#bankrate | Explore Tumblr Posts and Blogs

ivan-fyodorovich-k · 6 months

Text

I will be curious to read the vituperative denials of the validity of this article's analysis, which is pasted below the cutoff:

“Are you better off today than you were four years ago?” That question, first posed by Ronald Reagan in a 1980 presidential-campaign debate with Jimmy Carter, has become the quintessential political question about the economy. And most Americans today, it seems, would say their answer is no. In a new survey by Bankrate published on Wednesday, only 21 percent of those surveyed said their financial situation had improved since Joe Biden was elected president in 2020, against 50 percent who said it had gotten worse. That echoed the results of an ABC News/Washington Post poll from September, in which 44 percent of those surveyed said they were worse off financially since Biden’s election. And in a New York Times/Siena College poll released last week, 53 percent of registered voters said that Biden’s policies had hurt them personally.

As has been much commented on (including by me), this gloom is striking when contrasted with the actual performance of the U.S. economy, which grew at an annual rate of 4.9 percent in the most recent quarter, and which has seen unemployment holding below 4 percent for more than 18 months. But the downbeat mood is perhaps even more striking when contrasted with the picture offered by the Federal Reserve’s recently released Survey of Consumer

The survey provides an in-depth analysis of the financial condition of American households, conducted for the Fed by the National Opinion Research Center at the University of Chicago. Published every three years, it’s the proverbial gold standard of household research. The latest survey looked at Americans’ net worth as of mid-to-late 2022 and Americans’ income in 2021, comparing them with equivalent data from three years earlier. It found that despite the severe disruption to the economy caused by the pandemic and the recovery from it, Americans across the spectrum saw their incomes and wealth rise over the survey period.

The rise in median household net worth was the most notable improvement: It jumped by 37 percent from 2019 to 2022, rising to $192,000. (All numbers are adjusted for inflation.) Americans in every income bracket saw substantial gains, with the biggest gains registered by people in the middle and upper-middle brackets, which suggests that a slight narrowing of wealth inequality occurred during this time. In particular, Black and Latino households saw their median net worth rise faster than white households did—though the racial wealth gap is so wide that it narrowed only slightly as a result of this change.

A big driver of this increase was the rising value of people’s homes—and a higher percentage of Americans owned homes in 2022 than did in 2019. But households’ financial position improved in other ways too. The amount of money that the median household had in bank accounts and retirement accounts rose substantially. The percentage of Americans owning stocks directly (that is, not in retirement accounts) jumped by more than a third, from about 15 to 21 percent. The percentage of Americans with retirement accounts went from 50.5 to 54.3 percent, a notable improvement. And a fifth of Americans reported owning a business, the highest proportion since the survey began in its current form (in 1989).

Americans also reduced their debt loads during the pandemic. The median credit-card balance dropped by 14 percent, and the share of people with car loans fell. More significantly still, Americans’ median debt-to-asset, debt-to-income, and debt-payment-to-income ratios all fell, meaning that U.S. households had lower debt burdens, on average, in 2022 than they’d had three years earlier.

The gains in real income (in this case, measured from 2018 to 2021) were small—median household income rose 3 percent, with every income bracket seeing gains. But that was better than one might have expected, given that this period included a pandemic-induced recession and only a single year of recovery.

The picture the survey paints, then, is one of American households not only weathering the pandemic in surprisingly good shape, but ultimately also emerging from it in better financial shape than they were going in. And that, in turn, points to the effect of the U.S. policy response to the crisis: Stimulus payments, enhanced unemployment benefits, the child-care tax credit, and the moratorium on student-loan payments boosted household income and balance sheets, helping people pay down debt and increase their savings. In the process, these policies mildly narrowed inequality.

The U.S. government’s aggressive response to the pandemic, including Biden’s stimulus spending, also helped the job market recover all its pandemic-related losses—and add millions of jobs on top. The resulting tight labor market has been a huge boon to lower-wage workers. In fact, because the Fed survey’s income data end in 2021, it understates the income gains for the bottom half of the workforce, and the shrinking income inequality they’ve produced.

Hourly wages for production and nonsupervisory workers (who make up about 80 percent of the American workforce) rose 4.4 percent year-on-year in the third quarter of 2023, for instance, ahead of the pace of inflation. And this was not anomalous: Arindrajit Dube, an economist at the University of Massachusetts at Amherst, crunched the numbers and found that real wages for that same sector of workers are not just higher than they were in 2019, but are now roughly where they would have been if we’d continued on the upward pre-pandemic trend.

The reason for this is simple: Low unemployment has translated into higher wages. As a recent working paper by Dube, David Autor, and Annie McGrew shows, the tight labor markets of the past few years have given lower-wage workers more bargaining power than in the past, leading to a compression in the wage gap between higher-paid and lower-paid workers. Of course, that gap is still immense, but the three scholars found that the wage gains for lower-paid workers have rolled back about a quarter of the rise in inequality that has occurred since the 1980s.

So what should we take away from the Survey of Consumer Finances data, and from Dube, Autor, and McGrew’s work? Not that everything is fine, but that public policy and macroeconomic management matter a lot. Enhanced unemployment benefits, the child-care tax credit, the stimulus payments—these things materially improved the lives of Americans and helped set the economy up for a strong recovery. If the policy response had been less aggressive, the U.S. economy would be in worse shape now. This is something you can see by looking at Europe, where economies are growing far more slowly and unemployment is higher, while inflation is no lower.

Key to this story is the fact that lower-wage workers in particular would be worse off, because they have been among the chief beneficiaries of the low unemployment created by the robust recovery. It’s a useful reminder that stagnant wages are not an inevitable result of American capitalism: When labor markets are tight, and employers have to compete with one another for employees, workers get paid more.

So, even allowing for the high inflation we saw in 2022, no one could really look at the U.S. economy today and say that the policy choices of the past three years made us poorer. Yet that, of course, is precisely how many Americans feel.

Although that pessimism does not bode well for Biden’s reelection prospects, the real problem with it is even more far-reaching: If voters think that policies that helped them actually hurt them, that makes it much less likely that politicians will embrace similar policies in the future. The U.S. got a lot right in its macroeconomic approach over the past three years. Too bad that voters think it got so much wrong.

#someone somewhere out there will find this infuriating #I'm not an economist and almost every time anyone says anything about economics I think 'sure that makes sense'#so I post in my ignorance #try to resist calling me a retard when you tear this apart #and it's always the worst with things like statistics because someone's gonna be like 'well if you reframe the numbers slightly #you'll find that in fact this article demonstrates that we have less wealth per capita than your average North Korean'

63 notes · View notes

reasoningdaily · 7 months

Text

The days of legally sanctioned race-based housing discrimination may be behind us, but the legacy of attitudes and practices that kept nonwhite citizens out of some neighborhoods and homeownership remains pervasive. Redlining, one of these practices, is especially notorious in U.S. real estate history.

What is redlining? Technically, it refers to lending discrimination that bases decisions on a property’s or individual’s location, without regard to other characteristics or qualifications. In a larger sense, it refers to any form of racial discrimination related to real estate.

America’s discriminatory past can still be present today with nonwhite mortgage borrowers generally getting charged higher interest rates and the persistence of neighborhood segregation. These trends can be traced in part to redlining, an official government policy dating from the 1930s, which codified racist attitudes in real estate finance and investment, and made it more difficult for nonwhites to purchase homes.

Redlining and racism in America have a long, complex and nuanced history. This article serves as a primer on the policy’s background and how it continues to affect real estate and nonwhite homeownership today. It also includes suggestions to reduce redlining’s lingering effect.

Key takeaways

Redlining refers to a real estate practice in which public and private housing industry officials and professionals designated certain neighborhoods as high-risk, largely due to racial demographics, and denied loans or backing for loans on properties in those neighborhoods.

Redlining practices were prevalent from the 1930s to the 1960s.

Ostensibly intended to reduce lender risk, redlining effectively institutionalized racial bias, making it easier to discriminate against and limit homebuying opportunities for people of color. It essentially restricted minority homeownership and investment to “risky” neighborhoods.

Though redlining is now illegal, its legacy persists, with ongoing impact on home values, homeownership and individuals’ net worth. Discrimination and inequities in housing practices and home financing still exist.

What is redlining?

Redlining — both as a term and a practice — is often cited as originating with the Federal Home Owners’ Loan Corporation (HOLC), a government agency created during the 1930s New Deal that aided homeowners who were in default on their mortgages and in foreclosure. HOLC created a system to assess the risk of lending money for mortgage loans within particular neighborhoods in 239 cities.

Color-coded maps were created and used to decide whether properties in that area were good candidates for loans and investment. The colors — from green to blue to yellow to red — indicated the lending risk level for properties. Areas outlined in red were regarded as “hazardous” (that is, high risk) — hence, the term “redlining.”

Redlined areas typically had a high concentration of African-American residents and other minorities. Historians have charged that private mortgage lenders and even the Federal Housing Administration (FHA) — created in 1934 to back, or insure, mortgages — used these maps or developed similar ones to set loan criteria, with properties in those redlined areas incurring higher interest rates or not qualifying at all. Real estate brokers often used them to segregate buyers and sellers.

“This practice was widespread and institutionalized, and it was used to discriminate against minorities and low-income communities,” says Sam Silver, a veteran Santa Clarita, Calif.-based Realtor, real estate investor and commercial lender.

The impact of redlining on the mortgage lending industry

Following World War II, the U.S. had a huge demand for housing, as many returning American servicemen and -women wanted to settle down and begin raising families. Eager to help these veterans, the FHA expanded its financing and loan-insuring efforts, essentially empowering Uncle Sam to back lenders and developers and reducing their risk when offering construction and mortgage loans.

“That lower risk to lenders resulted in lower interest rates, which granted middle-class people the ability to borrow money to purchase homes,” says Rajeh Saadeh, a real estate and civil rights attorney and a former Raritan Valley Community College adjunct professor on real estate law in Bridgewater, New Jersey. “With the new lending policies and larger potential homeowner pool, real estate developers bought huge tracts of land just outside of urban areas and developed them by building numerous homes and turning the areas into today’s suburbs.”

However, many of these new developments had restrictions stated in their covenants that prohibited African-Americans from purchasing within them. Additionally, there were areas within cities, already heavily populated by minorities, that were redlined, making them ineligible for federally backed mortgages (which effectively meant, for affordable mortgages, period). Consequently, people of color could not get loans to buy in the suburbs, nor could they borrow to purchase homes in areas in which they were concentrated.

“Redlining was part of a systemic, codified policy by the government, mortgage lenders, real estate developers and real estate agents as a bloc to deprive Black people of homeownership,” Saadeh continues. “The ramifications of this practice have been generational.”

The (official) end of redlining

During the mid-20th century, redlining predominated along the East Coast, the eastern sections of the South and the Midwest, and several West Coast metropolitan areas. Black neighborhoods and areas adjacent to them were the ones most likely to be redlined.

Redlining as a sanctioned government practice ended with the passage of the Fair Housing Act in 1968, which specifically prohibits racial discrimination in the housing industry and among professionals engaged in renting, buying, selling and financing residential properties. The Act’s protections were extended by the Equal Credit Opportunity Act (1974) and the Community Reinvestment Act (1977).

The Department of Housing and Urban Development (HUD) — specifically, its Office of Fair Housing and Equal Opportunity (FHEO) — investigates reports of redlining. For example, prompted by a complaint filed by the non-profit National Community Reinvestment Coalition, HUD has been examining whether several branches of HSBC Bank USA engaged in discriminatory lending practices in Black and Hispanic neighborhoods in six U.S. metropolitan areas from 2018-2021, HSBC recently disclosed in its Form 10-Q for the second quarter 2023.

Bankrate insights

In October 2021, the Department of Justice announced its Combatting Redlining Initiative, working in partnership with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency. It has reached seven major settlements with financial institutions to date, resulting in over $80 million in loans, investments and subsidies to communities of color.

How does redlining affect real estate today?

The practice of redlining has significantly impacted real estate over the decades in several ways:

Redlining has arguably led to continued racial segregation in cities and neighborhoods. Recent research shows that almost all formerly redlined zones in America remain disproportionately Black.

Redlined areas are associated with a long-term decline in homeownership, home values and credit scores among minorities, all of which continue today.

Formerly redlined areas tend to have older housing stock and command lower rents; these less-valuable assets contribute to the racial wealth gap.

Redlining curbed the economic development of minority neighborhoods, miring many of these areas in poverty due to a lack of access to loans for business development. After 30-plus years of underinvestment, many nonwhite neighborhoods continue to be seen as risky for investors and developers.

Other effects of redlining include the exclusion of minority communities from key resources within urban areas, such as health care, educational facilities and employment opportunities.

Today, 11 million Americans live in formerly redlined areas, estimates Kareem Saleh, founder/CEO of FairPlay AI, a Los Angeles-based organization that works to mitigate the effects of algorithmic bias in lending. He says about half of these people reside in 10 cities: Baltimore, Boston, Chicago, Detroit, Los Angeles, Milwaukee, New York City, Philadelphia, San Francisco and San Diego.

“Redlining shut generations of Black and Brown homebuyers out of the market. And when members of these communities did overcome the barriers to purchasing homes, redlining diminished their capacity to generate wealth from the purchase,” says Saleh. “To this day, redlining has depressed property values of homes owned in minority communities. The enduring legacy of redlining is that it has blocked generations of persons of color from accessing a pathway to economic empowerment.”

“Also, due to redlining, African-Americans who couldn’t qualify for government-backed mortgages were forced to pay higher interest rates. Higher interest rates translate to higher mortgage payments, making it difficult for minorities to afford homes,” Elizabeth Whitman, a real estate attorney and real estate broker in Potomac, Maryland, says. “Since redlining made it more expensive to obtain a mortgage, housing wasn’t as easy to sell and home prices got suppressed in redlined areas.”

Data from FairPlay AI’s recent “State of Mortgage Fairness Report” indicate that equality in mortgage lending is little better today for many nonwhite groups than it was 30 years ago — or it has improved very slowly. For example, in 1990, Black mortgage applicants obtained loan approvals at 78.4 percent of the rate of White applicants; in 2019 that figure remained virtually unchanged — though it did rise to 84.4 percent in 2021.

Although there’s no official federal risk map anymore, most financial institutions do their own risk assessments. Unfortunately, bias can still enter into these assessments.

“Lenders can use algorithms and big data to determine the creditworthiness of a borrower, which can lead to discrimination based on race and ethnicity. Also, some real estate agents may steer clients away from certain neighborhoods based on their racial makeup,” Silver points out.

With the rise of credit rating agencies and their ubiquity, how do we know it’s a fair system? I don’t think, at my core, that African-Americans are predisposed to be poorer and less financially secure. — Rob Roseformer executive director of the Cook County Land Bank Authority in Chicago

Insurance companies have also used redlining practices to limit access to comprehensive homeowners policies. And the home appraisal industry has also employed redlining maps when valuing properties, which has further repressed housing values in African-American neighborhoods, according to Whitman.

Furthermore, a 2020 National Fair Housing Alliance study revealed that Black and Hispanic/Latino renters were more likely to be shown and offered fewer properties than White renters.

Redlining’s ongoing legacy

Even without conscious bias, the legacy of redlining — and its impact on the accumulation of assets and wealth — can put nonwhite loan applicants at a disadvantage to a disproportionate degree. For example, studies consistently show that Black borrowers generally have lower credit scores today, even when other factors like education and income are controlled for. Credit scores, along with net worth and income, are of course a key factor in determining mortgage eligibility and terms.

As a result, it remains more difficult for Black borrowers to qualify for mortgages — and more expensive for those who do, because they’re usually charged higher interest rates. Other minorities are also much more likely to pay a higher interest rate than their White counterparts.

Because home appraisals look at past property value trends in neighborhoods, they reinforce the discrimination redlining codified by keeping real estate prices lower in historically Black neighborhoods. That, in turn, makes lenders assume they’re taking on more risk when they extend financing in those areas.

“The single-greatest barrier in helping to break out of these neighborhoods is the current appraisal process,” says Rob Rose, former executive director of the Cook County Land Bank Authority in Chicago. “The appraisers are trying to do the best that they can within the parameters that they’re given, but it’s a broken system and industry that’s built on a faulty foundation.”

African-American homeowners pay hundreds of dollars more per year in mortgage interest, mortgage insurance premiums and other fees than White homeowners — amounting to $13,464 over the life of their loan, according to “The Unequal Costs of Black Homeownership,” a 2020 study by MIT’s Golub Center for Finance and Policy.

What can be done to reduce the impact of redlining?

The current housing financing system is built on the foundations that redlining left in place. To decrease the effects of redlining and its legacy, it’s essential to address the underlying biases that led to these practices.

“This can be done through Fair Housing education and training of real estate professionals, increased enforcement of Fair Housing laws, and investment in communities that have been historically redlined,” suggests Silver.

Others insist that the public and private sectors need to play a bigger role in combating prejudice and discrimination.

“Federal regulators likely will continue to put pressure on financial institutions and other stakeholders in the mortgage ecosystem to root out bias,” says Saleh. “The Department of Justice’s Combatting Redlining Initiative shows the government’s commitment to supervisory oversight. There are also policy and regulatory moves, such as the recent push by regulators encouraging lenders to use Special Purpose Credit Programs — lending programs specifically dedicated to remedying past discrimination. Similarly, various federal task forces have been actively addressing historical biases and discriminatory practices in the appraisal industry.”

Also, financial institutions could adjust their underwriting practices and algorithms to better evaluate nonwhite loan applicants, and help level the playing field for them. For example, in late 2022, Fannie Mae announced it had adjusted its automated Desktop Underwriter system — widely used by bank loan officers — to consider bank account balances for applicants who lack credit scores. Fannie and its fellow mortgage-market player, Freddie Mac, now may also consider rent payments as part of borrowers’ credit histories.

Such efforts won’t eradicate the effects of redlining overnight, of course. But they can be a start towards helping more people towards a key piece of the American Dream.

If you believe you are the victim of redlining or another sort of housing discrimination, you have rights under the Fair Housing Act. You can file an online complaint with or phone the U.S. Department of Housing and Urban Development at (800) 669-9777. Additionally, you can report the matter to your local private Fair Housing center or contact the National Fair Housing Alliance.

#What is redlining? A look at the history of racism in American real estate #redlining #Racial disparities in homeownership #white supremacy in banking #american hate

6 notes · View notes