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Closing the Gap in Homeownership Rates: How Fannie Mae
and Lender-Partners Can Close the Gap

Sullivan University

MGT 510

Executive Summary

This proposal addresses the gap in homeownership rates between whites and minorities. According to the United States Census Bureau, 67.9 percent of the population in the United States are homeowners. However, while 71.8% of Whites are homeowners, only 47.3% of African Americans and 48.2% of Hispanics are homeowners. This large gap in homeownership rates can be contributed to discrimination by lenders and minorities’ misconceptions about the lending process. To overcome these issues, lenders need to eliminate discrimination and reach out to minorities. Ultimately, lenders who discriminate are going to hurt their own bottom lines since minorities represent a large market that has the high potential for growth.

Introduction: Homeownership is the “American
Dream”

Housing has often been referred to as the #1 creator of wealth in the United States. It has been called, (1) the leading consumer product, (2) the leading consumer investment, and (3) a leading economic driver. Homeownership, in short, is the “American Dream.” It creates wealth. If you purchase a home today, with appreciation and through upkeep, it will be more valuable in the future. That appreciation provides homeowners with opportunities to create wealth. According to the Perlo (2003), in the latest Survey of Consumer Finances, published by the Federal Reserve Board, the median family that owned their home had a net worth of $171,700 in 2001 as compared to those without a home, whose net worth was only $4,800 in 2001.

Homeownership also provides economic security and creates opportunities. You can pass your wealth on to the next generation. You can withdraw the equity to fund your children’s education, make investments, or to finance other large expenditures. Owning a home creates opportunities that otherwise may not be available.

Background: Racial Inequalities Still Exist in Home
Ownership

For many years, society has worked towards reducing inequities between whites and minorities. Although we have been successful in many aspects, such as creating equal opportunity employment, inequities still exist. These inequities can be observed in the gap in homeownership rates by race. According to the statistics from the United States Census Bureau, 67.9 percent of households were homeowners in 2002. When broken down by race, the results are as follows:

Race/Ethnicity
Homeownership Rates in 2002
White
71.8%
African American
47.3%
Asian and Pacific Black Islander
54.7%
Hispanic (of any race)
48.2%
Source: U S Census Bureau www.census.gov

According to the table, 71.8 percent of white households owned their homes, but only 47.3 percent of African American households and only 48.2 percent of Hispanics households owned their homes. That is a substantial difference in percentage. According to this information, there is a gap in homeownership rates of 24.5 percent.

Problem: Discrimination & Misconceptions Increase the
Gap in Homeownership Rates

The gap in homeownership rates can be contributed to two things, (1) discrimination by lenders, and (2) minorities’ misconceptions about the lending process.

Although mortgage loan discrimination is illegal, that does not stop it from happening. Stereotyping is common. Discrimination often begins at the early stages of the mortgage lending process. According to Balkin (2004), “Overall, minorities were less likely to receive information about loan products, received less time and information from loan officers, and were quoted higher interest rates.” She goes on to state that, “At later stages of the process, racial disparities in loan denial rates cannot be “explained away” by...
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