Racial Reparations and Mortgages

December 13, 2020
Antonio Flores

Race has always been a controversial topic in American life. The issue of how the white majority is to treat racial minorities has caused secession and civil war, the subsequent military occupation of large regions of the country, and battling racial militias such as the guerrilla wars between white Redeemers such as the original Ku Klux Klan and the federal government. Many decades later, the Civil Rights Act was passed, the goal of which was to integrate racial minorities and in particular African Americans into American institutions. However, to this day, black and Hispanic Americans remain behind on many economic and social indicators. 

In the past few years, and in particular after the death of George Floyd, the issue of reparations for black slavery has entered mainstream consciousness. Best-selling black authors such as Ta-Nehisi Coates and Ibram X. Kendi have championed the idea of monetary reparations for nonwhites. Joe Biden’s cabinet now includes prominent reparations advocates such as Mehrsa Baradaran in the Treasury Department, where she can play a pivotal role in deciding monetary policy. The main question for our purposes is what reparations would look like in the mortgage industry.   

The probable answer comes from one of the largest banks. JP Morgan Chase announced this year that they would set $30 billion to address economic disparities between whites and nonwhites. The primary method of distribution for this money would be in loans: one major part of this was granting more home loans to blacks and Hispanics, who tend to have poorer credit on average and are therefore less likely to obtain home loans on favorable terms. A national reparations policy would likely include something like this on a broader scale, where blacks and Hispanics would be able to get loans at rates that their credit scores would not normally allow in order to rectify the misdeeds of the past. This would in turn likely create high-risk debt, leading to a bubble that would end in a crash. Take note that I am not opposing the idea of reparations here, merely this particular form which seems like it could be counterproductive in helping minorities. 

In sum, racial reparations are almost certainly going to be a part of a Biden agenda. This could take many forms, but one form related to the mortgage industry that JP Morgan Chase has already taken is granting home loans to minorities who otherwise would not qualify for them. 

https://eji.org/news/banks-deny-home-loans-to-people-color/

https://www.foxnews.com/politics/biden-taps-reparations-advocate-for-treasury-transition

https://www.elitepersonalfinance.com/average-credit-score/

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