Communities of Color Lose Jobs, Homes and the Prospect of the American Dream

September 22, 2011
Guest Post

By Lisa Rice, vice president of the National Fair Housing Alliance. Rice will be participating in a panel discussion on jobs and economic justice this Friday at the Congressional Black Caucus Foundation’s Annual Legislative Conference.

It’s disheartening, but not surprising that the Pew Research Center reports that the median wealth of American white households is 20 times that of African American households and 18 times that of Hispanic households. This historic gap in wealth continues to widen and is the result of a toxic mix of longtime segregation, high unemployment rates, falling home values and skyrocketing home foreclosures that is severely impacting communities of color. These ills are not natural occurrences, but the result of federal policies that until recently have ignored job creation and wage support in communities of color and allowed the peddling of predatory, abusive and discriminatory loan products to African American and Hispanic homebuyers to go unchecked.

In August, the Bureau of Labor Statistics reported an overall unemployment rate of 9.1 percent, which is unchanged from July and represents 14 million Americans. But African American unemployment jumped to 16.7 percent – the highest level since 1984 – while the white jobless rate fell slightly to 8 percent. For Hispanics, unemployment remained stable at 11.3 percent in August, while Asian-American unemployment dropped to 7.1 percent, according to the Bureau of Labor Statistics. More than 155,000 African-Americans obtained employment in August; even so that wasn’t enough to counter a surge in unemployment numbers for the group. At least 1.4 million African Americans have been out of work for more than six months.

Some reasons for the disparity in employment for African Americans may include: a younger work force, fewer members obtaining college degrees and a larger share of the population living in areas severely impacted by the recession. Even if those factors are taken into account a disparity persists and racial discrimination can’t be ignored, explains Algernon Austin, director of Race, Ethnicity, and the Economy program for the Economic Policy Institute. Austin told CNN, “Even when you compare black and white workers, same age range, same education, you still see pretty significant gaps in unemployment rates. So I do think the fact of racial discrimination in the labor market continues to play a role.”

For most of us employment is essential for income to sustain our most basic necessities – food, shelter and health care. That income, if sufficient and properly managed, can also be used to leverage a time honored vehicle for asset accumulation in this country: homeownership. Millions of Americans tap the equity in their homes to pay for their child’s college education, fund start-up businesses, pay for retirement, and weather economic uncertainty. For communities of color, homeownership rates have historically lagged behind that of white Americans though the long trend has been upward. African American homeownership has doubled from 22.8 percent in 1940 to 45.9 percent in 2010.  Comparatively, homeownership for whites increased from 45.6 percent in 1940 to 74.4 percent in 2010. According to the Joint Center for Housing Studies at Harvard University about 47.5 percent of Latinos and 58.2 percent of Asian-Americans owned a home in 2010.

But skyrocketing foreclosure rates and underwater home values are threatening to eliminate an important source of wealth for African Americans and Latinos aspiring to become part of the American middle class. The Center for American Progress reports that foreclosure rates are significantly higher for Latinos and African Americans registering 7.69 percent and 7.90 percent respectively – compared to whites and Asian Americans who have home loss rates of 4.52 percent and 4.6 percent respectively. The Center for Responsible Lending reports that African American and Latino homeowners have collectively lost $371 billion in wealth because record numbers of foreclosures in their communities have driven down the value of nearby homes. Hispanics and African Americans are reportedly 75 percent more likely to experience foreclosure than their white counterparts.

A survey conducted by the Pew Research Center found that 41 percent of Hispanic homeowners in the U.S. are underwater – owe more than their homes are worth - on their mortgages compared to 35 percent of African Americans and 18 percent of whites. States with the highest concentration of underwater homeowners include: Nevada, Arizona, Florida, Michigan and California. Four of the five states have sizable Hispanic populations. These foreclosures, and the resulting loss of wealth for surrounding homeowners are the result of systematic forces that encouraged lenders to peddle unsustainable loans in communities of color with little consequence and even less thought for the long-term impact on families, neighborhoods and the country as a whole.

The story is told best in the city of Memphis where two decades of economic gains by African Americans are rapidly slipping away in the midst of rising unemployment and growing foreclosures. Memphis officials are recognizing what the National Fair Housing Alliance and other housing activists warned about for some time – lenders targeted communities of color with subprime, predatory and abusive home loans which stripped away wealth from families and neighborhoods. Officials in Memphis and Shelby County sued Wells Fargo alleging the financial institution engaged in “reverse redlining by intentionally targeting minority communities with discriminatory and unfair terms.”  Baltimore city officials also brought a similar suit against Wells Fargo.

Memphis and Shelby County officials contend that Wells Fargo’s shady mortgage dealings targeting communities of color resulted in the bank’s foreclosure rate in African American neighborhoods being nearly seven times the rate of foreclosure in white areas. According to The New York Times, Wells Fargo employees in Memphis gave affidavits for the city’s lawsuit alleging the bank changed incomes on loan applications and that “agents went fishing for customers, mailing live checks to leads. When a homeowner deposited the check, it became a high-interest loan, with a rate of 20 to 29 percent. Then bank agents tried to talk the customer into refinancing, using the house as collateral.” The use of high-cost loans isn’t limited to Memphis or Baltimore. The Center for Responsible Lending reports that “African American and Latino borrowers are about 30 percent more likely to receive the highest-cost subprime loans relative to white subprime borrowers with similar risk profiles.”

If high unemployment and high foreclosure rates continue, the loss of wealth from communities of color will ensure racial economic inequality for the next generation of Americans. The wealth imbalance is a threat to the nation’s long-term well being and will continue to present challenges as the number of Hispanics, African Americans and Asian Americans grow to make up a majority of Americans by 2042. It won’t be corrected overnight, but thoughtful government policies and regulation can again start to narrow America’s wealth gap. Fortunately, we are seeing some initial attempts to address job creation with the unveiling of President Obama’s American Jobs Act – the centerpiece of his plan for $447 billion in tax cuts and spending to ease the current recession. 

The Act offers a mix of tax cuts to help small businesses grow and hire new employees, tax credits to encourage the hiring of long-term unemployed Americans, a payroll tax holiday to assist millions of American workers, investing billions to hire workers to rehabilitate homes and refurbish hundreds of thousands of vacant and foreclosed homes, and immediate investment in the nation’s infrastructure designed to modernize our roads, railways, airports and waterways while putting hundreds of thousands of workers back on the job. The legislation also calls for helping more Americans refinance their home mortgages at today’s historically low interest rates. It’s a first step and certainly not perfect, but the Act has drawn support from civil rights organizations and other progressive groups interested in protecting the American middle class.

Another way for government to assist communities of color is already underway with the creation of the Consumer Financial Protection Bureau. The new consumer “cop on the beat” has been tasked with protecting consumers from predatory mortgages and other abusive, unfair and discriminatory loan products. The Bureau has regulatory authority over big banks, but it needs a permanent director to have true oversight for non-bank entities, such as payday lenders. Currently, former Ohio Attorney General Richard Cordray is undergoing confirmation hearings before the Senate. Cordray, like President Obama’s American Jobs Act, needs bipartisan support to be effective. It is our hope at the National Fair Housing Alliance that this happens sooner rather than later. Communities of color have suffered long enough and neither they, nor the nation can afford to wait any longer.