In the 1980s, we saw a large scale dismantling of civil rights gains and the triumph of “trickle-down” economics. As part of the trickle – down economics strategy, government implemented broad financial deregulation, specifically in the mortgage industry. Unfortunately, the strategy set the stage for the 2008 housing crisis.
Since the Great Depression, the U.S. government built and maintained a strictly regulated, lending process, which, due to segregationist polices, created an almost exclusively white American middle class. Then, during the 1960s and 1970s, the civil rights community helped the nation change course by convincing government to enacted policies to break down the barriers for African American homeownership.
However, the Reagan’s era of deregulation stopped this progress in its tracks. Our country began to partially dismantle policies designed to protect homeowners and the financial markets from unsustainable lending products. By the mid-90s, a new regime of exotic lending was in full effect, with balloon payments, ARMs, and other new types of loans that made use of the new space created by deregulation.
This process led to frantic lending activity. Initially, it appeared that after being excluded for so long, black and Hispanic buyers were being welcomed into the housing market. At long last, it seemed they would gain middle-class American status.
But then warning signs emerged that this was not a solution to low homeownership rates for African Americans. The vast amount of money flooding the U.S. mortgage market drove prices up during a time of stagnant wages. Households were forced to devote a larger portion of their income to their mortgage and savings began to decline as people went farther into debt to maintain their place in the new housing market.
Lenders took this opportunity to target communities of color and geography long ignored by traditional banks. These new players in the housing market infiltrated these communities and sought out buyers or homeowners who they could sell new sub-prime mortgages. Homeowners in minority neighborhoods were far more likely to be been sold a subprime high cost loan than a homeowner in a white suburb. And subprime loans even paid the lenders more in commissions and fees.
Beginning in the last half of 2007, mounting foreclosures began to cause instability in the complex structure of credit that funded most of the mortgages in the U.S. It is estimated that 20% of home loans funded from 1998 to 2006 ended in foreclosure.
By 2008, the mortgage market was in freefall and, without customers to buy homes, the prices of existing houses plummeted.
Without the cushion of home equity to protect them, American families began to cut back on spending dramatically deleveraging themselves by either paying off or defaulting on their debts. Unemployment began to creep up and then skyrocketed. More likely to be impacted by a foreclosure, communities of color also suffered the most as unemployment hit the service and public sectors the hardest, both job sectors which traditionally employs high numbers of minorities and women. By 2009, white families in America had lost 16% of their net worth on average, while black and Hispanic families had lost 53% and 66%, respectively. Some studies place the current ratio of wealth between black and white families as high as 30 to 1.
With all the economic conversations around rebuilding our economy, there is little mention about how the nation will tackle racial economic inequality. High poverty and unemployment and low home ownership and wealth in the African American community are all related to grave institutional economic challenges African American communities have faced since slavery. And while this country has made considerable gains in dealing with racial inequities; we still remain far from achieving economic justice for all.
Poverty, unemployment, homeownership, wealth – for each of these economic indicators African Americans fare worse than other racial groups. But why? During Black History Month the NAACP will delve into 4 major U.S. periods (Slavery, the New Deal, the Reagan Era, and the 2008 Housing Crisis) that have shaped many of African Americans’ economic realities. These stories are not of victimization – African Americans have triumphed and excelled despite centuries of exclusion and oppression. By providing this historic framework, we hope there will be more appreciation for African Americans’ economic contributions to this country; greater understanding of the grave institutional economic challenges facing African American communities; and support for policies to remedy racial economic inequities in acknowledgement that helping the minority will ultimately help the majority.