OT: Minorities' Home Ownership Booms Under Clinton but Still Lags Whites'

Los Angeles Times

May 31, 1999

Minorities' Home Ownership Booms Under Clinton but Still Lags Whites'

By Ronald Brownstein


It's one of the hidden success stories of the Clinton era. In the great
housing boom of the 1990s, black and Latino homeownership has surged to the
highest level ever recorded. The number of African Americans owning their
own home is now increasing nearly three times as fast as the number of
whites; the number of Latino homeowners is growing nearly five times as fast
as that of whites.

These numbers are dramatic enough to deserve more detail. When President
Clinton took office in 1993, 42% of African Americans and 39% of Latinos
owned their own home. By this spring, those figures had jumped to 46.9% of
blacks and 46.2% of Latinos.

That's a lot of new picket fences. Since 1994, when the numbers really took
off, the number of black and Latino homeowners has increased by 2 million.
In all, the minority homeownership rate is on track to increase more in the
1990s than in any decade this century except the 1940s, when minorities
joined in the wartime surge out of the Depression.

This trend is good news on many fronts. Homeownership stabilizes
neighborhoods and even families. Housing scholar William C. Apgar, now an
assistant secretary of Housing and Urban Development, says that research
shows homeowners are more likely than renters to participate in their
community. The children of homeowners even tend to perform better in school.
Most significantly, increased homeownership allows minority families, who
have accumulated far less wealth than whites, to amass assets and transmit
them to future generations.

What explains the surge? The answer starts with the economy. Historically
low rates of minority unemployment have created a larger pool of qualified
buyers. And the lowest interest rates in years have made homes more
affordable for white and minority buyers alike.

But the economy isn't the whole story. As HUD Secretary Andrew Cuomo says:
"There have been points in the past when the economy has done well but
minority homeownership has not increased proportionally." Case in point:
Despite generally good times in the 1980s, homeownership among blacks and
Latinos actually declined slightly, while rising slightly among whites.

All of this suggests that Clinton's efforts to increase minority access to
loans and capital also have spurred this decade's gains. Under Clinton, bank
regulators have breathed the first real life into enforcement of the
Community Reinvestment Act, a 20-year-old statute meant to combat
"redlining" by requiring banks to serve their low-income communities. The
administration also has sent a clear message by stiffening enforcement of
the fair housing and fair lending laws. The bottom line: Between 1993 and
1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster
than the total growth rate.

Lenders also have opened the door wider to minorities because of new
initiatives at Fannie Mae and Freddie Mac-the giant federally chartered
corporations that play critical, if obscure, roles in the home finance
system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle
them into securities; that provides lenders the funds to lend more.

In 1992, Congress mandated that Fannie and Freddie increase their purchases
of mortgages for low-income and medium-income borrowers. Operating under
that requirement, Fannie Mae, in particular, has been aggressive and
creative in stimulating minority gains. It has aimed extensive advertising
campaigns at minorities that explain how to buy a home and opened three
dozen local offices to encourage lenders to serve these markets. Most
importantly, Fannie Mae has agreed to buy more loans with very low down
payments-or with mortgage payments that represent an unusually high
percentage of a buyer's income. That's made banks willing to lend to
lower-income families they once might have rejected.

But for all that progress, the black and Latino homeownership rates, at
about 46%, still significantly trail the white rate, which is nearing 73%.
Much of that difference represents structural social disparities-in
education levels, wealth and the percentage of single-parent families-that
will only change slowly. Still, Apgar says, HUD's analysis suggests there
are enough qualified buyers to move the minority homeownership rate into the
mid-50% range.

The market itself will probably produce some of that progress. For many
builders and lenders, serving minority buyers is now less a social
obligation than a business opportunity. Because blacks and Latinos, as
groups, are younger than whites, many experts believe they will continue to
lead the housing market for years.

But with discrimination in the banking system not yet eradicated,
maintaining the momentum of the 1990s will also require a continuing nudge
from Washington. One key is to defend the Community Reinvestment Act, which
the Senate shortsightedly voted to retrench recently. Clinton has threatened
a veto if the House concurs.

The top priority may be to ask more of Fannie Mae and Freddie Mac. The two
companies are now required to devote 42% of their portfolios to loans for
low- and moderate-income borrowers; HUD, which has the authority to set the
targets, is poised to propose an increase this summer. Although Fannie Mae
actually has exceeded its target since 1994, it is resisting any hike. It
argues that a higher target would only produce more loan defaults by
pressuring banks to accept unsafe borrowers. HUD says Fannie Mae is
resisting more low-income loans because they are less profitable.

Barry Zigas, who heads Fannie Mae's low-income efforts, is undoubtedly
correct when he argues, "There is obviously a limit beyond which [we] can't
push [the banks] to produce." But with the housing market still sizzling,
minority unemployment down and Fannie Mae enjoying record profits (over $3.4
billion last year), it doesn't appear that the limit has been reached.

All signs point toward a high-velocity collision this summer between two
strong-willed protagonists: HUD's Cuomo and Fannie Mae CEO Franklin D.
Raines, the first African American to hold the post. Better they reach a
reasonable agreement that provides more fuel for the extraordinary boom
transforming millions of minority families from renters into owners.