- The Washington Times - Sunday, April 2, 2000

At a recent news conference, Fannie Mae Chairman Franklin D. Raines announced a $2 trillion campaign that he said would, among other things, eliminate any gap between blacks and whites in the home loans that Fannie Mae buys.
The Washington Post began a recent editorial by lamenting, "Seventy-three percent of whites but only 45 percent of Hispanics and 46 percent of blacks own homes," and then proceeded to discuss what Freddie Mac and Fannie Mae should do to close that gap. Secretary of Housing and Urban Development Andrew Cuomo likewise declared recently that there is "more that we can do and must do to close this gap."
But it is not at all clear that these percentages reveal a gap that is a problem, or at least a problem that HUD and the two government-sponsored housing-finance companies can or should set about "solving."
A person is more likely to own a home if he or she has a good income, a good credit rating, is married, and is approaching middle age or, at least, is a young adult. Conversely, people below or near the poverty level, or with bad credit ratings, who are very young or unmarried are less likely to own homes. Finally, we would expect there to be fewer homeowners as we get closer to the center of a big city.
All of these factors, it turns out, help explain the gap between the rate of homeownership among whites, on the one hand, and blacks and Hispanics, on the other.
A house is the most expensive item that most of us ever buy, and so eligibility for homeownership often hinges on income. If we divide family income into $5,000 increments as the U.S. Census Bureau does we find that, among blacks and Hispanics, there is a higher percentage of each for the increments below $35,000 (that is, less than $5,000, $5,000-$9,999, $10,000-$14,999, and so forth) than for whites. For instance, 10.1 percent of black families make $5,000-$9,999, and 8.7 percent of Hispanics do, but only 3.2 percent of whites.
Once you get above $35,000, however, the percentage among whites in each increment is greater than the percentage for blacks or Hispanics. And so 46.6 percent of white families make $50,000 or more a year, while only 25.9 and 22.8 percent of blacks and Hispanics, respectively, do. Or look at is this way: 8.4 percent of white families are below the poverty level, vs. 23.6 percent of black families and 24.7 percent of Hispanic families.
Next, we would expect groups whose members include many individuals with bad credit ratings to own fewer homes. Most people need a loan in order to buy a house, and for that you need a decent credit history. Indeed, a bad credit rating may make it hard to get a loan even if you reach a relatively high income.
A study by Freddie Mac last year found that 48 percent of blacks have bad credit ratings vs. only 27 percent of whites. Indeed, whites earning less than $25,000 had better credit records than blacks earning between $65,000 and $75,000. Conversely, even the poorest Asians with incomes under $25,000 had credit records on par with whites earning between $65,000 and $75,000. So, in the latter bracket, only 12 percent of Asians had credit problems, vs. 20 percent of whites and 34 percent of blacks. In the $45,000 to $65,000 range, where one would expect to find many people thinking seriously of buying a home, 48 percent of blacks had a bad credit rating, compared with 28 percent of Hispanics, 21 percent of whites and 15 percent of Asians.
Many people do not consider buying a home until they are married. Accordingly, we would expect homeownership rates to be higher among those groups with a higher percentage of married persons. Among whites, 62.1 percent of those over age 18 are married. The percentage for Hispanics is a little lower (58.9 percent), but for blacks it is substantially lower, only 41.8 percent.
Homeownership also is less common among younger people, so we would expect groups that are disproportionately made up of younger folks to have lower homeownership rates. If we consider five-year cohorts for each racial group again, this follows U.S. Census Bureau data we find that up until 35-39 years (that is, under 5 years of age, 5-9, 10-14, and so forth), blacks and Hispanics have a higher percentage of people in these younger cohorts than whites do. But for the older cohorts that is, 40-44, 45-49, and so forth, on up to 85 and over whites have a higher percentage of members than do blacks and Hispanics.
One would also expect people who live in rural areas to be more likely to own homes than those living in the city. Owning a house in the middle of New York City is quite expensive, and many people in urban areas prefer apartment living anyway, since it is not only cheaper but more convenient. Among whites, 28 percent live in rural areas, a relatively high percentage. For blacks, 87 percent are urban dwellers and, for Hispanics, 91 percent live in urban areas. Thus, the urban-vs.-rural factor also contributes to the racial disparity in homeownership rates.
There is a distressing tendency among some people like Andrew Cuomo and those who publish The Washington Post to view every racial disparity as a problem, probably caused by discrimination, that must be fixed. And, of course, the solution proposed usually is explicitly or implicitly race-conscious, involving double standards, preferences, goals and timetables, and the like. There may be a racial or ethnic angle to the disparity in homeownership, but simply exhorting Fannie Mae or Freddie Mac to make more loans on the basis of race or ethnicity is treating superficial symptoms, not causes.
It is unrealistic to expect perfect demographic balance in every census table, and indeed there may be nothing sinister in such "imbalances." In most cases, disparities are not caused by discrimination. And even when they might be, the solution is to stop discriminating, not to discriminate in the other direction.

Roger Clegg is general counsel of the Center for Equal Opportunity.

Roger Clegg is general counsel of the Center for Equal Opportunity.

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