The recession’s effect on the unemployment rate is widely known, but its profound effect on the wealth gap between races is only now coming into focus.
A new report by the Urban Institute found that Hispanic families lost 44 percent of their wealth between 2007 and 2010 and black families lost 31 percent. Non-Hispanic white families, by comparison, lost 11 percent of their wealth.
Before the recession, non-Hispanic white families were four times as wealthy as minorities but by 2010 that number had grown to six times as wealthy. This disparity is all the more noteworthy because the income gap is much smaller, staying roughly constant since 1983.
Put another way, the average wealth of white families was $230,000 higher than the average wealth of black and Hispanic families in 1983. By 2010, the average wealth of white families was over a half-million dollars higher than the average wealth of black and Hispanic families — $632,000 versus $98,000 and $110,000, respectively — the report states.
“The great recession didn’t cause the wealth disparity between white families and families of color but it certainly did exacerbate it,” says Caroline Ratcliffe, senior fellow with the Urban Institute. “Families of color were not on a firm wealth-building path but were disproportionately affected by the great recession and housing crisis.”
The accumulation curve for whites, the rate at which they accumulate wealth, grows as they age, and the disparity compared to Latinos and blacks becomes more stark.
In 1983, whites in the 32-40 age range started with three and a half times more wealth than blacks and four times more wealth than Hispanics. Thirty years later, those figures had grown to seven times more wealth than African-Americans and five times more wealth than Hispanics.
A focus on the 2007 to 2009 recession shows sharp declines in the wealth of all three groups but reveals particularly debilitating effects for Latino families. Lower home values account for much of Hispanics’ wealth loss, as their wealth fell 40 percent from 2007 to 2010. Higher debt-to-asset values created a dangerous situation as young Hispanic home buyers were hit with an avalanche when housing prices tumbled in places like Phoenix and inland California.
Aracely Panemeno, with the Center for Responsible Lending, told NBC Latino that minorities were targeted with predatory loans, which had a major impact on their families’ wealth.
“I live in Prince William County, Virginia, where 12,000 predominantly Latino families lost their homes because of predatory lending, the subprime boom and over-development,” she said.
Frederick Rivera, with Finanta, a nonprofit lending group serving Philadelphia, says there are programs to help minority home buyers get back on their feet after the housing crisis. Finanta is starting a brand new program called Pre-Mo (pre-mortgage), to help them save money to begin the process of buying a house.
“It’s impossible to save money in 60 days to buy a house,” Rivera says. “But this program last from 18 to 24 months, sets up one-to-one credit counseling and creates a credit action plan. It makes banks want to work with them.”
Rivera says the program is a ROSCA, or rotating savings program, which is a “concept common to all minorities” where they save money and then are given a lump sum of their own money. Many Latinos are familiar with this idea from “sociedads” among friends and family.
Despite a worrisome wealth gap, Rivera sees things improving.
“As the bubble has settled there is a bigger interest to purchase on behalf of the minority community,” he says.