AILSA CHANG, HOST:
As part of our series on American democracy called We Hold These Truths. We've been looking at the idea of property ownership this week. Homeownership is key to building intergenerational wealth in this country. The average homeowner in America is worth a quarter of a million dollars. The average renter - just 6,000. And yet the majority of Black households don't own their homes, while nearly three-quarters of white households do. This racial gap in home ownership has persisted for generations, even since race-based housing discrimination became illegal. And in this final episode, editor Christopher Intagliata and I examine the financial barriers that are built into the way we purchase homes in America today. We meet Donna Lee Norrington (ph) at her house. It's on a quiet, tree-lined street in Compton, south of downtown LA.
DONNA LEE NORRINGTON: So this is the dining room. And in here...
CHANG: A three bedroom, two bath set back behind a wide lawn.
NORRINGTON: In here is the kitchen. And so we still have...
CHANG: It's white with teal trim around the windows. I love it. You have a whole whiteboard here with - what? - everybody's chores?
NORRINGTON: Yeah, everybody's chores and routines.
CHRISTOPHER INTAGLIATA, BYLINE: Everybody - that's eight people in total right now. Norrington and her sister Mary Josephine (ph) bought this house last June. It's the first house they've ever owned in their names.
CHANG: Norrington says homeownership always felt like a far away goal for her.
NORRINGTON: I didn't even consider homeownership just because I just thought it was out of my grasp Not so much financially, but just the fact that maybe I was too old to own a home, and I just didn't want all the responsibility that came with it.
INTAGLIATA: But then one night, she had a dream, like, a literal dream.
NORRINGTON: God said to me, why don't you get you a mortgage that doesn't move?
INTAGLIATA: Meaning a fixed-rate mortgage.
CHANG: And she says God also told her to seek guidance from someone she already knew.
NORRINGTON: And also in my dream, it said, go to Mark Alston.
CHANG: In your dream, you heard the name Mark Alston.
NORRINGTON: I did. And go to Mark Alston.
CHANG: Does Mark know that you dreamed of him?
NORRINGTON: I told him that...
CHANG: (Laughter).
NORRINGTON: ...You know, during our...
MARK ALSTON: I saw her vision. She start crying before we closed. I told her to wait. Let's get all the way done before we celebrate.
INTAGLIATA: Mark Alston is a mortgage broker. He has mostly Black clients in and around Los Angeles.
ALSTON: I mean, it's pretty unbelievable to me. Almost 75% of the white community owns houses. That's an unbelievable figure. Really? Three out of every 4 people have a house? And in my community, you know, it's like 2 out of every 10 in LA, 4 out of every 10 in the country.
INTAGLIATA: And Alston says there are systemic reasons for this, layers of barriers. And he has spent his entire real estate career trying to help Black Americans break through those barriers, so they can achieve the American dream of homeownership and all the generational wealth that comes with it. And, Ailsa, I spoke with Alston and a bunch of economists to better understand these structural barriers.
CHANG: Right. So what kind of barriers are we talking about here?
INTAGLIATA: Well, there are four main barriers that I looked into which make it harder to qualify for a home loan and can make that loan more expensive, especially for the average Black American.
CHANG: OK, so let's start with the first barrier, qualifying for a loan.
INTAGLIATA: Yeah. Mark says a lot of Black clients come to him, and they first hit a road bump with their credit score.
ALSTON: Now the wreckage of your past shows up. You're making some good money. You know, you deserve to buy a house. But we've got some credit issues from when you were struggling.
INTAGLIATA: So the average Black credit score is 60 points lower than the average white credit score. And, Ailsa, there are a number of reasons for this. But part of it has to do with higher unemployment rates among African Americans, especially during downturns like we're in right now. And another thing Alston and others pointed out to me is that a lot of the regular bills people pay, like cell phone bills and utility bills, even their monthly rent...
CHANG: Which all seem like good indicators of financial responsibility.
INTAGLIATA: Right. None of those payments are included in the typical FICO score that most lenders use.
CHANG: Which makes it a lot harder to prove you're qualified.
INTAGLIATA: Exactly. So credit scoring - that's the first barrier to just getting your foot in the door. And that brings us to the second barrier, risk-based pricing.
CHANG: Risk-based pricing. What is that?
INTAGLIATA: So this is the idea that the riskier you are as a borrower, the more I'm going to charge you to lend you money. And about half of Black homebuyers get loans backed by the two mortgage giants, Fannie Mae and Freddie Mac. And the two main variables that Fannie and Freddie use to judge risk - they're your credit score and your down payment size.
CHANG: OK.
INTAGLIATA: And we already mentioned black Americans have lower average credit scores. Well, Black homebuyers - they also tend to make smaller down payments. So you take those two things together, and they get judged as riskier and often end up paying higher prices. Alston has a nickname for this kind of pricing.
ALSTON: The poor pay more fee adjustment, OK?
CHANG: Wait. How long has this been going on?
INTAGLIATA: Well, Fannie and Freddie have always done some sort of risk-based pricing. But before the housing crisis, they enabled most homebuyers to access fairly similar rates. And then when crisis hit, Fannie and Freddie tightened their standards and got more aggressive about risk-based pricing, which, as we mentioned, tends to drive up prices for people with less wealth and lower credit scores.
ED GOLDING: It's inherently unfair that, basically, we raise the prices during the financial crisis so that people who were hurt by the financial crisis could bail out the financial institutions to enhance the profits of these same financial institutions.
INTAGLIATA: That's MIT economist Ed Golding, who worked at Freddie Mac during the housing crisis. And he says low-wealth first-time homebuyers today are still being asked to pay more.
GOLDING: It seems that we're asking the victims to pay and to pay again for what was really not their fault.
INTAGLIATA: And, Ailsa I should mention, spokespeople for both Fannie and Freddie said this sort of pricing - it helps them manage their risks. And they say it's provided stability during the pandemic and also enabled homeownership for millions of families, including many families of color.
CHANG: Hmm. Well, on top of that risk-based pricing, there is still a third barrier - right? - that especially holds back black homebuyers in this country. What is that barrier?
INTAGLIATA: That barrier is mortgage insurance. And this is something you typically have to pay if your down payment is less than 20% And right now, 9 in 10 black homebuyers are paying for this, compared to only 6 in 10 white homebuyers.
CHANG: And buying insurance is basically just another way of making you, the so-called risky home buyer, pay for this risk.
INTAGLIATA: That's right, yeah.
CHANG: And we should note, Christopher, that none of the things that we've been talking about so far would be considered discriminatory under the Fair Housing Act, right? Like, lenders are allowed to charge money to absorb what they perceive as risk.
INTAGLIATA: Yeah, yeah. And a free-market-type person might say, hey, that's just the market pricing risk the way it should be priced. But Golding says it's a choice when we decide to price for risk and when we don't. Take preexisting conditions, for example.
CHANG: Right, like in the health care market.
INTAGLIATA: Yeah. Golding points out that in that case, we decided not to charge people for being riskier, for having those preexisting conditions. Instead, we chose to all share that cost.
CHANG: Right. OK, well, moving on, let's now take a look at the fourth barrier that a lot of Black homebuyers might face.
INTAGLIATA: Yeah, this one looks a lot more like just straight-up racial discrimination. These researchers at UC Berkeley did a study for the National Bureau of Economic Research. And after analyzing almost 10 million home loans, they found that Black and Latinx borrowers are still being charged more, even after you control for risk.
CHANG: Wait. You mean that Black and Latinx homebuyers who have the same credit score and put down the same percent down payment as white homebuyers - they are still getting charged more?
INTAGLIATA: They're still getting charged more. And this kind of discrimination - it's even built into the computer algorithms that write the loans.
CHANG: Wow. Wait. But you can't discriminate on the basis of race if you're a lender, right? Like, that's illegal.
INTAGLIATA: It is. It is. And what the courts have said on this up until now is that the only legitimate justification for charging borrowers of one racial group a higher price than another is if it has to do with credit risk. But remember, this study ruled out credit risk as a factor. So something else is going on.
CHANG: Something like racial discrimination.
INTAGLIATA: Exactly. And, Ailsa, the result of all those layers we're talking about, which some call a Black tax on homeownership - all those layers mean Black homebuyers are generally paying more to own a home. And therefore, they're building less wealth over their lifetimes compared to white homeowners.
CHANG: How much less wealth?
INTAGLIATA: Well, Ed Golding - remember the MIT economist? - he and his colleagues have done the math, and they say it adds up to tens of thousands of dollars of lost savings and investments over the course of a lifetime.
CHANG: Wow. OK, but with the exception of that UC Berkeley study, which shows possible racial discrimination, all of the other barriers we're talking about are things that any homebuyer might face, right? Like, why do some experts say this system of home financing is unfair to Black people?
INTAGLIATA: Well, it's interesting, this idea of fair. We brought that up specifically with Mark Alston, the broker, and he has his own take on what fair means in America.
ALSTON: When you've had 350 years of not just unfairness but actual opposition - you had exclusionary zoning laws. You had federally institutionalized redlining. And now you have disparate housing finance policy. When you have actual opposition, fair is an interesting concept. You know, a good head start beats fast running. If I give you a 350- or 400-year head start, I can never catch you.
CHANG: We asked Donna Lee Norrington about that. It's taken her 60 years to feel like she can even begin to catch up. But when you look at her now, sitting in a lawn chair in her backyard, you can see her marveling at the house that she can finally call her own.
NORRINGTON: I always feel like a late bloomer. You know, we got our own little piece of land right here. And we don't never have to worry about somebody going to sell it from up under us or anything like that. And I'm just grateful to God that I had that dream. It was God done this. I don't take no credit. It was God. It was all God. I'm just grateful, you know? I feel really good about that, you know, leaving some sort of legacy. Yeah, that's a really good feeling.
CHANG: It's a legacy that, to this day, remains out of reach for so many Black Americans. Transcript provided by NPR, Copyright NPR.
