– When it takes a long time to create a problem, it often takes even longer to fix it. In Black Wealth/White Wealth: A New Perspective on Racial Inequality, Melvin L. Oliver and Thomas M. Shapiro illustrated how various American tax, property and financial policies and practices precluded generations of African Americans from building wealth and created intergenerational poverty, the effects of which continue to reverberate today. The gains that some African Americans and other people of color made in wealth creation through home ownership, small business development and educational attainment during the late 1990s and early 2000s were all but wiped out by ongoing the financial and foreclosure crisis. If left unaddressed, the racial wealth gap will continue to grow.
Key policies of the last decade, such as the Bush Administration’s “Ownership Society,” sought to expand homeownership opportunities without putting in place effective safeguards against unchecked and unscrupulous lenders targeting communities of color with unsustainable mortgage products. Rather than correct this regulatory failure, many critics have chosen to question the viability of homeownership as a wealth-building vehicle and suggest that many people are better off renting their home. Others suggest that we should revise our tax policies that convey enormous benefits to higher-wealth home owners through the real estate tax deduction. All of these issues bear on and complicate the issue of how a “qualified residential mortgage,” or QRM, should be defined in new rules required by the Dodd-Frank financial reforms. Under Dodd-Frank, lenders will be subject to a new five-percent risk retention (“skin in the game”) requirement designed to reduce the likelihood that lenders will make loans that pose excessive risk and sell them off to the secondary market. Only loans consistent with the QRM definition will be exempt from the risk retention requirement.