Foreclosure Crisis Intensified Among Blacks: Study

African Americans have suffered disproportionately from foreclosures due to racially discriminatory lending practices, a new study shows (h/t to Felix Salmon).

The study (pdf), authored by Douglas Massey and Jacob Rugh of Princeton, looks at racially segregated neighborhoods, where the percentage of minorities (particularly blacks, Hispanics and Asians) is higher than in the country as a whole. Using a black "dissimilarity index" to measure how a region's African-American makeup differs from the national percentage, the authors found that one standard deviation increase in this index -- when a community is slightly blacker than the nation as a whole -- increases the number of foreclosures by 15,028 and the foreclosure rate by 1.68 percentage points. As Salmon points out, that's quite high, given that the nation's foreclosure rate is 4.14 percent.

Before the housing bubble burst, blacks were more likely than their white counterparts to be given "subprime" loans, with high (or increasing) interest rates and hidden fees. It's a practice often referred to as "predatory lending." As Reuters notes, blacks with similar credit scores to whites were given worse deals on their loans, suggesting that race played a role in the way some lenders structured these deals.

Among lenders that went bankrupt in 2007, blacks were three times more likely than whites to receive subprime loans, according to a previous study that the authors cite in their report. Among lenders that did not go bankrupt, blacks were equally as likely as whites to receive "predatory" treatment.

The structures of these subprime mortgages made default especially likely, contributing in large part to the housing market meltdown that led to the financial crisis. But lenders didn't have to worry about the risk of default: With the rise of mortgage securitization in the 1980s, lenders could originate loans and sell them off to banks, which repackaged them and sold them to investors. The popularity of mortgage-backed derivatives, especially collateralized debt obligations, in the years leading up to the crisis created a huge demand for subprime, high-yield bonds -- which in turn encouraged some lenders to engage in ever riskier practices.

Racial segregation concentrated and intensified the fallout from racially motivated lending practices, the study says. It also facilitated the lending in the first place, since lenders could target communities that they knew to be disproportionately black or Hispanic.

"Hispanic and black home owners, not to mention entire Hispanic and black neighborhoods, bore the brunt of the foreclosure crisis," the study says. The authors say the nation's civil rights legislation must be amended to include more effective mechanisms for enforcement.

Bank of America last week halted foreclosure proceedings in 23 states, as it joined a growing list of banks who have said they didn't properly review all foreclosure documents.

READ the study:

10ASR10_629-651_massey-2

Comments

[Arthur Mackey]

02:03 PM on 10/08/2010

The predatory lending practices used are against FDIC Rules and also non discriminatory laws. I am white, have a FICO score in the 780's and know of some Black individuals and families who got loans for hat rates 2 or more points higher than I was able to get. This means the same home with a payment that would be sixty to ninety dollars more per month and is illegal. Also there would be a set of rules with penalties using points or percentages of interest of the entire loan as a one time charge and hidden by nefarious methods in paperwork.
Most of this is due to the fact of a lack of education that certain groups have about loans and how they work. Example would be the use

[Cougar28]

02:48 AM on 10/07/2010

Maybe the blacks bought more of a homes than they could afford???

[rory talbot]

08:06 AM on 10/07/2010

Or...maybe (facts), blacks with the same income/credit were 5 times more likely to get steered into high interest loans, Dmnss!

[Arthur Mackey]

02:18 PM on 10/08/2010

When you are being pressured by a sales person, loan officer and others with a 3/1 adjustable rate mortgage they don't educate the customer as to what the adjusted payment would be ! This is really inhumane way to treat someone and is due to a lack of knowledge on the part of the buyer. It also happens to uneducated people of all races and causes the customer to think he can afford more home than is actually being sold to him. The interest rates often climb by four to five percent a rise in payments and insurance costs of several hundreds of dollars. The banks are as guilty as the sellers and this brings a very bad reputation to the whole industry and was the base cause of the fall of the housing market ! Bernie Madoff style home sales is what I call it and it has almost caused our entire financial system to collapse, especially the housing industry and all related industries. These people should be investigated, charged and tried as they are guilty in reality of fraud. Any person or entity who

[TruelyFedUp]

08:46 AM on 10/06/2010

"No one would sow a crop, or build a house, or open a mine, or plant an orchard, or cut a drain, so long as any one else could come in and turn him out of the land in which or on which such improvement must be fixed. Thus is it absolutely necessary to the proper use and improvement of land that society should secure to the user and improver safe possession. ... We can leave land now being used in the secure possession of those using it. ... on condition that those who hold land shall pay to the community a ... rent based on the value of the privilege the individual receives from the community in being accorded the exclusive use of this much of the common property, and which should have no reference to any improvement he has made in or on it, or to any profit due to the use of his labor and capital. In this way all would be placed on an equality in regard to the use and enjoyment of those natural elements which are clearly the common heritage." http://www.wealthandwant.com/themes/Title.html

So, tax only the land which funds would be used on projects to benefit the community such as roads, schools, etc.

Truly

[TruelyFedUp]

08:41 AM on 10/06/2010

Title (to Land)
"Nothing in the reform we propose would disturb property titles. Secure title to land is vitally important. It is not the possession of the land that needs to be shared; rather, it is the rent that is legitimately common property. The land will be put to its best use only if title is secure, and this is one of the important functions of law."
((From the same source as below.))

[TruelyFedUp]

08:40 AM on 10/06/2010

... We start out with these two principles, which I think are clear and self-evident: that which a man makes belongs to him and can by him be given or sold to anyone that he pleases. But that which existed before man came upon the earth, that which was not produced by man, but which was created by God -- that belongs equally to all men. As no man made the land, so no man can claim a right of ownership in the land. As God made the land, and as we know both from natural perception and from revealed religion, that God the Creator is no respecter of persons, that in His eyes all men are equal, so also do we know that He made this earth equally for all the human creatures that He has called to dwell upon it. We start out with this clear principle that as all men are here by the equal permission of the Creator, as they are all here under His laws equally requiring the use of land, as they are all here with equal right to live, so they are all here with equal right to the enjoyment of His bounty.” Henry George

http://www.wealthandwant.com/themes

[TruelyFedUp]

08:32 AM on 10/06/2010

“We are land creatures. None of us was born with a hot air balloon on our backs. Should some of us be able to accumulate land, charge others for access to it, and keep that rent as their personal treasure? Are some of us more entitled to land than others, as an accident of birth, or do we all come into the world created equal with respect to the natural creation, natural resources and natural opportunities to work?
When you hear about large ranches in California, Texas and other places, or a few landholders — including philanthropic entities, universities, families or real estate investment trusts — controlling significant percentages of the best land in a locality, think of these effects on the lives of all the non-owners humans who also live and/or work in the area: their wages, their commutes, their options in life, their children's opportunities — and how different things would be in a geonomic society!”
http://www.wealthandwant.com/themes/Title.html

(I can't find a definition for geonomic but it appears that he is using geo from geographic and nomic from economic)

Truly

[TruelyFedUp]

08:28 AM on 10/06/2010

“The country is suffering from "scarcity of employment." But let anyone today attempt to employ his own labor or that of others, whether in making two blades of grass grow where one grew before, or in erecting a factory, and he will at once meet the speculator to demand of him an unnatural price for the land he must use, and the tax-gatherer to fine him for his act in employing labor as if he had committed a crime. The common-sense way to cure "scarcity of employment" is to take taxes off the products and processes of employment and to impose in their stead the tax that would end speculation in land..."

[TruelyFedUp]

08:27 AM on 10/06/2010

Continued;

But, it will be said, this is not quick enough. On the contrary, it is quicker than anything else. Even the public recognition of its need, by but a part of the intelligence and influence that is now devoted to charity appeals and schemes, would have such an effect upon the speculative price of land as to at once set labor and capital to work.

This is not "mere theory." It is theory to which all experience testifies. New Zealand is today the one country which enjoys anything like prosperity in the midst of a universal depression. While population is leaving New South Wales and Victoria, and, in the search for cheap land, people are even emigrating to Paraguay, more than six thousand families have settled in New Zealand since the passage of the Ballance Act, a partial application of the single-tax principle.”
http://www.wealthandwant.com/themes

[Shawna Spaulding]

02:42 AM on 10/06/2010

IT'S A LITTLE TO LATE . THE NEWS FINALLY PLAYS CATCH UP.

[dukeitout]

11:03 PM on 10/05/2010

This is such a pitiful study. It has more holes in it than a pincushion. Rubbish.

[Denni]

02:46 PM on 10/06/2010

I'm willing to be schooled. Do tell where the holes are.

[Laws456]

08:18 PM on 10/06/2010

I was thinking the same thing....I'm waiting for class to begin...

[ShanaJuly]

10:57 PM on 10/05/2010

People you need to understand that this was not just people buying a home for the first time, but it was also people refinancing their homes with their way over inflated values. The scaven.gers came to Florida and drove this market to high heaven. No way these houses should have been selling at those prices. We always had modest year to year appreciation. Then the boom years of GW like everything else they did messed Florida up. So, many people were in over their heads when the housing prices came crashing down.

[Laws456]

08:19 PM on 10/06/2010

It is ridiculous here in Florida. I was working for a firm processing foreclosures, the prices lots of those houses sold for were crazy. Especially when you look at the history of the property.

[ShanaJuly]

09:37 PM on 10/06/2010

It is sad but true. Although I hate Texas, they have nice homes that have a lot more than the homes here and you get more for your money.

[Duppy]

07:46 PM on 10/05/2010

Duh ? Really. And who is surprised by this. The unemployment rate for blacks is twice that of whites.

[ShanaJuly]

10:43 PM on 10/05/2010

It really, really is the predatory lending. As a realtor (not practicing right now) here in Florida, the predators are always on the look out in the black areas. They especially love to target the elderly and in particular the elderly who have paid off their homes. They are really the s.cum of the earth for preying on them. The devil is in the details of the paperwork and if you don't know you are in a world of trouble. The fees some of them charge are sometimes fees that are waived as a courtesy. But not for black folks. They also love to penalize for early payment that way if you refinance before 5 years you have to pay them again. Many folks do not realize this and the lenders know some of them will be refinancing again before the 5 years are up. It is a vicious cycle.

[USNDC]

02:55 PM on 10/05/2010

Where ?

Where are the Wall Street prosecutions ?

Where is the Federal Government ? ... where is the DOJ ? ... where is Barack Obama ?

They are silent ... they refuse to engage ... and they refuse to intervene.

Why ? ... because all roads lead back to Rome !

Our corrupt career politician's finger prints are all over this scandal.

[ShanaJuly]

10:45 PM on 10/05/2010

He's busy handling all the thousands of problems he was left with by they previous morally bankrupt administration.

[USNDC]

09:44 AM on 10/06/2010

Shana, you ignorant .... !

What a feeble excuse ... no, it was less than feeble.

[Laws456]

08:21 PM on 10/06/2010

You're correct in that he has his hands full but the DOJ could and should have taken a look at this issue at least a year ago. But then this is the same DOJ and admin that recently let Blackwater off the hook while giving them additional work.

[jabreal00]

12:41 PM on 10/05/2010

I wonder if the proportions of subprime loans given to blacks or hispanics were as high in those who bought in majority white neighborhood? It sounds like these unscrupulous banks targeted neighborhoods (minority) more than individuals.

The same practice applies for businesses (grocery stores, restaurants, or retail), in that many of these businesses choose not to enter minority predominant neighborhoods. So in even reltatively middle class black or hispanic neighborhoods, many have to travel to other jurisdictions to shop for groceries, clothing, go to the movies, or eat at a decent sit-down restaurant.

This type of practice is very subtle and hard to police, before the fact. It would seem as if it is in a minorities best interest to opt to live in a "majority" neighborhood in order not to be affected as much by discrimination.

[rebel9999]

09:16 AM on 10/05/2010

Credit rating is NOT the only criteria for lending. Ex. Two people, both with credit scores of 770 purchase $100,000 homes. If one person puts down $20,000 and the other puts $0 down, of course they person with the downpayment will get a more preferred rate, because they are sharing in the risk.

Does the Reuters study compare other factors, or just race and credit score? Other factors (net worth - 401K vlaues, IRA's) also factor into the loan process.

[ShanaJuly]

10:47 PM on 10/05/2010

Bogus. Nobody is getting off with putting nothing down. Many cities and counties, at least here in Florida, have down payment assistance programs. Also, FHA loans require 3% down.