In the 1990s, it was claimed that minorities were less likely to get home mortgages 30 years after anti-discrimination laws were added to specify housing, so policies were instituted requiring justification when people were denied a home loan. As a result of widespread loan liberalization, everyone was able to get loans and there was a resulting mortgage loan crisis after the core of the system was revealed as flawed.
Today, there isn't much way to allege racism in getting loans but sociologists now find that black Americans are 45 percent more likely than whites to go back to renting. The authors used longitudinal household data from the Panel Study of Income Dynamics for the period 1968 to 2009, with a study sample of 6,994 non-Hispanic whites and 3,158 black homeowners.
The research revealed that there have been gains in attaining homeownership over time, but oddly the racial gap in the likelihood of changing from ownership back to renting began to widen in the 1990s - at the time when lawmakers made economic criteria in loans more loose. Since then, black home buyers were consistently over 45 percent more likely than whites to start renting again and the sociologists claim this is a new racial stratification in American housing, from a system of overt market exclusion to one of market exploitation.
Yet the data don't really show that.
Homeowners of all ethnicities who purchased their homes in the late 1960s or 1970s showed no difference in likelihood to become renters. It is black owners who bought homes in the 2000s, when mortgage approvals were practically mandatory and housing prices role sharply, that were 50 percent more likely to lose their homeowner status than similar white owners, notes Gregory Sharp, a postdoctoral fellow in Rice's Department of Sociology and the paper's lead author.
Policies designed to help black people get home ownership ended up hurting them. When mortgages are easy to get for minorities, they will get them, even if they are overpaying and get penalized in a market bubble.
Sharp noted that these inequalities in homeownership exit held even after adjusting for an extensive set of life-cycle traits, socioeconomic characteristics, characteristics of housing units and debt loads, as well as events that prompt giving up homeownership, such as going through a divorce or losing a job.
Instead of the regulation of mortgages in the 1990s, which brought a host of legal problems if minorities were denied mortgages, the authors blame the deregulation of the mortgage markets in the 1980s, when Congress removed interest rate caps on first-lien home mortgages and permitted banks to offer loans with variable interest rate schedules – the very things that made home ownership possible.
But the 1980s did not create the subprime market crisis, they simply created a market for riskier loans. It was in the 2000s that many risky loans were written and those were subprime. But they don't cause people to lose their homes. Yet the sociologists see that by 2000, African-Americans were more than twice as likely as whites with similar incomes to sign subprime loans; among lower-income blacks, more than half of home refinance loans were subprime. That was a sign people were buying houses they could not afford.
"African-American homeowners' heightened subprime rates were not only due to their relatively weaker socioeconomic position, but also because lenders specifically targeted minority neighborhoods," Sharp said. Mortgage companies required by law to get their ethnic ratios up did just that, but qualification was not an issue for most people and as a result of that and persistent mismanagement this decade, the middle class has been devastated, and being pushed out of middle class status due to economic malaise remains the real culprit in lowered home ownership.