family is $9,000, compared with $132,000 for a white family. Latino families did not fare much better at $12,000.

What lenders keep secret

Lenders and their trade organizations do not dispute the fact that they turn away people of color at rates far greater than whites. But they maintain that the disparity can be explained by factors the industry has fought to keep hidden, including the prospective borrowers’ credit history and overall debt-to-income ratio. They singled out the three-digit credit score – which banks use to determine whether a borrower is likely to repay a loan – as especially important in lending decisions.

“While quite informative regarding the state of the lending market,” the records analyzed by Reveal do “not include sufficient data to make a determination regarding fair lending,” the Mortgage Bankers Association’s chief economist, Mike Fratantoni, said in a statement.

The American Bankers Association said the lack of federal enforcement proves discrimination is not rampant, and individual lenders told Reveal that they had hired outside auditing firms, which found they treated loan applicants fairly regardless of race.

KEPT OUT

“We are committed to fair lending and continually review our compliance programs to ensure that all loan applicants are receiving fair treatment,” Boston-based Santander Bank said in a statement.

New Jersey-based TD Bank, which denied a higher proportion of black and Latino applicants than any other major lender, said it “makes credit decisions based on each customer’s credit profile, not on factors such as race or ethnicity.”

Reveal’s analysis included all records publicly available under the Home Mortgage Disclosure Act, covering nearly every time an American tried to buy a home with a conventional mortgage in 2015 and 2016. It controlled for nine economic and social factors, including an applicant’s income, the amount of the loan, the ratio of the size of the loan to the applicant’s income and the type of lender, as well as the racial makeup and median income of the neighborhood where the person wanted to buy property.

Credit score was not included because that information is not publicly available. That’s because lenders have deflected attempts to force them to report that data to the government, arguing it would not be useful in identifying discrimination.  

In an April policy paper, the American Bankers Association said reporting credit scores would be expensive and “cloud any focus” the disclosure law has in identifying discrimination. America’s largest bank, JPMorgan Chase & Co., has argued that the data should remain closed off even to academics, citing privacy concerns.

At the same time, studies have found proprietary credit score algorithms to have a discriminatory impact on borrowers of color.

The “decades-old credit scoring model” currently used “does not take into account consumer data on rent, utility, and cell phone bill payments,” Republican Sen. Tim Scott of South Carolina wrote in August, when he unveiled a bill to require the federal government to vet credit standards used for residential mortgages. “This exclusion disproportionately hurts African-Americans, Latinos, and young people who are otherwise creditworthy.”

A case study: Philadelphia

Philadelphia was one of the largest cities in America where African Americans were disproportionately turned away when they tried to buy a home. About the same number of African Americans and non-Hispanic whites live in the City of Brotherly Love, but the data showed whites received 10 times as many conventional mortgage loans in 2015 and 2016.

Banks also focused on serving the white parts of town, placing nearly three-quarters of their branches in white-majority neighborhoods. Reveal’s analysis also showed that the greater the number of African Americans or Latinos in a neighborhood, the more likely a loan application would be denied there – even after accounting for income and other factors.

When Faroul applied for a loan in April 2016, she thought she was an ideal candidate. She holds a degree from Northwestern University, had a good credit score and estimates she was making $60,000 a year while teaching computer programming as a contractor for Rutgers University. Still, her initial loan application was denied by Philadelphia Mortgage Advisors, an independent broker that made nearly 90 percent of its loans to whites in 2015 and 2016.

“I’m sorry,” broker Angela Tobin wrote to Faroul in an email. Faroul’s contract income wasn’t consistent enough, she said. So Faroul got a full-time job at the University of Pennsylvania managing a million-dollar grant.

But that still wasn’t enough. When she tried again a year later, this time at Santander Bank, a Spanish firm with U.S. headquarters in Boston, the process dragged on for months. Her loan officer kept asking for new information, she said – or sometimes the same information again.

By this time, Faroul had been trying to get a mortgage for over a year, and the process itself was damaging her credit. Every time a lender pulls a hard inquiry on a credit report, the score goes down to guard against people who are trying to take on a lot of debt.

“They had done so many hard pulls that my credit score had dropped to 635,” she said.

Then, an unpaid $284 electric bill appeared on Faroul’s credit report. It was for an apartment she didn’t live in anymore. She paid the bill right away, but the bank said it couldn’t move forward.

Civil rights groups and real estate professionals said Faroul’s experience follows a familiar pattern of discrimination by banks and mortgage lenders that has kept people of color from building wealth.

“It’s one thing after another. It’s like pulling layers off an onion,” said Arlene Wayns-Thomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers, which represents African American real estate professionals.

Wayns-Thomas, who has been selling real estate for 30 years, said her black clients are treated differently by lenders.

“They may not like what happened between the last time you were working on this particular job to this one. They may see there was a gap,” she said. “I have seen situations where they’ve asked people for the children’s birth records.”

“The things that happen behind the scenes is what’s disturbing,” she said.

A change of tune from lenders

For Faroul, things suddenly took a turn for the better after her partner, Hanako Franz, agreed to sign on to her loan application. At the time, Franz – who is half white, half Japanese – was working part time for a grocery store. Her most recent pay stub showed she was making $144.65 every two weeks. Faroul was paying for her health insurance.

The loan officer had “completely stopped answering Rachelle’s phone calls, just ignored all of them,” said Franz, 32. “And then I called, and he answered almost immediately. And is so friendly.”

A few weeks later, the couple got the loan from Santander and bought a three-bedroom fixer-upper. But Faroul remains bitter.

“It was humiliating,” she said. “I was made to feel like nothing that I was contributing was of value, like I didn’t matter.”

Contacted by Reveal, the lenders defended their records. Tobin, who turned down Faroul on her first application, said race played no role in the rejection.

“That’s not what happened,” she said and abruptly hung up. A statementfollowed from Philadelphia Mortgage Advisors’ chief operating officer, Jill Quinn.

“We treat every applicant equally,” the statement said, “and promote homeownership throughout our entire lending area.”

Faroul’s loan officer at Santander, Dennis McNichol, referred Reveal to the company’s public affairs wing, which issued a statement: “While we are sympathetic with her situation, … we are confident that the loan application was managed fairly.”

Reveal’s analysis of lending data shows that nationally, Santander turned away African American homebuyers at nearly three times the rate of white ones. The company did not address that disparity in its statement but said it was more likely to grant a loan application from an African American borrower than five of its competitors.

Redlining history repeating

Lending patterns in Philadelphia today resemble redlining maps drawn across the country by government officials in the 1930s, when lending discrimination was legal.

Back then, surveyors with the federal Home Owners’ Loan Corporation drew lines on maps and colored some neighborhoods red, deeming them “hazardous” for bank lending. Leading causes of risk, according to government officials, included the presence of African Americans or immigrants.

This practice has been outlawed for half a century. And for the last 40 years, banks have had a legal obligation under the Community Reinvestment Act to solicit clients – borrowers and depositors – from all segments of their communities.

But in many places, the law hasn’t made much difference. When you combine home purchase loans, refinancing and home equity lines of credit, banks were more likely to deny a conventional loan application than grant it in more than 40 percent of Philadelphia. People of color were the majority in nearly all those neighborhoods.

“You’re killing us here,” said Cindy Bass, a member of the Philadelphia City Council, who worked for a mortgage company before entering politics. The data shows banks have frozen out borrowers in much of her district – including Nicetown, a North Philadelphia neighborhood where boarded-up row houses dot the landscape.

“We need dollars. We need investment,” Bass said, “like every neighborhood needs investment.”

Nicetown is among the neighborhoods redlined in the 1930s. In his assessment, government surveyor W.R. Hutzel said the hazardous neighborhood had some positives, including “new industry – good transportation” and a high school. On the other hand, he wrote, it had a “heavy concentration of negro.”

Today, the economic recovery largely has bypassed Nicetown. Blight is a major concern. Some of the vacant homes, empty for years, have attracted squatters. Although it’s just a few blocks from Temple University Hospital, banks and mortgage brokers largely stay away. Lenders have been particularly stingy when it comes to home improvement loans. From 2012 to 2016, they made 67 home improvement loans here and denied 315.

“It creates this cycle where properties fall into dilapidation for a long period of time,” said contractor Eric Marsh Sr., 48, whose family has lived in Nicetown for three generations.

Marsh started his own construction business “because I saw dilapidation and empty houses,” he said, and wanted to help. But because banks rarely lend here, there’s no capital to improve the neighborhood. So Marsh gets most of his jobs in more affluent sections near the center of town.

“I was wondering why people weren’t purchasing these houses or renovating them,” he said. “As I’ve gotten older and talked to people, I’ve found out that a big part of it is the lack of lending in neighborhoods like this.”

‘It’s like a glass ceiling’

It’s not only historically redlined areas that suffer from a lack of credit. Some neighborhoods that were predominantly African American decades ago have since gentrified and are now majority white. Today, they benefit from a large number of home mortgages from banks.

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Other neighborhoods that experienced white flight after World War II have become home to a substantial black middle class. And in those neighborhoods, banks are more likely to turn away borrowers.

Four miles from Nicetown, toward the suburbs near the Awbury Arboretum, the homes of Germantown are set back from the street behind garden patios and beautiful stone facades.

This area wasn’t redlined in the 1930s. Government officials colored it green – “the best” – and blue, which meant “still desirable,” and told banks to lend here. Back then, most residents of Germantown were white.

Today, this part of Philadelphia is majority African American, and the homes are occupied by middle-class workers – teachers, nurses and union craftsmen. Yet in every year from 2012 to 2016, banks denied more conventional loans of all types than they made in Germantown.

“It’s like a glass ceiling,” said Angela McIver, CEO of the Fair Housing Rights Center in Southeastern Pennsylvania. “OK, we’ll allow you to go this far, but … you’re not going to go any further.”

 Source: RevealNews.org – By  and  / February 15, 2018
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