The Crisis In Housing, Part 3: Unequal Opportunities

The old cliché that “a rising tide lifts all boats” is not applicable to the U.S. housing market. Two demographics within the U.S. population, Black Americans and the LGBTQ community, have painful histories of real estate disenfranchisement. Even today, obstacles remain for these groups to enjoy the opportunities that others take for granted.

A Too-Wide Gap: As of Feb. 2, the U.S. homeownership rate was 65.5%, according to data published by the Census Bureau. When divided among racial and ethnic demographics, the White homeownership was the highest at 74%, followed by Asian Americans at 61.2%, Hispanics at 48.4% and Blacks at 43.1%.

Today’s Black homeownership rate is lower than it was a decade ago, and has dropped to levels not seen since the era before the 1968 Fair Housing Act. And although it has been more than a half-century since that landmark legislation was passed, Black homeownership has never cracked the 50% mark and has consistently trailed the White homeownership rate at levels ranging from 20% to 30%.

One might imagine that a substantial degree of progress should have been made in the decades since the Fair Housing Act became law and Black Americans enjoyed socioeconomic success denied to them in the Jim Crow era. But according to Jeff Tucker, senior economist at Zillow Group Z ZG, the burdens of the past cannot be easily dusted away.

“There is an income gap which is smaller, but the household wealth gap is very large,” Tucker explained. “A substantial fraction of that can be attributed to the different homeownership rates of previous generations, where a lot of white parents helped out their kids with a down payment on a house and get into that house sooner. Different access to intergenerational wealth and help from parents, frankly, is becoming an ever more important factor in getting into homeownership, given how high prices have gotten.”

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Wendy Penn, associate vice president of affordable housing initiatives with the Mortgage Bankers Association (MBA), agreed with Tucker, observing that the intergenerational communications about redlining and discrimination in the pre-Civil Rights Movement society translates into a situation of time not healing all wounds.

“It's the sort of thing that over time, your grandparents are unable to buy a home and your parents might not have been able to, and you hear those stories,” she said. “People are still around to tell those stories, and then I think people saw what happened during the last crisis when a lot of Black families lost their homes due to predatory lending.”

Penn also warned that Black Americans have traditionally been more prone to being victims of incorrect or incomplete information about gaining homeownership. This was cruelly evident in the rise of the housing bubble during the 2000s, when a disproportionately high number of Black borrowers were steered into subprime mortgages that created more problems than solutions for the would-be homeowners.

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Searching For A Better Future: Penn noted that the MBA, through its “Building Generational Wealth Through Homeownership” initiative, is proactively seeking to bridge the void in demographic homeownership rates through local-level partnerships between multiple stakeholders.

“Even though these problems are systemic and are the same across the country, the solutions, I think, will largely come from local-level collaboration,” she said. “What we're trying to do is bring together lenders, real estate professionals, housing counselors and local government to address some of these challenges.”

In regard to access to proper information on the homeownership process, Penn stated the “local-level stakeholders are trying to come together to really understand what these myths are and why they exist, and then help with the second piece of that, which is the trust, to get the right information out there from a trusted partner.”

As an example, Penn noted some Black borrowers might be skeptical or worse about the mortgage industry based on that industry’s history with their community. But that negativity can be overcome when the lender partners “with more of a trusted nonprofit that has a good reputation in the community, that is known to work with minority communities and has a track record of helping people get into homes. And borrowers might be more trusting and willing to go to that lender to seek some more.”

Penn added that it's important for prospective Black homebuyers to see Black mortgage lenders, appraisers and other professionals within the housing realm.

“I think it's really important,” she said. “We hear the phrase ‘representation matters’ in everything from teachers to television, and I think that's definitely true in terms of this process. For most people, this is their biggest financial transaction and it's a very personal one because you're dealing with people who are going to look at your bank statements, your credit bill, everything you wouldn't normally show to another person.

“And when you are in a situation where you're sitting across the table from someone who looks like you, you feel that maybe they’ll understand you, your community, your culture,” Penn added. “I think it does create a level of comfort for some people and I think it's important that we continue to work to expand diversity within the industry.”

Michael Innis-Thompson, senior vice president and head of community lending and development at TD Bank TD, shares Penn’s position on diversity within the lending space.

“If you have a very diverse team, they will also attract diverse customers,” he said. “Within our national sales force, we're hiring more diverse individuals on the management side, as well as the loan officer side.”

Innis-Thompson also pointed out that TD Bank recently introduced its Home Access Mortgage, which is designed to increase homeownership opportunities for communities of color within the bank's footprint. The product offers prospective buyers an affordable mortgage option that includes a $5,000 lender credit which does not require repayment and can be used for closing costs or toward a down payment on a home purchase. It also provides increased flexibility with a greater debt-to-income ratio and expanded underwriting requirements, plus credit parameters designed to increase accessibility.

Innis-Thompson added that this product was created based on surveys and conversations the bank had with Black customers regarding their obstacles in securing a home loan.

“That's why we included the $5,000,” he said. “Saving for a down payment was a roadblock to obtaining a home, so we hope that the $5,000 will aid potential consumers.”

Dal Didia, professor of economics in the College of Business at Jackson State University in Mississippi, highlighted the role that the nation’s historically black colleges and universities (HBCUs) can play in leveling this playing field and preparing the next generation of Black homeowners for the challenges they face with a new focus on coursework involving financial literacy and investing.

“It's good to point out all of these problems,” he said about the historic roadblocks to building Black homeownership. “But it's also good to take responsibility and do some things yourself — and that's where the change can come in.”

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Appraisal Apprehension: Still, many Black Americans are apprehensive when dealing with housing industry professionals. A recent LendingTree TREE survey found 32% of Black homeowners who’ve had a home appraisal believed they were lowballed, compared to 22% of Whites. And despite anti-discrimination laws at local, state and federal levels, 58% of Black homeowners felt their race was factored into the appraisal. And one in four Black homeowners who ordered a home appraisal worked to conceal their race from the appraiser out of concern that it would corrupt the process.

Jacob Channel, LendingTree’s senior economic analyst, believed this survey affirmed the need to keep tracking actions and perceptions in housing.

“One of the best things that can be done, in light of studies like this, is to just try to get more and more data,” he said. “For example, we can say, ‘In this specific area, this person from this appraisal group ended up lowballing, and it happens that every single Black person that they appraised had their home values come out significantly lower. So, if we have the ability to pinpoint where these issues are rising, it makes it a little bit easier to go in and say, ‘Bring about extra training so that people know about things like unconscious bias.’”

Last week, the Biden administration announced a plan to address bias in the appraisal process, including a legislative proposal to update the governance structure of the appraisal industry, with potential changes that would include new mechanisms that would screen for equity impacts in proposed residential appraisal standards and appraiser qualification criteria.

“I live in an all-Black community, my lot and house are bigger, yet my home is valued at $25,000 less than the house two doors down from me which is an all-White community,” said Housing and Urban Development (HUD) Secretary Marcia Fudge in the executive summary of the administration’s plan, adding that “communities of color like mine have lost billions of dollars solely through the appraisal process. We’re committed to taking meaningful action to increase homeownership and generational wealth for all.”

A VA Anomaly: However, there is one area where the gap between Black and White homeownership rates has narrowed: the Department of Veterans Affairs' (VA) mortgage program.

“It's helping Black veterans and their families build generational wealth,” said Chris Birk, vice president of mortgage insight at Veterans United Home Loans. “For most service members, they unlock access to a homebuying benefit that allows them to buy without a down payment and without needing sky-high credit — those are two huge barriers for a lot of buyers, especially for veterans of color and for younger veterans in particular.”

Birk stated that VA loans “are a model of stability and for what is possible. There's a lot of focus on debt-to-income ratio and credit scores as these are predictors of default and skin in the game, and over the last 14 years or so these loans have the lowest foreclosure rate on the market on average, despite the fact that people are buying without a down payment.”

While Birk laughed that he didn’t think that Black Americans should rush out to join the military just to bridge the homeownership gap, he stressed that the VA loan program demonstrates “how impactful low and no down payment mortgage programs can be and how safe they can be.”

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A Rainbow Obscured: LGBTQ Americans span the spectrum of race, religion and ethnic heritage. But unlike other demographics, they don't have federal protection against housing discrimination.

According to research compiled by the Williams Institute at the UCLA School of Law, approximately three complaints of sexual orientation and gender identity discrimination in housing are filed for every 100,000 LGBTQ adults each year, compared to approximately five complaints of race discrimination filed for every 100,000 adults of color and one complaint of sex discrimination filed for every 100,000 women.

The aforementioned LendingTree survey on appraisals also queried LGBTQ property owners, and 36% of the LGBTQ respondents believed their sexual orientation and/or another protected demographic was factored into their appraisal. In comparison, only 20% of straight Americans believed they were the subject of appraiser discrimination based on a protected demographic. The survey also determined that 31% of LGBTQ Americans felt at least one appraisal on their property was too low, compared to 22% of straight Americans.

LendingTree’s Channel noted, “If you’re a homeowner who has put a lot of money into improving your home, and you get an appraisal back that isn’t much higher than what you paid, or if the house down the street sold for tens of thousands more than what an appraiser thinks your home is worth, then it might seem reasonable to assume your home is being undervalued.”

When the Fair Housing Act was passed in 1968, its protected categories included race, color, religion or national origin. The act was amended in 1974 to prohibit discrimination based on sex and was updated in 1998 to cover people with disabilities and families with children. No federal law protects LGBTQ Americans from housing discrimination.

In June 2020, the U.S. Supreme Court ruling in Boystock v. Clayton County stated Title VII of the Civil Rights Act of 1964 protects employees against discrimination based on their sexual orientation or gender identity. Although the ruling focused on employment and not housing, President Joe Biden extrapolated that decision to cover housing discrimination in a January 2021 executive order that gave HUD the ability to investigate Fair Housing Act-related complaints made by homebuyers and rental tenants who alleged they were discriminated against for being LGBTQ.

But an executive order can easily be revoked by a new presidential administration — indeed, the early days of the Biden administration were busy with revocations of executive orders made by Biden’s predecessor, Donald Trump.

In March 2021, the Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule clarifying that the prohibition against sex discrimination under the Equal Credit Opportunity Act (ECOA) and Regulation B includes sexual orientation discrimination and gender identity discrimination. This rule also covered discrimination based on actual or perceived nonconformity with traditional sex- or gender-based stereotypes, and discrimination based on an applicant’s social or other associations.

“In issuing this interpretive rule, we’re making it clear that lenders cannot discriminate based on sexual orientation or gender identity,” said the CFPB’s then-Acting Director David Uejio in announcing the rule. “The CFPB will ensure that consumers are protected against such discrimination and provided equal opportunities in credit.”

But as with an executive order, an agency’s interpretive rule is subject to change when a new administration with a different agenda takes over the White House.

Elusive Equality: A legislative effort to ensure LGBTQ Americans are protected from housing discrimination is the Equality Act, which expands the 1964 Civil Rights Act to include sexual orientation and gender identity as protected classes. This legislation passed the U.S. House of Representatives in a 224-206 vote in February 2021, but has stalled in the U.S. Senate, which is split 50-50 along party lines and will require the support of 60 senators to be considered for passage.

Without a federal protection, LGBTQ homebuyers must rely on state and/or local laws for protection, but that doesn’t even cover half of the nation. Today, only 21 states and the District of Columbia have laws to protect people from discrimination on the basis of sexual orientation and gender identity in housing and public accommodations.

Some members of the LGBTQ community have sought to secure court protection, but not always with success.

For example, last November the Michigan Supreme Court declined to review a case on whether a petition-driven initiative to prohibit discrimination against LGBTQ people in Michigan had collected enough signatures for a ballot referendum to expand Michigan’s Elliott-Larsen Civil Rights Act in order to prohibit discrimination in housing and hiring based on sexual orientation and gender identity. The Michigan Bureau of Elections initially rejected the petition in July 2021, saying the advocacy group Fair and Equal Michigan was about 40,000 signatures short for consideration, although the group claimed it collected 299,000 signatures and accused the bureau of invalidating legitimate signatures.

"After 38 years of lawmakers ignoring us, we set out to collect and leverage citizen signatures to compel lawmakers to finally come to the table and negotiate — and for that we succeeded,” Trevor Thomas, Fair and Equal Michigan campaign co-chair, said in a statement. “That conversation will continue until Elliott-Larsen is finally amended.”

Jeff Berger, president of the National Association of Gay and Lesbian Real Estate Professionals, stated that the failure to include federal housing discrimination protection to LGBTQ Americans is out of touch with the times.

“It is incomprehensible to imagine that a same-sex couple could be refused a mortgage because they are a same-sex couple or that a transgender individual can be refused a chance to rent an apartment or house because that person is a transgender individual, but here in 2022 that can occur in more than half of the United States because no protective laws exist,” Berger said. “This is a question of right and wrong, and knowing that too many people in political authority see nothing wrong with this situation should make all Americans angry for long-overdue change.”

Tomorrow: Part 4 in this series will detail the slow progress made by the housing sector to incorporate cryptocurrency into its transactions. The first two articles in this series can be found here.