Why bother with homeownership?

Janis Bowdler, Director of the Wealth-Building Policy Project, National Council of La Raza (NCLR)

Most Americans know all too well the consequences of the housing bubble of the last decade: unprecedented rates of foreclosure, high-profile bank failures and acquisitions, depressed property values, and the Great Recession. The impact on families of color has been particularly acute. Unemployment among Black and Latino workers has hovered above15% and 12% respectively for the last two years (the unemployment figure is near 50% among Native Americans); 11% of Black and 17% of Latino homeowners have already lost their home or are likely to experience foreclosure soon, resulting in a loss of $371 billion in collective wealth. But the housing crisis has had another, more subtle impact on the American psyche: We’ve begun to doubt whether homeownership is a positive family goal worthy of smart public policy support.

Rational analysis of the current economic crisis shows that the responsibility for this devastation lies with Wall Street’s appetite for high-risk, high-profit investments, unregulated finance companies, and a compensation system that rewarded mortgage originators for steering customers into toxic loans―even when their credit record warranted a good, old-fashioned thirty-year fixed-rate loan. The responsibility does not, as opponents seem to believe, reside in a grand conspiracy by working-class and minority borrowers to force banks into making onerous, designed-to-fail loans that would eventually leave the borrower in ruins. Unfortunately, rather than defend honest homeownership for the positive social good we know it to be, some policymakers and pundits have jumped on the blame-the-borrower bandwagon.

This is a dangerous road indeed. It is no accident that homeownership is the cornerstone of the American Dream. Our nation prospered on the populist notion that owning land should not be reserved for the wealthy alone. The United States has a long history of supporting this basic tenet through proactive public policy. For example, 46 million White families can trace their current net assets back to inheritances rooted in the distribution of public land through the Homestead Act of 1862. The National Housing Act of 1934 created mortgage insurance to put homeownership within reach for working families that lacked the wealth to make the sizeable down payments required at the time. Later the Veterans Administration created a similar mortgage program to help armed service members enter the housing market. The federal government chartered Fannie Mae and Freddie Mac to provide a reliable capital for middle-class mortgages. For most Americans, homeownership was never a get-rich-quick scheme. On the contrary, owning property is a modest yet steady way to build an asset that can be passed to the next generation, a process that over time has led to the shared prosperity that built the middle class.

Of course, depending on your race, ethnicity, or gender, your family may have been left out of these asset-building policies. Redlining by Federal Housing Administration, for example, effectively blocked Black and Hispanic families from obtaining home financing and pushed those families that were able to scrape together the higher down payments into the least desirable neighborhoods where property values remained low. Consequently, many families of color are asset-poor and missed out on the benefits of property equity that can accumulate over multiple generations and shared through inheritance. Today, Blacks and Latinos own a mere 16 cents for every dollar owned by their White counterparts.

Although overt housing and lending discrimination has been outlawed, families of color continue to face barriers to getting the same home loans offered to their White peers. Research shows that Black and Hispanic borrowers were 30% more likely to receive a subprime loan than White borrowers, even after controlling for common risk characteristics such as credit, income, and loan-to-value ratios. Federal regulators have consistently failed to ensure an equitable marketplace for all creditworthy borrowers. Meanwhile, greedy investors have scorned the modest returns generated by affordable lending and abandoned successful models that help working families step mindfully into homeownership. These market breakdowns—discrimination, lack of effective oversight—have come at the expense of millions of families who needlessly lost their homes to foreclosure.

The debate on how to best finance home loans, including the role of the federal government and the future of Fannie Mae and Freddie Mac, gives this country another shot at establishing a fair market where all creditworthy borrowers can purchase a home. We must avoid furthering unequal treatment in the marketplace by cementing down payment requirements in regulations or handing our finance system over to Wall Street titans. NCLR has invested millions in housing counseling services that help families objectively evaluate their finances and decide if and when buying a home makes sense for them. So while some observers seem confused as to why civil rights organizations are so intent on ensuring that borrowers of color have equal access to the benefits of our housing market, I’m not suggesting that we throw families into mortgages prematurely. Rather, I am challenging the idea that we abandon the American Dream for a system that favors borrowers blessed with rich parents while blocking low-wealth and working- class families from joining the ownership class.

Most Americans still believe in the financial and symbolic benefits of homeownership. When we interviewed Latino families that experienced foreclosure, the majority hoped that they would have another shot at homeownership in the future and new polls reveal broad support for keeping ownership opportunities alive. Blaming borrowers for a dysfunctional housing market ignores the truth behind the economic crisis and lets Wall Street, regulators, and our elected officials off the hook. Instead we must defend a reasonable and responsible path to homeownership by demanding a housing finance system that is more fair, accessible, and transparent for all families.