According to a study released today by the American Civil Liberties Union, the wealth gap between black and white Americans grew dramatically after the 2007–2009 housing market collapse, creating what may amount to a generational financial disadvantage for black homeowners.

Conducted in conjunction with nonprofit Social Science Research Council, “Impact of the U.S. Housing Crisis on the Racial Wealth Gap Across Generations” explores how longstanding discriminatory lending practices are poised to impact the transfer of wealth between one generation to the next one.  

“Not only were black homeowners devastated by the housing market collapse, they are now being left behind. It is very much a tale of two recoveries,” said Rachel Goodman, staff attorney with the ACLU’s Racial Justice Program, in a press statement. “This study makes clear that the devastating impact of the financial crisis on black families’ wealth will continue until policymakers address this pressing issue.”

Illustration: Chart from ACLU's "Impact of the US Housing Crisis on the Racial Wealth Gap Across Generations.” While white families reported a net zero change in their wealth in the two years following the Great Recession, black families experienced a 40 percent decrease.

While the typical white household showed a net zero loss in the two years immediately following the crash, black families were still in decline, with a median loss of 40 percent of their wealth—and that’s without including home equity. Experts attribute the continuing recovery struggle to two issues: One, black families tend to have a larger proportion of their wealth tied up in their homes than whites, so when housing prices took a dive, they were hit harder. 

Even more pressing is the second reason: Black people were more likely to be granted expensive predatory subprime loans, even when compared to white homeowners with the same credit score. And a 2000 joint report from the U.S. Department of Housing and Urban Development and the U.S. Department of the Treasury found that “borrowers in upper-income black neighborhoods were twice as likely as homeowners in low-income white neighborhoods to refinance with a subprime loan.”

 

Chart from ACLU's "Impact of the US Housing Crisis on the Racial Wealth Gap Across Generations.” The housing crisis dramatically decreased projected wealth levels for the typical black family.

But it doesn’t end there. The ACLU study predicts that by 2031, the typical white household will have 4.5 times more wealth than its black counterpart. The forecasted $98,000 decrease in wealth per black family (versus wealth levels if the Great Recession hadn’t happened) would hamper their ability to secure their children’s future with things like home down payments, college tuition and an inheritance. And research shows that even when you control for the child’s income and education, parental wealth impacts the home equity value of their adult children—particularly for black families. As Goodman told Colorlines: “Home ownership if crucial to a family’s ability to pass wealth and security to their children. The disparities in this report show that black families are once again at a disadvantage with respect to providing that kind of security.”

The report proposes that the government should employ stricter regulation to root out and eliminate racial disparities in the mortgage industry. It also points to a need for secondary mortgage market reform to encourage inclusive lending practices, and suggests closer monitoring to ensure that non-white and low-income communities are receiving the mortgages they deserve. Goodman says consumers can help by reporting mortgage discrimination to the Consumer Financial Protection Bureau and by “encouraging their members of Congress to push back on attempts to weaken the Dodd-Frank Act and its protections for consumers.”