Record Low Mortgage Rates Widen Historic U.S. Economic Divides

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Times are good for most U.S. homeowners, asrecord low interest rates spur a surge in refinancings and rising home prices. They’re not so great for Donnell Williams’ clients, most of whom are African American and don’t have the financial resources to compete with the well-heeled New York City buyers bidding up prices in his suburban Northern New Jersey territory. “We’re losing ground,” says Williams, president of the National Association of Real Estate Brokers, an industry association that promotes Black homeownership.

It’s another scene from the K-shaped economic recovery. Across America, cheap credit—for those who qualify—is widening wealth inequality, often along racial lines. That yawning gap is among the biggest challenges President-Elect Joe Biden—who owes his victory to African-American support—will face now that the pandemic has accelerated the divisions in an already divided America.

Cheap credit may be one of the best ways to avert a foreclosure crisis, but it’s a short-term cure that exacerbates a long-term problem. The homeownership rate among Black Americans was 46% as of Sept. 30, compared with 67.4% for all U.S. households and 75.8% for White people, according to Census Bureau data. The effects can be generational: Home ownership is the main way American families accumulate wealth. But today’shot market prevents a lot of Black families from getting on the American Dream escalator, according to Williams, a real estate broker in Morristown, N.J.

Signs of the widening gap can be seen across the nation, sometimes just a few miles apart. Outside New York, Washington, and Atlanta, for example, delinquencies are soaring in predominantly minority counties while mortgage originations have jumped in wealthier areas, according to data fromBlack Knight Inc. Mortgage originations are forecast to exceed a record $4 trillion in 2020, even as home loan delinquencies hit their highest levels since the global financial crisis.

In Arlington, Va., across the Potomac River from the White House and home ofAmazon.com’s new headquarters, the average house costs about $755,000, and originations in the second quarter jumped to $2.2 billion, more than double the same period in 2019. In nearby Prince George’s County, Md., where home values are much lower and the population is majority African American, originations for refinancing and purchase mortgages totaled just $59 million in the second quarter.

Lisa Burnam, who lives in the county, got a mortgage forbearance in April after her husband, Tesfa, lost his job. The program allows homeowners with government-backed loans who lost income because of the pandemic to defer payments for as long as a year. He found work at Amazon in July, and they resumed making payments but have been blocked from refinancing ever since. “The whole point about forbearance was that it doesn’t count against you, but apparently it does,” says Burnam, who works for a nonprofit.

A penalty for forbearance is an added burden. Black Americans such as Burnam already pay an additional $13,464 over the lives of their home loans to cover higher interest rates that accompany lower credit scores and mortgage insurance required for small down payments. Borrowing to buy has gotten harder. An index of mortgage credit availability dropped by 35% since February as lenders raised credit score and loan-to-value requirements, according to a Mortgage Bankers Association index.

Burnam would save $200 a month by cutting the interest to today’s sub-3% rate, from the 4.3% she’s paid since buying her four-bedroom home in 2018. With a second child due in December, she could use the savings. She and her husband pinch pennies, buying cars with cash to avoid debt, using his three months of unemployment benefits to pay off a student loan and credit cards. Neither came from wealth, she says. Her husband immigrated from Ethiopia as a child. Her father grew up in public housing in Northern New Jersey. Her mother is the daughter of Mississippi sharecroppers. “We don’t have a financial cushion,” Burnam says. “When you have that cushion of money, it opens the world of possibilities up. If my children want to chase meteors because that makes them happy, they should have that opportunity.”

In Clayton County, Ga., a working-class warehouse hub in the shadows of Atlanta’s international airport, Black and White residents are falling behind. Unemployment is running at 11.2%, second-highest in the state. New mortgage originations in Clayton County reached $164 million in the second quarter, according to Black Knight. Fifty miles north, originations in largely White, affluent Forsyth County hit $1.5 billion in the second quarter, almost double last year’s total. Forsyth County’s delinquency rate was just 5.7% as of Sept. 30, while in Clayton, which is more than 70% Black, the rate was almost three times higher.

Robin Kemp lost her reporting job at the community’s small newspaper, the Clayton News, early in the pandemic and has since been paying the bills for herself and her partner with unemployment insurance. Once an eager young news writer at Atlanta’s own CNN in the late 1980s and early 1990s, she acknowledges having made some poor career choices that led to a series of short-term jobs, including driving for ride-sharing service Lyft Inc. She hasn’t bothered trying to refinance, even though she’d love a lower interest rate than her current 6.75%. Doing so might save her more than $200 a month, she estimates. “I understand a bank is going to look at me and say I have this uneven history of employment,” Kemp says. “But I get it done. I get the bills paid.”

Donald Snyder, a traveling salesman, came out ahead. He listed his Piscataway, N.J., home on July 1 and took an offer three days later, after 27 showings, for $405,000. Snyder, 45, bought the 1,800-square-foot home in 2005 for $400,000, hanging on through the housing crash, when its value plunged as low as $300,000. It finally climbed out of the red this year, as tight supply and low interest rates juiced sales. “The pandemic hit, and prices started going up,” he says. “I made out a lot better.”

After selling, he bought a $220,000 house in Sicklerville, across the state line from Philadelphia, closer to his mother and his favorite team, the National Football League’s Eagles. The new house is the same size as his old place, but mortgage payments were cut in half, he says. “It’s a win, win, win, win,” Snyder says.

Williams, the New Jersey real estate broker, sees the same story from another side. Even when his clients prequalify for a mortgage, they haven’t been able to close deals. Listings draw dozens of bids, with offers $50,000, $75,000 or $100,000 above the asking price, he says. “Whether it gets that price, I don’t know because I’m usually gone and onto the next place, because my buyers are out,” he says. “A lot of people just quit. After losing and losing and losing—Saturday after Saturday after Saturday, in the car looking at places—they just quit.”

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