Civil Rights and the Mortgage Crisis

Over the last several decades, the federal government has adopted a series ofpolicies to address the persistent gap in homeownership rates between whites and racial and ethnic minorities. These efforts, undertaken by administrations of both major political parties, sought to increase minority homeownership through a variety of means. The initial steps focused on the adoption of laws prohibiting discrimination based on characteristics such as race, sex, religion, etc.More recently, federal laws and policies have sought to affirmatively further homeownership for those of low- and moderate-income.
The most important of these policies involve the implementation of the Community Reinvestment Act and the Department of Housing and Urban Development’s (HUD)lending goals for government sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). There is little doubtthat, over the last 15 years, homeownership generally, and minority homeownership in particular, has increased. For example, from 1994 to 2004, overall U.S. homeownership increased from 64 percent to 69 percent—an increase of 5 percentage points in just over a decade. The increase in minority homeownership has been even more substantial. During the same time period, Hispanic homeownership rates increased 6.9 percentage points while Black homeownership rates increased 6.8 percentage points.
Moreover, although the mortgage crisis may not have run its course, figures from 1994 through 2008
indicate that overall homeownership rates demonstrate a net gain despite the advent of the crisis and increased rates of foreclosures. Specifically, overall homeownership from 1994 to 2008 increased by 3.8 percentage points, White homeownership by 4.0 percentage points, Black homeownership by 5.1 percentage points, Hispanic homeownership by 7.9 percentage points, Asian/Native Hawaiian homeownership by 8.2 percentage points, and American Indian homeownership by 4.8 percentage points.
The current mortgage crisis, however, raises questionsas to whether the policies that helped increase homeownership may have come with a hidden cost. Specifically, questions have been raised as to whether the actions taken to affirmatively further homeownership mighthave, unintentionally, weakened underwriting standards and lending policies to the point that too many borrowers were vulnerable to financial distress and a heightened risk of default.
This report examines civil rights issues with respect to the mortgage crisis so that policy makers can determine whether existing policies should be revised, modified, or ended.We believe that this focused contribution will help determine the effectiveness ofthe various federal laws and policies adopted to increase homeownership for minorities and low- and moderate-income individuals.