The Great Recession has been a financial catastrophe for millions of American households but that likelihood soars for Blacks and Hispanic households when compared to White households.
Wealth gap widens: Whites' net worth is 20 times that of blacks'
The wealth gap between whites on one hand and blacks and Hispanics on the other stretched during the Great Recession to its widest level in a quarter-century, according to a new analysis of Census data. All racial groups saw their net worth shrink during the downturn, but that of whites shriveled much less, with the result that their median net worth is now about 20 times that of blacks and 18 times that of Hispanics.
This is horrifying to see 25 years of gains in equality for Black and Brown people erased by a violent economic spasm of unfettered capitalism.
From 2005 to 2009, median wealth fell by 66 percent among Hispanic households and 53 percent among blacks, compared with 16 percent among whites. The losses left Hispanic and black wealth at their lowest levels in at least 25 years.
The housing crash that began in 2006 reduced home values for most American homeowners, but it hit minority families particularly hard because more of their wealth is tied to their homes.
“For nonwealthy people in the US, the huge preponderance of the wealth they have is in home equity,” says Thomas Shapiro, a law and social policy professor who directs the Institute on Assets and Social Policy at Brandeis University in Waltham, Mass.
Among Hispanics, about two-thirds of their household wealth in 2005 derived from their homes. When the housing bubble burst, their median level of home equity declined by about half – from $99,983 to $49,145 – taking much of their wealth with it. Home equity for blacks – which accounted for about 59 percent of their household net worth in 2005 – fell by 23 percent, from $76,910 then to $59,000 in 2009.
A major reason many Hispanics were hit so hard by the housing downturn is where their houses are located – disproportionately in California, Florida, Nevada, and Arizona. In those states during the housing bubble of the 1990s and early 2000s, many Hispanics worked construction jobs and bought homes. Since the housing crash, construction jobs have evaporated and home prices in those states have seen the steepest declines.
The Christian Science Monitor article notes that unemployment rates for Blacks and Hispanics is much higher that it is for Whites. I wouldn't be surprised if racist practices by mortgage lenders who routinely steered Blacks and Hispanics into costlier subprime mortgages had more than a little to do with this shameful finding.
Subprime Loan Sharks
Steering & Targeting
Brokers and lenders frequently overcharge through ‘interest rate steering’ – setting rates on the basis of perceived financial sophistication rather than risk. Elderly, minority, and low-income homeowners are prime targets. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms.
The Department of Housing and Urban Development (HUD) points out that predatory lenders also sometimes make loans without regard to the borrower’s ability to repay. This involves lending based upon a borrower’s home equity, where the borrower clearly did not have the capacity to repay the loan. In the extreme, sometimes elderly people living on fixed incomes had monthly payments that equaled or exceeded their monthly incomes, which quickly leads borrowers into default and foreclosure.
The Great Recession has been a very different experience for many Hispanic and Black households than his has for the vast majority of White households. A racially stratified economy is not going to work for much longer for a country heading toward having a majority minority citizenry.