Why Are Many African-American Home Owners One Pay Check Away From Being Homeless?

This article originally published in West Orlando News Online.

Over the past forty-years, more and more African-Americans purchased homes and thought they were finally getting their piece of the American pie and living the dream of home ownership.   The purchase of a home became their biggest asset.  Wow, what an accomplishment!  Unfortunately a large amount of the home loans

African-Americans received in the past ten years were designed specifically for borrowers with low credit scores (regardless if they qualified for a better loan or not.)

 

 Imagine being able to get into your dream home, without showing proof of your income.  The mortgage payments were perfect for your income (at the time you signed the paper work.)  You were told that the interest rate would adjust upwards in two or three years, but don’t worry because you would be able to refinance again before that rate adjustment with no problems.  Far too many people may have felt this was their only chance to get a home. So they signed on the dotted line, thanked the realtor, the mortgage broker and the lender for giving them this wonderful opportunity of home ownership.

Add into the formula that many Blacks were targeted to refinance to get cash out of their equity, even if their homes were almost paid off.  So instead of getting an equity loan of $10,000, $20,000 or $30,000 to fix up the home, add a room, renovate plumbing or appliances, these predatory lenders refinanced the entire mortgage!  Now the homeowner starts all over again with a brand new 30 year mortgage that adds hundreds of thousands of dollars of debt.   These issues became huge factors which led to much higher number of foreclosures in the African-American/Black communities.  In other words, these loans were designed to default.

 Fast forward to 2008, real estate bubble burst (home values plummeted,) major financial institutions collapsed and job layoffs sky rocketed.  By 2009, Florida was #1 in tourism, #1 in foreclosure and #3 in homelessness! Don’t forget the old saying that when “America gets a cold, African-Americans get pneumonia.”

 As we near the end of 2010, many Black households are down to one income, while the basic expenses of everyday living have increased (food, utilities, gasoline, etc.)   Other households have the same exact income they did when they purchased their homes, but their interest rate on the mortgage has reset (or adjusted upwards) one, two or even three times or more.

 An economic set back such as an unexpected home repair, major car repair or medical expense could produce a catastrophic chain of events that families may never be able to overcome. Here we are in November 2010 with far too many Black homeowners living one paycheck away from being homeless.  Struggling with choices like…Do I pay the mortgage or buy groceries to feed my family?  Do I pay the mortgage or pay the electric bill?  Do I tap into my 401K again, to catch up with my mortgage payments?  Do I try to get a loan modification?

Some people think if a family stops making mortgage payments they should have plenty of cash on hand, a big savings account balance etc.  Regrettably the amount of money that was previously used to pay the mortgage has now been absorbed into everyday living expenses.  Annual research studies over the past ten years sponsored by Ariel Investments, a Black owned investment company  and Charles Schwab show that Blacks are less likely to invest in other areas outside of home ownership due to lack of knowledge. While their White counterparts with the same exact annual income, consistently put money into multiple methods of saving which earned interest and had their money working for them which improved their net worth.  This also provided assets that could be easily cashed out without tapping into home equity or 401K accounts when unforeseen financial issues arise.

 Definition of Net worth: If you were to sell everything you own (your house, car, computers, stereos, jewelry, etc.) and used the money that was left over to pay off all of your debts, your net worth would be the amount of money you have left over.

 Based on a study from Brandeis University’s Institute on Assets and Social Policy released earlier this year, African American families net worth improved, but the numbers are heart breaking.  With the exception of home equity, White families now have a median net worth around $100,000, up from $22,000 from 1984. African-American families’ net worth in the year 2010 is only about $5,000 versus $2,000 net worth in 1984. In addition, approximately one in four Black families had no assets at all.

The bottom line is that far too many African-American households have little or no savings or emergency funds other than borrowing from relatives or pay day advances.  Financial illiteracy (or the lack of willingly living within ones means) comes into play once again in the Black community.  For years financial experts have advised people to have an emergency fund with enough money saved to cover at least three to six months of expenses.  Why didn’t the Black/African-American community hear this advice?

Maybe if we had more Blacks who knew how money worked, and actually taught other Blacks what they knew, this issue would be less of a problem.   If middle to upper income Blacks have a decent paying job (corporate career, or own a business) and are still struggling to pay for basic living expenses and to keep a roof over their heads…then they are living one paycheck from being homeless!

The foreclosure to homelessness statistics for 2009 were staggering, in Florida the estimated number of all outstanding home loans was 3,755,000. The estimated subprime loans almost 600,000 (16% of all loans), which were the primary loans given to Blacks/African Americans.   The number of loans delinquent over 30 days exceeded 300,000, with another 220,000 loans in foreclosure and almost 40,000 homes repossessed by the lender.  That means 40,000 evictions.  These numbers rise with every wave of layoffs and reduced working schedules for employees around the state.

The Department of Children and Family Services’ Annual Report on Homeless in Florida 2010 states that even if you were forced to leave your primary place of residence and had to move in with someone else (or living in a motel/hotel or your car)  because of “economic hardship you are classified as “homeless.”   The majority of the data used to calculate the number of homeless Floridians is basically measured by records from numerous facilities/shelters and agencies around the state.  Therefore there is not an accurate account of the total number of homeless people in the state of Florida, but it is estimated that on any given day between 50,000-85,000 Floridians are homeless.

A look at the statistics on record for the 2010 report stated that 36.5% of the homeless in Florida were Black/African-American compared to the 2000 U.S. Census Figure of 14.6%.  Overall 70% of the homeless cases reported in 2010, the primary causes for Floridians being homeless were employment or financial reasons (53.6%), housing issues (11.4%) and forced to relocate from home (6.4%).

 So if a house is the biggest asset (and in many cases the only investment) for Blacks/African-Americans, how close are they to homelessness in today’s economy without proper financial planning for the future?

 Sources: http://www.arielinvestments.com/index.php ; http://iasp.brandeis.edu/

http://knol.google.com/k/frank-w-sweet/the-u-s-black-white-net-worth-gap/k16kl3c2f2au/34#

 http://www.dcf.state.fl.us/programs/homelessness/index.shtml ; http://www.endhomelessness.org/section/_search/?q=florida+homeless+statistics

 

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