MReport July 2020

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M R EP O RT | 61 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Homeowners in Redlined Neighborhoods Have Declining Home Equity Personal wealth falls by more than 50% in these areas. A nalysis by Redfin said redlining says homeowners in a neighborhood with government redlining has gained 52% less value—$212,023 less—in personal wealth when compared to greenlined neighborhoods over the last 40 years. African American homeown- ers are nearly five times more likely to own a home in formerly redlined areas than in a greenlined neighborhood. This could result in declining home equity and overall economic inequality for African American families. "It's a tale of two cities in Chicago. It goes back to redlin- ing, when [African American] residents lived in certain neighbor- hoods and white people lived in others, and the difference in home value and segregation between those places have been exacerbated by policy, education, wage inequal- ity and so many other issues," Chicago Redfin agent Brittani Walker said. "I hear the systemic problems every day when I talk to clients. Homebuyers have bound- aries they've set for themselves, or a friend of a friend has set for them. "They don't want to buy in certain neighborhoods, especially on the South Side in formerly red- lined areas, because those places don't get the culture, the restau- rants, the fun events; they don't even get healthy food at grocery stores. And that contributes to why home prices don't go up in those neighborhoods." Redlining refers to the 1930s-era practice where the Home Owners' Loan Corporation assigned grades and colored coded residential neighborhoods to indicate their "mortgage security." Neighborhoods that received an "A" grade were greenlined and those with a "D" grade were red and considered "hazardous." Redfin states that urban areas with a large share of African American families were most likely to be redlined, while areas made up of white families were deemed favorable. The Fair Housing Act of 1968 made it unlawful to refuse to rent, sell, or provide financing for a house based on race, religion, and national origin. The 1977 Community Reinvestment Act (CRA) further outlawed redlining. Additionally, Redfin said the national homeownership rate is lower for African American families than white families—44% compared to 73.7%, respectively. "The expanding homeowner- ship gap between Black and white families can in part be traced back to diminished home equity due to redlining, as it's one major reason why Black families today have less money than white families to purchase homes either as first- time or move-up homebuyers," Redfin Chief Economist Daryl Fairweather said. "It's important to note that other factors play a role in lower homeownership rates for Black families, too. For instance, employment discrimination has prevented Black workers from earning equitable income." The Office of the Comptroller of the Currency recently released a final rule strengthening and modernizing the CRA. The final rule will increase bank CRA-related lending, investment, and services in low- and moderate- income communities where there is significant need for credit, more re- sponsible lending, and greater access to banking services. The final rule reflects careful consideration of the more than 7,500 comments stake- holders submitted in response to the notice of proposed rulemaking an- nounced on December 12, 2019. The OCC made several changes to the proposal that respond to stakehold- ers' comments, including: • Clarifying the importance of the quantity and quality of activities as well as their value. • Increasing credit for mortgage origination to promote availabil- ity of affordable housing in low- and moderate-income areas. • Clarifying credit for athletic facilities to ensure they benefit and support low- and moderate- income communities. • Deferring establishment of thresholds for grading banks' CRA performance and delineating banks' deposit-based assessment areas until the OCC assesses improved data required by the final rule. During a January hearing of the House Financial Services Committee, committee member Gregory Meeks noted there is still evidence of discrimination in lending—something the CRA was meant to solve. "Your proposal decouples CRA from outcomes for intended com- munities, discounts the value of direct lending in mortgages to low- and moderate-income communities and communities of color, cuts out community organizations that work directly with these targeted communities, and is just not sup- ported by data," Meeks said of the now-former Comptroller of the Currency Joseph Otting's proposal. Meeks added that numerous banks are opposed to the plan and community groups have called possible changes "betrayal of the original intent of the CRA." "The expanding homeownership gap between black and white families can in part be traced back to diminished home equity due to redlining, as it's one major reason why black families today have less money than white families to purchase homes either as first-time or move-up homebuyers." — Daryl Fairweather, Chief Economist, Redfin

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