By Peter Malof, Public News Service – TX
AUSTIN, Texas – Middle-class families have taken the biggest hit during “The Great Recession,” according to a Federal Reserve Bulletin report on family wealth. Experts think declining home values and the foreclosure crisis are largely responsible, since home ownership is the main source of wealth for most Americans.
Algernon Austin, director, Program on Race, Ethnicity & the Economy, Economic Policy Institute, says for people of color, the decline is even worse, since many minorities have been the targets of descriminatory lending practices.
“Following the Federal Reserve data for African Americans, we saw that the home ownership rate actually peaked in 2004, and we’ve been seeing a rather strong decline since then.”
Texas has weathered the foreclosure crisis better than most states, with home values remaining relatively stable. However, many non-white borrowers in the state were handicapped by unfair lending practices going back at least a decade, according to U.S. Department of Justice complaints filed against lenders. Just this month, Wells Fargo agreed to pay out $175 million after being accused of targeting minorities for low-quality loans in 36 states – including more than 1,000 borrowers in the Houston area alone.
Because of such practices, the decline in minority wealth is not surprising, says David Berenbaum, chief program officer, National Community Reinvestment Coalition, given the lax underwriting standards of big financial institutions for home loan products.
“African American and Latino consumers were often steered into products – frankly, subprime loans or nontraditional loans – when they qualified for prime, high credit, high-quality products.”
While the Bush administration promoted minority home lending during the last decade, some critics blame the Democrat-sponsored Community Reinvestment Act for the crisis. It’s a charge Berenbaum rejects.
“The myth out there is that low incomes from consumers who were not ready for home ownership created this crisis. In fact, most of the subprime loans were refinanced loans, not loans designed to expand home ownership.”
The Federal Reserve report says average middle-class net worth rose significantly during the first half of the last decade, then dropped off, with Hispanics and blacks experiencing the sharpest losses.
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