Wealth Gap Continues to Increase

There has never been a question about whether a wealth gap was present in this country.  The racial wealth disparity that exists, gets discussed a lot, but solutions seem hard to come by.  People have wondered during the current recession did the numbers begin to change any.  The answer is no and the answer to why is pretty simple.  A recent Pew Study has shown that during the recession the wealth gap has grown to their highest levels in a quarter century.  This is even with there being a wealth decline across the board.  However, the losses for minorities has been so extreme that it takes away whatever gains (if any) that had been made.

Often times this discussion is around whites and blacks, but this report shows that it is much broader than that.  The wealth of Hispanics dropped 66%, while among blacks the number is 53%. While whites dropped by 16%. The reason for this is simple.  The majority of minorities wealth was wrapped up in housing.  When the housing market collapsed so did their wealth.  Whites have a more diverse pool of wealth so even while being hurt by the housing crash, the fact that the stock market recovered their loss of wealth was minimized.

What is troubling is that as federal and state budgets are being cut, so are the programs that are helping to keep minorities and poor of all races above water.  If we continue to make these cuts it will grow increasingly difficult for this group to build wealth and the gap will continue to widen.


Another Hurdle to Home Ownership

With all the talk about the QRM rule definition and the impact it will have on the housing market, another hurdle is flying under the radar.  Adam Rust from the Community Reinvestment Association of North Carolina (CRA-NC) has written a report about the other hurdle to home ownership, Loan Level Pricing Adjustments.

In short, these pricing adjustments are loan fees added to the cost of a loan that take into account the risk of the borrower.  This fee is designed to better assess the risk of a borrower and apply that cost to a loan.  The adjustment takes into consideration 5 key points: Credit Score, Property Type, Occupancy, Structure, and Equity.  Here is the breakdown of this adjustment as provided by Fannie Mae.

This adjustment does not take things like moving loans to FHA, the disparate impact on protected classes, and the use of private mortgage insurance into account.  Without taking these into account these adjustments can price out low wealth and minority communities from home ownership, and move more of the burden to FHA.  Just the QRM debate this also could have an impact on the rental market.

If you want to dig deeper into the topic I encourage you to read the report: The New Hurdle to Home Ownership