For the last three decades, home ownership has served as the gateway to the middle class for Black Americans, and a means toward wealth generation. The Black middle class that began to emerge in the 1970’s consists of first-generation homeowners who planted the seeds for generational wealth accumulation based upon the value of their homes. It all seemed to be working out fine but then the recession hit, precipitated by a mortgage meltdown and suddenly the American dream turned into a national nightmare for many Black homeowners.
A new report from the Center for Responsible Lending (CRL), “Foreclosures by Race and Ethnicity: The Demographics of a Crisis,” details how Blacks have been particularly hit hard by the current mortgage crisis. Overall, the CRL reports that 2.5 million foreclosures were completed from January 2007 to the end of 2009, and most were for owner-occupied properties. Though the majority of families affected were non-Hispanic and white, African Americans were disproportionately affected. Between 2007 and 2009, Blacks experienced 790 foreclosures per 10,000 mortgage loans compared to 452 for non-Hispanic whites. The data indicates that among recent borrowers, nearly 8% of Blacks and Latinos lost their homes to foreclosures compared to 4.5% of whites.
According to the report Blacks are more likely to be at imminent risk of foreclosure (21.6%) compared to 14.8% of white borrowers. As a share of the population of homeowners as of 2006, CRL found that 11% of Black homeowners already have lost or at imminent risk of losing their home. In whole numbers, the Center for Responsible Lending estimates that Black families have lost 240,020 homes since the beginning of the mortgage crisis, and that 494,930 families are at imminent risk of foreclosure. The crisis extends beyond the immediate homeowner as certain “spillover” costs associated with foreclosed properties has an impact on the surrounding neighborhood. These costs are attributed to loss of tax revenue, police and fire expenses related to abandoned properties and the resulting neighborhood blight that affects the value of neighboring occupied housing. The report projects that between 2009 and 2012, $193 billion will be drained from African American communities due to these spillover costs.
While high unemployment and living beyond their means is often faulted by some for Blacks high rate of home foreclosures, the CRL report identifies the proliferation of the subprime mortgage market as the primary culprit. The emergence of mortgage brokers and Wall Street’s development of exotic investment products based upon riskier loans fueled the mortgage meltdown, and Blacks were primary targets. Subprime loans often offered low, “teaser” interest rates that would balloon into higher rates, and would, unbeknownst to many borrowers, come packaged as adjustable rate mortgages (ARM’s) as compared to a fixed rate loan. Previous research by the Center for Responsible Lending revealed that African American and Latino borrowers were 30% more likely to get subprime loans at higher rates than white borrowers were with similar risk characteristics. Loan originators targeted traditionally underserved communities and steered borrowers of color to higher cost and higher risk loans. Contrary to myths perpetuated regarding subprime borrowers, the majority of the loans they received refinanced an existing home or paid for home improvements, and not to purchase properties that was beyond the owner’s financial means.
Against this backdrop, the CRL indicates that government enforcement of housing anti-discrimination laws was virtually non-existent. The primary regulator of banks, the Office of the Comptroller of the Currency (OCC) brought only four formal enforcement actions under the Equal Credit Opportunity Act (ECOA) between 1987 and July 2009. In addition, the OCC made no referrals to the Department of Justice for cases involving race discrimination in mortgage lending between 2000 and 2009.
The long-term impact of foreclosures on Black households is the loss of family wealth that translates into fewer opportunities for economic advancement for future generations, and the deterioration of neighborhoods. The fallout is not restricted to lower-income households; the Black middle class is also sinking under the weight of foreclosures, as many homeowners now own properties that are “underwater,” with mortgages that are more than the value of their homes. The Center for Responsible Lending report highlights the implosion of the housing market in Prince George’s County, Maryland. The county was once heralded as a haven for the Black middle class but it is now the epicenter of the foreclosure crisis in the state of Maryland. It is not alone. Across the country, Black neighborhoods are spotted with “for sale” signs. The dream of homeownership has faded quickly in the Black community and there is every indication that the situation will get worse before the foreclosure crisis ebbs.