You may earn just as much money as the white couple whose child sits next to yours in school. Between you and your husband, you may even have a bit more education. But the odds are very high that you have only a tiny fraction of their wealth. That puts you at a huge disadvantage, whose roots lie in a series of overt policies created and implemented by major American institutions for more than two centuries.
Sometimes those policies have come from government agencies. Other times, from banks. This time, in the still-evolving subprime mortgage crisis, they come most often from non-bank lending institutions that aggressively marketed adjustable rate loans, many carrying hidden fees, prepayment penalties and other provisions that put borrowers in financial jeopardy. Whatever the source, these policies have left the typical black family far behind its white counterpart in the pursuit of a solid foothold on the American dream.
Because that white family has wealth, they can send their children to private school if they choose to. They can pay for a life-saving operation their insurance company turns down. They can give their children $50,000 as a down payment on a home in a neighborhood where real estate values are rising. If you don’t have wealth—and if you’re an African-American, the data says you probably don’t—you can’t do these things. And if you can’t do them, your grasp on economic security is weakened, and your ability to give your kids a financial head start in life is non-existent.
The wealth disparity between white and black families is one of the clearest and most damaging results of the institutional racism that continues to plague our nation.
And the data is staggering. According to Melvin Oliver, professor of sociology and dean of social sciences at the University of California at Santa Barbara, and co-author of “Black Wealth, White Wealth,” the seminal study of the subject, black families have only 10 cents for every dollar of wealth that white families have. Even in middle-class black families, Oliver notes, household wealth is only one-quarter that of middle-class whites.
While a small number of Americans build significant wealth during their lifetimes, most wealth is inherited, and most of it resides in the homes we live in. And that’s where the policies of institutional racism come in. From the time the first blacks arrived in this country, there have been virtually insurmountable official barriers to their ability to accumulate property:
• Prior to Emancipation, slaves were forbidden to own property in the southern states where the overwhelming majority of blacks lived;
• At the end of the Civil War, freed slaves were promised “40 acres and a mule.” But that promise was not kept. Instead, the Freedmen’s Bureau gave most of the confiscated plantations to white Northerners, who hired blacks as field hands, initiating the practice of sharecropping that kept blacks from building assets for nearly a century.
• Many whites who did not head south to become carpetbaggers decided instead to go west, where the Homestead Act of 1862 allowed them to claim 160 acres of land. However, says Dalton Conley, director of the Center for Advanced Social Science Research at New York University and author of “Being Black, Living in the Red: Race, Wealth and Social Policy in America,” blacks who tried to take advantage of the Act usually found that their claims were unenforceable.
• The Federal Housing Administration was created in the 1930s to stimulate the growth of the home construction industry. But in order to receive FHA-backed financing, borrowers had to have their homes appraised. FHA guidelines instructed appraisers to color-code houses—green for homes in all-white neighborhoods, red for homes in mixed or black neighborhoods. This is the policy that came to be known as “redlining.” And the vast majority of mortgages were issued for homes in “green” neighborhoods.
• Even today, banks continue to make home loans in areas where home values are increasing. Often, that means in white neighborhoods. Federal Reserve studies show that blacks are 20% more likely than whites to be turned down for mortgages, even when they are equally creditworthy.
Today’s subprime mortgage crisis is the latest in this long and dismal list of practices that impede African-Americans’ ability to build wealth via home ownership.
Last year, according to an analysis of home loans reported under the federal Home Mortgage Disclosure Act, blacks were 2.3 times more likely than similarly qualified whites to get subprime mortgages. And those high-cost subprime loans are about 10 times more likely than prime loans to result in foreclosure.
There are now three major pieces of legislation before Congress to address the subprime mortgage crisis, one from Rep. Barney Frank (D-MA), one from Sen. Chris Dodd (D-CT), and one from the Bush administration. You should pay close attention to their progress. Media coverage of the bills will not be framed in racial terms, but their fates will be key factors in determining whether millions of African-Americans remain on the path to building wealth via homeownership.