The recession and housing collapse has created a major drop in the credit scores of African Americans across the nation, wiping out the net worth of black families, and it could take an entire generation for the black community to recover, according to an alarming report in the Washington Post.
Though the Federal Reserve is about to conduct a large-scale investigation of how the recession has affected African Americans, consumer and banking experts say they already know that blacks have been disproportionately decimated by the economic crisis.
“Folks are going to have to work longer and work harder to even try to maintain a standard of living,” said Kendrick Curry, pastor at Pennsylvania Avenue Baptist Church in Washington, D.C., told the Washington Post. “It really speaks to a backward movement.”
At the root of the problem is the subprime lending boom that allowed huge numbers of blacks who previously couldn’t qualify for loans because of low credit scores suddenly have access to homes that they previously couldn’t buy. It was heralded as a transforming moment in the nation as millions of black were ushered for the first time into home ownership. But there was a dark cloud on the horizon. Most of them had to pay higher interest rates to qualify for the unconventional loans because of their credit scores. So when the housing and lending crisis hit, blacks have been forced into foreclosure at alarming rates. It will take many years for most of these families to recover and bring their credit scores back to levels where they can qualify for loans or mortgages—or if they qualify, not have to pay rates much higher than whites.
“Even near the height of the country’s economic boom, blacks had lower credit scores than whites,” the Post story said. “Data collected by the Federal Reserve from 2003 – in the most comprehensive study on race and credit scoring to date – showed that less than a quarter of blacks had prime credit scores. Meanwhile, about 65 percent of whites were in this top tier. The gap got wider as black and white Americans grew older, the Fed found. By age 75, the average black consumer’s credit score still had not reached the national average.”
“It’s one more way that credit scoring … sort of sets in stone income and wealth disparities between minorities and whites,” said Chi Chi Wu, a lawyer with the National Consumer Law Center. “The playing field was never level.”