Homeowners

After the war and gaining momentum in the 50’s was the idea that home ownership represented the American Dream. The government stepped in to determine what could be done to increase home ownership. It quickly discovered that there was some discrimination in home loan applications and this revealed something called “red lining”. Banks had certain requirements which included a 20% down payment and the monthly payment plus interest plus taxes and insurance must not exceed 28% of gross income. Low-income people would come to the bank to quickly discover they did not qualify for a loan. In time the loan officers realized that most of these people were from certain areas and these were usually where Blacks lived. This led to the practice of drawing a red line around certain parts of the city where these people would automatically have their loans rejected. In 1994 President Clinton signed into law the Home Ownership and Equity Protection Act. This allowed bank examiners to threaten banks that did not offer loans on an equal basis to all people. This was combined with new FHA loans which allowed the purchase with only 3% down while raising the income need to 36%. This led to a large increase in home ownership. Under Clinton home ownership rates reached historic highs. While the overall homeownership rate increased in the 1960’s, this trend was not universally beneficial and led to significant disparities in the foreclosure rates, particularly for minority homeowners. It meant that the new rules allowed many people to receive home loans who could not afford the monthly payment and they lost their home. This disproportionately happened to Black families. This process was to repeat itself in the 2008 mortgage crisis on a more severe level. As of March 2008, an estimated 8.8 million borrowers – 10.8% of all homeowners – had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgage loan. Approximately 10 million Americans lost their homes to foreclosure during the 2008 financial crisis and once again Black and Hispanic homeowners were disproportionately affected by foreclosures, losing their homes at a higher rate than White homeowners. One-third of these lost their job and for many that meant losing their health insurance.