The longtime discrimination of lending, zoning, homeownership, and infrastructure development towards African Americans has resulted in a racial wealth gap in which Black wealth is only about five percent of White wealth, despite the fact, Black incomes average about 60 percent of White annual incomes. As homeownership is key to housing stability and long term generational wealth, City First Bank Executive Vice President Tom Nida told The Bridge it is important to know the history of financial and housing discrimination in this country, as well as educate young people on the importance of financial literacy in order to be fiscally sound and confident in the future.
Nida explained that though the root of wealth inequities for Black Americans begins in 1865 (post the Civil War, when Congress enacted legislation to create and oversee the Freedmen’s Bureau and chartered Freedman’s Savings & Trust Company), the recent history of homeownership unfairness began after World War II.
“I think that recent history would show that a lot of the homeownership that we see today really started right after the Second World War when you have the GI Bill that included financing guarantees from the Veterans Administration (VA). And you saw that in the post-war economy, all the way through the 50s and 60s, there was just an absolute boom in housing. Now the problem was, the government support at the time was largely limited to folks that were White just by virtue of the VA and the HFA (Housing Finance Agencies) and so what happened was, at the end of the Second World War, veterans that were returning and looking to become homeowners, they were finding the price of the home was roughly two times more than an annual income. But in the 1960s, when the Fair Housing Act was passed, the price of housing had appreciated to the point where the average house was at least eight times the amount of the total annual income. So the gap had already been created, the problem was that if you were then getting access to housing support, and financing and all, you were already behind at default because the price of housing had soared in 20 something years, since the end of the War, So even if you had a good job and good income, the number of housing costs that you had to pay was something that your income level at the time, probably couldn’t support,” Nida explained.
“And so the challenge is how do you make up for that in some sort of support? Whether it’s down payment support, financial support from the mortgage lenders, or whatever the case may be, because you can’t turn back the clock. Nobody wants to see a crash in housing prices to be able to restart the clock, so now the reality is that home prices are booming again, construction prices are up, the gap is getting wider, and we just have to be more creative in our thinking in how do we get people in a position to at least have a good starting point in regard to maybe their first home, and then let them get in the game with maybe appreciation, to trade up as things go on,” Nida continued.
The City First Executive Vice President said that it is important to know the history of financial inequities, such as redlining and lender discrimination, as well as the trajectory of housing appreciation post World War II, in order to know how to move forward as well as consider government assistance that could improve homeownership and gap closing outcomes today.
“People that don’t read their history or know their history, are doomed to have history repeat itself, so let’s start there. You don’t want to turn back the clock with the events of the past,” Nida said. “But, I think the other thing is if you look at the events and the causes and the effects, then it‘ll be incumbent upon, probably, the public sector, since largely the federal government started this ball rolling, it may be up to them to work with being creative in conjunction with local government, and be able to restore some equity here and at least give everyone a fair starting point.”
One way to clearly evaluate the financial crises affecting Blank communities is through looking at Federal Deposit Insurance Corporation’s (FDIC’s) Minority Depository Institutions (MDIs) list. The FDIC defines MDIs as: “a federally insured depository institution for which (1) 51 percent or more of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is a minority and the community that the institution serves is predominantly minority.” According to research from the FDIC, from 2001-2020, the total number of Black-led MDIs steadily declined from 48 to 20, while total assets only slightly increased, from $5,033,296,000 to $5,596,561,000. However, numbers dramatically increased in both Hispanic and Asian/ Pacific Islander communities. While part of the Black MDIs issue with decreasing companies has to do with the larger trend of bank consolidation, the slow increase in assets is still very concerning.
“The entire U.S. Banking industry has been consolidating for the last 25 years. When I first got into the banking business, there were probably 20,000 banks in this country, now there are about 6,000. And so the entire industry has consolidated- fewer but bigger banks. Even ours, two banks (City First and Broadway) merged, and so we have one bigger institution as a result. And so what we see is, the Black-led MDIs, had been in the process of consolidation, that’s why their numbers are reduced, but the flip side of that was, that while the numbers were reduced, there wasn’t any accelerated growth taking place in that sector, in comparison to Hispanic led, or the Asian/ Pacific Islander groups, which actually saw a real jump in the number of institutions, at least until about 2010. And then they started consolidating, but while they were consolidating, they were really growing exponentially,” Nida told The Bridge. “And so the challenge is that the other types of MDIs, probably can attribute some of their success to the fact they are tapping into populations that have seen substantial growth in this country in the last couple generations and if they are just making a pitch to look at having, like the credit unions, kind of a common base to support each other, you may see that helps contribute to the growth of those particular sectors.”
“But, I do believe that the challenge here is that as we go forward, what is the opportunity? The reality is that since the last recession, the number of new bank charters across the country, of any kind, has been minimal. It’s tougher and tougher to get a new bank started. Capital requirements are tougher, regulatory requirements are tougher. So the challenge is going to be, not necessarily starting new banks, but looking at ways of fostering the growth of existing ones,” the bank’s Executive Vice President continued.
Nida also explained how he believed Black millennials and Gen Z’ers could find ways to confidently enter into the world of homeownership and close the large wealth and housing gap in this country.
“The number one challenge opportunity for any generation and any race is really getting into the game and being much more informed, with a good working knowledge of financial literacy. If you don’t know the rules of the game, it’s tough to play well,” he said, before passionately describing the need for education.
“One of the challenges that we see, from many perspectives, is a lack of understanding of how you succeed. What’s expected? What’s required? How do you get there? How do you document it? Do you speak the same language as that lender? Do you know what the lender’s looking for and why so that you can anticipate a lot of that? The problem is that folks who are not financially literate, are handicapping themselves. And so one of the challenges is to reverse that, and I think that needs to start, frankly, in middle school, high school, so that folks coming out of school, whether they’re going on the college track or going into the employment world, or the military, they have an understanding of what they’re in for, and maybe use that information to set some reasonable goals and be aware of what their options are,” Nida explained. “I mean how many folks understand what’s available through Freddie Mac, Fannie Mae, the FHA, your choice of guarantee programs, and all of that?”
“That’s what we need to do, we need to educate people better about their financial resources available, and then help point them in the right direction and guide them there so that they can take advantage of it,” he emphasized.