By David Pendered

Renters take a double whammy – they don’t build equity in their home, and their on-time rent payments aren’t reported to help build their credit score.

The result is often higher interest rates paid to lenders for credit card debt, auto loans, and other types of debt than the rates paid by homeowners. In contrast, homeowners can borrow money at lower rates than tenants due to the higher credit scores associated with home equity and built credit history with every on-time payment.

Non-White Hispanics are the group that benefits the most from this aspect of the country’s financial system. A census report shows that about 75 percent of non-white Hispanics own a home, compared to nearly 50 percent for Hispanics and about 45 percent for black homeowners alone.

This issue of homeowner’s equity and credit history is another aspect of structural racism highlighted in the 10e and last event in his series “Racism and the economy”. The next round of meetings, which will begin in February 2022, will examine policy proposals to promote financial fairness that the Fed can implement as part of its mandate to promote maximum employment.

Credit history and credit scores are elements of the financialization of society, which panelist Lisa Servon described in terms of extracting wealth from low-income people. The use of credit scores as a ubiquitous measure didn’t start until the 1980s and grew at a rapid rate, according to Servon, presidential professor at Kevin and Erica Penn and director of the University’s Department of Urban and Regional Planning. from Pennsylvania.

Atlanta Fed Chairman Raphael Bostic said at the Nov. 16 event that the Fed has both the authority and influence to improve fairness in the nation’s financial system in order to ” helping low-income people.

“I think there is a lot of space to make being poor cheaper,” Bostic said.

California has started to focus on helping renters build their credit history. Servon said the new law has “the potential to level the playing field between tenants and landlords.”

As of July 1, California required some landlords to submit rent payments to a major credit bureau at the tenant’s request. The new law applies to owners of multi-family structures who receive state or federal grants to provide affordable housing. The goal is to help tenants build credit histories which can lead to higher credit scores and lower borrowing costs.

Abbey Wemimo, co-founder of New York-based Esusu Financial Inc., highlighted the concept at the event. Wemimo’s policy proposal presents information on how his version of a reporting program could help tenants develop their credit.

Homeownership is not a panacea for minorities, according to Lisa Rice, president and CEO of the National Fair Housing Alliance. They tend to pay higher interest rates for mortgages and higher fees for essential services, including home insurance, she said.

“Research analysis by researchers at Berkeley shows African Americans and Latinos pay $ 765 billion more than their corresponding level of risk when accessing mortgage credit,” Rice said, without elaborating. .

The “Racism and Economy” series has been running for a year. Bostic was one of the first supporters of the program created shortly after the murder of George Floyd by a police officer in May 2020. The intention was to assess opportunities for the central bank to improve fairness in the financial system. from the country.

Note to readers: The 12 banks of the Federal Reserve System have hosted the series “Racism and the Economy”. Click on here for more on examining structural racism in the national economy.


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