The recession still has more damage left to do. From 2007 to 2009, about 2.5 million foreclosures were completed throughout the country, and now, millions more homes are facing the same fate. About 1 in 6 Latino homeowners, and 1 in 10 Black homeowners have either lost their homes already or are at “imminent risk,” compared to 7 percent of White owners, according to the Center for Responsible Lending. The organization’s new analysis of foreclosure statistics from 2007 to 2009 confirms previous research, but the timing of the report is a bleak reminder that the economic crisis has not yet bottomed out in many areas.
While unemployment rates remain stubbornly high, the loss of wealth will steadily worsen, as families not only lose their homes, but see their whole neighborhoods robbed of billions. The “spillover” effect in high-foreclosure communities is estimated to cost Black and Latino neighborhoods $193 billion and $180 billion, respectively.
But really, we should have seen it coming. According to the Center's research, homeowners of color were set up for a shock from the very beginning:
First, not only were borrowers of color more likely to receive subprime loans than white borrowers, but within the subprime market, borrowers of color were more likely to receive the most expensive loans and were more likely to receive subprime terms associated with increased default risk, such as prepayment penalties. Previous research has shown that African-American and Latino borrowers were about 30% more likely to receive the highest-cost subprime loans relative to white subprime borrowers with similar risk profiles and that subprime loans in communities of color were more likely to carry prepayment penalties than subprime loans in majority communities.
The reasons behind the crisis are also sadly predictable: a shady, virtually unregulated market that allowed lenders to prey on low-income communities, the government's persistent failure to enforce fair-lending anti-discrimination laws, and the economic desperation that pushed homeowners to refinance to wring more money from the one asset they thought they could lean on.
And the seeds of the next crisis have already been sown, as Black and Latino households find themselves struggling to climb out of a hole that is widening under systemic poverty, joblessness and state and local budget crises. The Center points out that in addition to having far less wealth than whites in general, people of color tend to have more wealth concentrated in housing compared to white families with relatively diversified assets. This leaves families of color even more exposed to market volatility.
Overall, the study found, "though African-American and Latino borrowers received 25.8% of all loans to low-income borrowers, we estimate that they were affected by 32.9% of completed foreclosures for this group." The wealthier brackets actually showed larger gaps in the share of owner-occupied foreclosures versus originations. The highest disparity ratios for Blacks and Latinos were found among high-income homeowners.
So how do we get out of this mess? Fair-lending groups have called for stronger foreclosure-mitigation policies and backed the plain-vanilla initiatives Congress has mulled in recent months to start reregulating the financial services industry. Those proposals don't specifically target communities of color, but one insight in the report's conclusion challenges the reactionary climate that prevails on the right:
policymakers must vigilantly guard against efforts to use the current crisis as an excuse to roll back policies designed to support homeownership for disadvantaged communities. Indeed, in the wake of this crisis, communities that have historically been the beneficiaries of such policies will need access to responsible and fairly-priced credit more than ever as they seek to rebuild financial security.
But policymakers haven't proven very reliable in guarding the public interest, before or after the crisis. Instead, the burden of vigilance may have to fall on grassroots advocates working to salvage the worst-hit neighborhoods--before they disappear.