When my mom describes it all now--10 months after she walked away from her house of 14 years--she sounds sort of crazy to me. I make her explain again and again, because the depth of her denial about the situation she faced is hard for me to understand. But that's the thing about losing stuff. Whether it's your keys or your life savings, it's tough getting to that moment when you realize something's gone for good.
My mother, Carolyn White, and her husband, Earl, spent the first eight months of 2008 haggling with Countrywide Financial (now acquired by Bank of America), trying and failing to get their sub-prime loan modified into something they could pay. She and Earl, like so many other casualties of the sub-prime disaster, had refinanced their home to take out equity. Then the rate exploded, increasing their monthly payment by hundreds of dollars.
"It was like talking to a brick wall," she complains with a resigned if annoyed tone, which once rang with fury instead. Several months into the effort, when it became clear things weren't going to work out, they started looking for a rental. "Earl had gotten to the place where it didn't matter to him," my mom explains. "But I was fighting it tooth and nail to the end. Even when I was packing to move, I was thinking, 'Well, they're going to come up with something, and we can just unpack.'"
She'd already picked out a townhouse in her same neighborhood, on Indianapolis' solidly middle-class northwest side. She'd dutifully selected three favorites, actually, ranking them and putting in applications. Yet, she never expected to move. Even after they'd finally walked, my brother had to shout her down to keep her from going back and tidying up the property she'd abandoned. "I just couldn't see myself leaving my house," she says.
At age 63, she's starting over on her American dream. A rented townhouse. New, smaller furniture. Family photos edited down and re-hung. A few framed wildlife prints as reminders of the Wyoming retirement home that had once felt within reach. They're middle-aged grandparents and middle-class by all outward appearances. But they're facing life like a couple of hard-pressed newlyweds.
They're of course not alone. More than 10 percent of all mortgages were in default as 2008 ended. We logged more than 800,000 foreclosure filings in the first quarter of 2009, according to the Center for Responsible Lending, which projects 2.4 million this year.
These are big, daunting numbers with which we're all becoming drearily familiar. But less familiar is the fact that this carnage has disproportionately hit people of color, particularly those who were old enough to have built up some equity when the sub-prime boom exploded.
In 2006, African American borrowers at all income levels were three times as likely to be sold sub-prime loans than were their white counterparts, even those with comparable credit scores. The Pew Hispanic Center reports that 17.5 percent of whites took out sub-prime loans but that 44.9 percent of Hispanics and 52.5 percent of African Americans took out sub-prime loans. Blacks like my mom, who could qualify for conventional loans, were targeted for sub-prime ones, which generated higher fees for the lender and higher costs and risks for the borrower.
Many of the places hit hardest by the first foreclosure wave--south Florida, the urban Midwest, cities like Oakland, Phoenix, Atlanta, and Detroit--had dense pockets of black and Latino homeowners, where slowly accumulated equity could be stripped away in ill-conceived refinances. As a result, one in 10 black borrowers is expected to foreclose, compared to one in 25 whites. And a United for a Fair Economy study last year estimated that black and Latino borrowers will absorb at least $164 billion in losses, or about half the nation's overall foreclosure toll.
As devastating as those realities are in individual lives like my mom's, they also point to a broader, perhaps more lasting damage that's gone largely unexplored among policy-makers: The mortgage crisis has further deepened racial inequality in America and should finally reshape our understanding of the relationship between race and class.
Homeownership has been a crucial building block of middle-class wealth ever since Jefferson promoted land-tenure laws that favored freeholders and Lincoln signed the Homestead Act. Today, housing represents nearly two-thirds of all middle-class wealth. That reliance on real property always underscored the racial chasm, first in the agricultural era, when blacks were slaves and then sharecroppers rather than landowners, and then later when decades of lending bias created a massive racial disparity in homeownership rates. Before the housing boom, in the early 1990s, 69 percent of whites owned homes compared to just 44 percent of blacks and 42 percent of Latinos.
By 2004, the housing boom had improved those numbers. Fully three-quarters of white families owned homes, as did nearly half of both black and Latino families. As the homeownership picture improved, so too did the wealth picture, though at a glacial rate. The racial disparity in net worth is among the most astounding statistics in modern economics. For every dollar of wealth the median white family held back in 2002, similar black families had just 7 cents, while Latinos had just 9 cents. By 2007, black families had a dime for every dollar of white family wealth, and Hispanics, 12 cents. This was progress, if glacial.
Then came the bust. The housing boom proved to be just another trapdoor in a centuries-long game of Chutes and Ladders for black and brown strivers. By 2007, the black homeownership rate had plunged nearly three points, to 47 percent, a larger drop than among any other group, and is probably lower today. Worse, the damage is concentrated in what were once sturdy black middle-class neighborhoods. in 21st-century America--a society that boasts equality under the law, African American CEOs, and Barack Obama--the black middle-class story is widely understood as a congratulatory tale of uniquely American success. As Obama declared in his first words as president-elect, "If there is anyone out there who still doubts that America is a place where all things are possible … tonight is your answer."
Perhaps. It's clear that at all stages of life--from education to workplace to life expectancy--success still tracks closely with race. And the massive black underclass--nearly a quarter of all black households live in poverty, according to the Census Bureau--is proof of lasting structural inequality. But to truly understand the relationship between race and opportunity in modern America, you must take a real look at the seemingly vibrant black bourgeoisie.
Doing so means fundamentally changing the way we measure class. For years, scholars have primarily turned to one of three measures to identify the middle class: occupation, income, and educational achievement. If you're a professional or a manager, if your income falls in the middle 60 percent of the national bell curve, or if you've graduated college, you fit into one or another researcher's definition. And by any of those three measures, my mother's generation posted remarkable gains for people of color.
In 1960, as my mom was entering high school, around 750,000 blacks had middle-class jobs. By 1995, nearly 7 million blacks had such jobs. That's a growth of more than seven fold in one adult lifetime. And the explosion of college-educated blacks is equally impressive. As my mom was finishing college in 1967, just 4 percent of blacks over the age of 25 had matched her achievement; in 2007, 18.5 percent had done so.
Latinos born in the United States went from making up just 3 percent of middle-income adults in 1970 to 13 percent in 2006--the largest increase among any race or ethnic group. They also saw a 17 percent spike on the Pew Hispanic Center's income index, compared to just 6 percent for whites. The American middle-class may still be awfully white, but it's sure gotten some color in my mother's lifetime.
There are, of course, significant qualifiers to all of this. Most important, the gap between black and white rates of achievement in all three areas--occupation, income, and education--has not improved nearly as much as the absolute number of blacks meeting the given standard. But the conventional measures of middle-class status share a much more damning flaw. They all fail to consider the more nuanced characteristics of middle-class life that most everyday families would identify as their most prized treasures: long-term security, social stability, and the ability to pass both on to your kids in greater portions than you've enjoyed them.
These things aren't measured just by how much money you make or by what degree and job title you hold; they're measured by how much wealth you can draw upon when times get tough or an opportunity comes around, and how much you can pass along to give your kids a head start. The upper middle class helps its children with everything from college tuitions to down payments. That wealth cushion is built on financial savings and investments for some. For most, it's equity in a home.
The idea of viewing economic progress through the lens of wealth rather than income emerged in the mid-1980s. It allows researchers to calculate what's been called the "asset poverty line"--or being able to maintain a standard of living above the federal poverty level for at least three months without income. When you lose a job or get hit with a huge hospital bill or, well, get socked by a foreclosure, can you cushion the blow while getting a fresh start? Do you have strong enough bootstraps to pull yourself back up, as it were?
The answers are sobering. One in five families that were middle class in 2004 couldn't make it three months on assets alone, according to a Corporation for Economic Development analysis of Census data. In other words, when you look at wealth, the income-based poverty rate doubles. And that was before the housing bubble burst.
If you then apply a racial lens to these asset-based measures, the disparities are awesome. Roughly 40 percent of both blacks and Latinos lived below the asset poverty line in 2004. As pioneering sociologist Thomas Shapiro sums it up in a 2006 paper, "Two families with similar incomes but widely disparate wealth most likely do not share similar life trajectories."
The 2001 recession proves the point. Everybody gained some ground in the roaring 1990s, but not everybody took the subsequent slowdown the same. While the median white household emerged in 2002 with a modest 2 percent increase in net worth, according to the Pew Hispanic Center, Latinos lost more than 25 percent of their wealth between 1999 and 2001. People of color, Shapiro explains, burned through their meager assets and piled on extra debt to make it through the early-century tough times. Many likely got expensive, sub-prime refinances like the one my mom and Earl took out.
My mom won't let on about it now, but she always liked saying "my house." She was a renter from the time she and my father divorced back in the mid-1980s until she and Earl bought their house in 1994. I was away at college at the time, and whenever I visited Indy, she'd made some tinkering improvement. Even as she packed last summer, she gamed out how she'd pull up the living room carpet--it was too much to keep clean--and how she'd put in a backyard deck. "I had wanted that since we moved in," she says.
They bought the house for around $120,000, she says, with a fixed-rate, 30-year loan. It's the sort of mortgage that the GI bill and Federal Housing Administration spurred into existence back in the postwar years in order to broaden the American homeownership dream. And it's the sort of loan black families couldn't get for decades, due to banks' redlining of black neighborhoods. Epic fair-lending battles put an end to codified discrimination, and by the time my mom and Earl went looking for money to buy their home, they didn't have trouble finding it.
Nor did they have a problem in 1996, when they first took out some equity, in an effort to catch up on less-sensible debt. Their payments went up a bit, but they got the money out and paid some things off and, all things considered, were rolling along. They started vacationing out West, discovered their shared love of the peaceful dessert landscape, even bought a gas-guzzling RV to travel back and forth. They still subscribe to a Jackson Hole, Wyoming, newspaper.
The problems didn't start until they got a second refinance as the 2001 recession waned. Earl had hoped to use the equity to make some new investments, make their money grow in slow times. But a few years later, their rapidly inflating loan payments were eating their monthly budget. It was a steep, rapid decline from there to zero equity, re-accumulated debt, and a delayed retirement.
Their experience and those of millions of others point to a confounding irony that home equity has presented for efforts to close the racial wealth gap. On the one hand, because homeownership was key to 20th-century wealth, the huge racial disparity in ownership rates helped drive the disparity in wealth, too. On the other hand, the wealth blacks and Latinos have managed to accumulate is dangerously dependent on home equity alone, leaving them vulnerable in times like these. According to Shapiro and his research partner, Melvin Oliver, while homeownership accounts for 63 percent of average black net worth, it accounts for just 38.5 percent of average white net worth. We cannot afford the $1.19 trillion in American home equity taken out in refinances between 2003 and 2007.
If nothing else, the wealth perspective on economic progress challenges America's creation myth of hardworking pilgrims, self-made frontiersmen, and brass-balled industrialists. In reality, our middle class looks an awful lot like an aristocracy built on inherited middle-class advantage.
For his 2004 book, The Hidden Cost of Being African American, Shapiro culled through household survey data for the early 1990s--pre-sub-prime boom--and found this gem: Just about half of all white buyers said they got assistance from their parents to make a down payment, while just 12 percent of black buyers said the same. This matters. Put down more money, and you get more house, less debt, more wealth with which to start your life. In researching the book, Shapiro found the same pattern across the board on family finances: young black households were far more likely to spend resources helping out their parents and siblings, while young white ones were more likely to be receiving help from their parents.
This offers a key example of the way in which racial inequality is passed on from generation to generation--and has been shepherded along by government policy. It started with Reconstruction's failures and has tumbled forward generation after generation.
Black abolitionists viewed emancipation as more than the end of slavery; it was also to involve the creation of economic opportunity. The idea of "reparations" seems silly 150 years removed, but the nation faced a massive debate over land redistribution following the Civil War. As one freedman told a reporter, "Give us our land and we can take care of ourselves, but without land the old masters can hire us or starve us, as they please."
The administrations of first Abraham Lincoln and then Andrew Johnson, however, envisioned freed blacks as wage laborers, not landowners. When Johnson ordered Dixie's land returned to Southern planters in 1865--and thousands of freed slaves evicted--it solidified a governing perspective that would echo forward to the modern era: People of color would receive subsistence aid, but wealth-buttressing subsidies would be limited to whites.
The examples are myriad, as Meizhu Lui of the Insight Center for Community Economic Development points out in a recent paper. The Homestead Acts of the 1860s, for instance, took vast swaths of land from Native American tribes and gave it away in 160-acre plots to white settlers, to jump start the agricultural sector; for freedmen, land never materialized. More than a century later, 400 black farmers won a class-action lawsuit against the Department of Agriculture for its systematic racial bias in providing loans and other assistance to farmers throughout the 1980s and 1990s. Lo and behold, at the turn of the 21st-century, white Americans still held 97 percent of the nation's agricultural land value.
The New Deal programs that created today's middle class, meanwhile, are also directly responsible for today's wealth gap. Name a massive government investment, and you've got an initiative that explicitly or implicitly excluded people of color. By 1965, 98 percent of the 10 million homes public money had helped buy through loans backed by the Federal Housing Administration were owned by whites. Government then spent years more ignoring private lenders' redlining of black neighborhoods.
The proven racial bias in today's sub-prime lending, then, is more normative than exceptional. As Lui wrote in a March Washington Post op-ed, "The chips on the table reflect the fact that the game was fixed. It's time to start an honest game with a new deck."
So how do we do that? A black president aside, the feds aren't likely to hand out that 40 acres and a mule anytime soon.
Sadly, congressional Democrats and the White House have not yet shown enough political courage to merely stop the mounting foreclosure losses, never mind start building new wealth. They have repeatedly allowed the banking lobby to block any measure, such as loan modifications by a bankruptcy judge, that would give struggling borrowers enough leverage to demand a fair deal. And there's little evidence, thus far, that the billions in incentives President Obama has begun handing the mortgage industry will spur enough real mortgage modifications to keep pace with foreclosures.
Meanwhile, even before policy-makers figure out how to slow foreclosures, communities that have been overwhelmed by them--in abandoned houses, increased crime, falling home prices, and more--are going to need significant public investment. The $6 billion Congress has allocated in the past year for "neighborhood stabilization" is clearly a mere down payment and will need to be spent creatively.
But more broadly, at some point the public sector is going to have to make the same massive investment in wealth creation for people of color that it has made for generations of whites. In some cases, that means tweaking existing policies--the home-mortgage tax deduction, for instance, is currently useless to people who don't make enough to itemize. But it's also going to mean recreating big, bold initiatives like those that created the wealth gap in the first place.
Whatever the plan, it will not be a small endeavor. My mom's outlook these days reveals just how much ground has been lost--not just in dollars and cents but in the emotional toll millions of families have paid. She's traveled all the way from denial to resignation and now wants out of the maddening ownership conversation altogether. "If I don't get another house, I don't really care," she scoffs.
She's prepared to approach opportunity like generations of black folks before her--living on the money she makes, pooling family and community resources when that's not enough. So after retiring from 28 years of teaching grade school, she's gone back to the classroom as a teaching aide. "I won't say I'm happy," she concludes, "but I'm content with it." The real question, of course, is whether America is equally content with the legacy of inequality this housing meltdown has deepened. If not, are we prepared to finally confront it?