Home ownership

Going all the way back to the 1930’s the Home Owners Loan Corporation set up what were called residential security zones, in 142 cities marking Black and immigrant neighborhoods as risky. In the 1970’s the FHA required a 3.5% down payment on a 30-year fixed interest loan. They also followed the 28 rule which meant the principal and interest along with the real estate taxes and home owners’ insurance and PMI could not exceed 28% of the borrower’s gross income. At that time 30-year fixed mortgage were 5% so person who wanted to purchase a $55,000 home which was the average home price in 1980, would have a monthly principal and interest payment of $1020. Real estate taxes added $70, homeowner insurance another $25 and PMI at $28 for a total of $1,143. This meant you had to have an income of $4,082 per month to qualify for a loan. In 1980 only 6% of households had that kind of income. Buyers often put 20% down and purchased starter homes at lesser value than the average. The average income in 1980 was $1,750 per month which meant they only qualified for a house valued at $25,000. The 28 rule kept people from getting in over their heads. I bought a $10,000 home in 1959 with $400 down and a 4.75% rate for 30 years and my monthly payment for everything was $90. My income was $260 but I worked 60 hours a week and that brought it up to $390. Studies were conducted during the 1960’s which showed that Blacks were disproportionately left out of the home mortgage market. When a person came into the bank to apply for a loan and didn’t meet the 28% rule the loan request was denied. In time the loan officers consider these applications a waste of time and began to draw a red line around Black neighborhoods and told people over the phone not to apply based on their address. This resulted in the passage of the Fair Housing Act of 1968 that prohibited racial discrimination in lending. While this meant that all applicants had to be accepted only a few qualified. Then in 1995 Clinton passed the Community Reinvestment Act which provided incentives for banks to offer loans to lower income people by relaxing the strict requirements. This opened the door to the American dream for many Blacks as they became eligible for home loans. When the mortgage crisis hit in 2008, Black and Hispanic communities faced significantly higher foreclosure rates, with reports suggesting up to 30% of their homes entered foreclosure, compared to 11% for white homeowners. Bank examiners would check the percent of loans given to minorities and if they were not high enough the banks were threatened with penalties.