Foreclosures continue to decimate communities around the nation, with black neighborhoods being the hardest hit. Some pundits and politicians point to federal policies that encouraged homeownership in low- and moderate-income communities, coupled with reckless behavior on the part of greedy homeowners, as the crux of the problem. One example is the statement by Fox News reporter Neil Cavuto that "loaning to minorities and risky borrowers is a disaster." To the contrary, our recent research demonstrates that it is outside investors living in other, predominantly white neighborhoods, not local homeowners, who account for the adverse impact on our nation's black communities.
Observers ranging from Credit Suisse to the Center for Responsible Lending estimate that about 6 million families have lost their homes to foreclosure and project that 12-15 million families altogether will lose their homes before the crisis is over. According to the U.S. Department of the Treasury $17 trillion in household wealth was eliminated between 2007 and 2009 and more losses are sure to come. Such losses reduce property taxes, cut consumer buying power for local businesses, and weaken the ability of municipalities to provide vital services. In the end, all households, businesses, and non-profits suffer if they or their neighbors are foreclosed and lose their homes.
Recent foreclosure activity and the subsequent costs are not race neutral. According to the Center for Responsible Lending approximately 8 percent of African-American and Latino families have lost their homes to foreclosure compared to 4.5 percent of white families. United for a Fair Economy has estimated that a third of black households and 40 percent of Latinos are at risk of falling out of the middle class and into poverty as a result of the foreclosure and related economic crises.
So what accounts for the concentration of subprime lending and foreclosures in minority neighborhoods? The culprit, at least in Louisville, is investors, primarily white investors who do not reside in the affected communities. In our research we found that in 2007 and 2008 there were approximately 2,000 foreclosure sales each year in Louisville. There were 39 per census tract (a rough approximation of a neighborhood) in black communities compared to 20 in white tracts. More telling is the fact that there were 15 foreclosures on properties owned by investors rather than owner-occupants in black communities compared to two foreclosures in white areas. A close examination of foreclosed properties in black neighborhoods found most owners were white and often living miles away in suburbs.
It is investors seeking a quick profit, not homeowners, who are the real problem in black neighborhoods. We suspect Louisville's story is not unique. Louisville is right in the middle of this pack, ranking 103 out of 203 metropolitan regions in the rate of foreclosures in recent years.
Several factors account for why a property goes into foreclosure and why foreclosure rates are higher in some neighborhoods than others. Race is certainly not the only factor, and may not even be a consideration when other variables are taken into consideration.
We controlled on a range of variables that contribute to foreclosures -- crime rates, housing values, household income, employment levels, vacancies, number of high-cost loans -- and found that the rate of foreclosures for owner-occupants was no different in black and white Louisville neighborhoods. That is, race was not a factor in accounting for differences in the rate of owner-occupied foreclosures among Louisville neighborhoods.
But when we examined investor foreclosures, neighborhood racial composition was the primary predictor. Not only was race a significant factor in accounting for different levels of investor foreclosures among Louisville neighborhoods, race was the single most important factor, even more important than the rate of high-priced or subprime lending
So black communities have been hardest hit, but not because of the federal policies pointed to by Cavuto and other conservative observers like Lou Dobbs, Charles Krauthammer and editorial writers from the Wall Street Journal and a range of other newspapers. Their prime target is the federal Community Reinvestment Act that prohibits redlining. Yet as researchers with the Federal Reserve, National Community Reinvestment Coalition, and several other government, non-profit and academic institutions have demonstrated, this is simply nonsense.
The CRA does require federally regulated depository institutions (banks and thrifts) to affirmatively ascertain and be responsive to the credit needs of all neighborhoods in their service areas, including low- and moderate-income communities. But the law also explicitly states they must do so consistent with safe and sound lending practices. The Federal Reserve reported that only 6 percent of high cost subprime loans made to low- and moderate- income borrowers were originated by lenders covered by the CRA. The overwhelming majority were made by mortgage bankers and brokers not covered by the law. And while all households in a community suffer when foreclosures mount, our research indicates it is investors, generally white investors, not owner-occupants, whose properties in black neighborhoods are lost to foreclosure, again to the detriment of all who live and work in those communities.
Foreclosures continue to devastate millions of families and the communities in which they live. But it is not reckless or greedy homeowners who are the problem. Likewise, Federal policies that have increased responsible lending in low-income and minority communities are not the culprits either. It is investors who do not live in, understand, or appreciate the black communities they are tearing apart, who are at the heart of the problem.
John I. Gilderbloom is a professor of urban and public affairs at the University of Louisville and Gregory D. Squires is a professor of sociology at George Washington University.
This essay originally appeared in The American Banker, September 9, 2011.
Prohibiting redlining had nothing to do with the explosion and then implosion of "products" sliced and diced around the world.
Please we all know better.
Market demand for houses in those neighborhoods would not have existed at those levels if not for the mortgage market that brought you the 0% down ARM. When anyone with a pulse and a pen can get a mortgage, the investors were pretty sure they could flip those homes.
While the authors are correct that CRA covered banks were not the originators of the majority of those loans to minority buyers, they are incorrect that government policy was not the cause. The subprime mortgage paper still ended up in the banks, and in Fannie Mae and Freddie Mac because of the regulatory changes that let them buy subprime loans to meet affordable housing goals. Fannie was forced to allocate 50% of its loans to meet these goals, and the direct result was that Fannie finally lowered its mortgage standards. Prior to the July 1999 regulatory changes, Fannie would not buy 0% down loans - so to say that government policy did not drive this market is demonstrably false.
The TRUTH is that Investors with money, of ALL races and rationalities, are scooping up the foreclosed homes. There is no particular target other than "what and where" they feel a profit can be made on the purchase. Whether it is by Resale or Renting.
Here in Los Angeles, there are plenty of mionrities with money to invest in Real Estate. A Black Investor feels no more guilt, than a White Invester, when they purchase a foreclosure that used to be owned by a Black person.
I don't thiiiiink so. I think it's time to insert personal finance education requirements into our primary and high school curriculum at appropriate points, FOR EVERYONE, but focusing on the needs of those who are less likely to get this education from parents or other family.
I think it's time to enact regulations to insure that every borrower is competent to borrow (ie; has the knowledge, skills, and abilities to make informed decisions) and that every consumer credit product is clear, direct, and explicit in terms, conditions, and outcomes.
If we accomplish good money skills for most citizens, we can achieve lasting and sustainable prosperity. If we try to accomplish economic equality by mandate, we only create a whole new dependent class of those whose prosperity is dependent on someone else watching out for them. That is not America.
It's time to teach people to fish, rather than giving them a fish.
Neither State governments, nor the Federal government keep track on the race of real estate ownership. Appraisals and loan applications prohibit any race information be provided anywhere in the loan process. No people are permitted in appraisal photographs, or even photographs of people are allowed in appraisals. To provide or even imply any race information in any documentation is a direct violation of Federal law. There is no way in hell these two authors have the ability to determine the race of the ownership of homes being foreclosed upon without researching each owner to determine the race. Since there are no public records based on race, they have noting from which to research. I openly and emphatically will challange the accuracy of this article. Not for one second do I believe it is accurate or can be defended.
If the minority areas are concerned about the large numbers of foreclosures, they should purchase them. Afterall, foreclosures typically sell for less than the owner occupied. Don't see this as a problem, see it as an opportunity to move the landlords out as they are foreclosed upon. Don't just blame some white guy who is willing to provide a section 8 home in your minority neighborhood.
Nowhere did I suggest the work I did was for charity. It was a business like any other. As far as being a good guy/bad, I probably did more to improve the neighborhoods I worked in than you have ever done. I replaced overgrown vacant lots with affordable housing, I tore down abandoned and condemned shacks to build new homes for people to live in. I worked with local non profit organizations to find QUALIFIED buyers for those homes. Yes, they were 100% minority buyers. Yes, some have been foreclosed upon but that's not my fault.
Today, I still have minority tenants. They can even buy the house from me at market value if they want. I can always build or rehab another. The homes are no longer in predominately low income areas. They are predominately middle class neighborhoods. They get along just fine there with no problems. No longer do I have air conditioner compressors being stolen, no longer do I have houses stripped of copper or torn up just for the fun of it. If you don't want a white guy in your neighborhood, you got it. I'm out, but I'm still willing to help other minorities out of the hood.
I understand you calling attention to outside investors, just not keen on your use of race in the matter. We can use less race baiting in this Country, and more dealing with the character and merit of the individual, oppose to their skin color, religion, or sexuality. The fact is that investors and Speculators contributed a great deal to the current housing crisis, and one way or another it all leads back to the Banks who allowed gave them all the opportunity, with full knowledge that they would package and sell the junk notes for a profit, and stick Fannie, and Freddie with the debt.
Fact is, the subprime lenders were heroes in 2005. Low-income people got houses, homeowners got richer as price of their house rose, they took out home equity loans and blew the money on good times. Greenspan marveled at how rising home prices made Americans richer, as if that is possible. In fact it made the old richer, the future home-buying young poorer.
If what article says is true, why did Barney Frank apologize? Aside from borrowers, blame is roughly in this order, according to a couple of polls of stockholders on finance sites:
1. Greenspan for keeping interest rates too low
2. Ameriquest for inventing the subprime loan
3. Clinton and his Congress for repealing Glass-Steagall
4. Wall St for taking advantage of same, creating CDOs and CDSs
5. Barney Frank's bill encouraging subprime lenders
It's one thing to create policy to enable people of lower incomes to be able to afford home ownership, it's an irresponsibility of the purchasers to buy outside their means.
As a result, almost nobody defaults on mortgages in Canada. They don't gamble like people in US do, assuming they can always declare bankruptcy and start over if they mess up. They buy a house they can afford, or they rent. Canada works in this case because of personal responsibility, not because of a welfare state.
??
The same white supremacists.
I was around for the fight for that legislation.
And I was for it.
The problem the CRA addressed and by a large degree solved was where LOCAL banks and other depository institutions were in OUR communities, taking OUR deposits and investing OUR money in other peoples communities.
In other words, they weren't lending OUR MONEY back to us, the communities out of which these deposits came.
The law, because of widespread racism in banking, forced them.
The law didn't force them to loan to us other peoples money.
Just our money.
The white supremacist then and now don't like it.
They want to continue STEALING our money for their nefarious means.
With the housing crisis, they just found another way to do it.
for past 3 years only foreclosures that actually occur (instead of initially filed) are for those that no longer want the homes, or for those repeatedly through multiple modifications, c-13 cases, and multiple foreclosure filings against the same house simply refuse to pay.
The OP in talking about "white investors" is speaking of rental property which is an infitessmally small % of total foreclosures. 70% of foreclosures happen to "non-pay" type people who can afford the monthly payments and simply don't pay because in effect under Obama nation there is no penalty for a good long while for declining payment. These are also the folks that initially were untruthful in their applications and their loans were processes by similar. that the great majority of these are minorities who'd be unable to recognize the truth if they saw it in church on Sunday morning is, shall we say, sort of conveniently overlooked by the OP.
I have already done my part to get out of the big banks for the 11/12/11 Bail Off.