foreclosure: the crisis that hits home

Foreclosure: The Crisis That Foreclosure: The Crisis That Hits Home  Hits Home 

2009 Washington StateAccess to Justice ConferenceJustice: Hope and Help in Hard Times

john a. powellExecutive Director, The Kirwan Institute for the Study of Race & Ethnicity and Williams Chair in Civil Rights & Civil Liberties, Moritz College of Law

The State of WashingtonThe State of Washington

The Foreclosure CrisisThe Foreclosure CrisisCommunities of

color and low-income communities were physically, socially and economically segregated from prime credit markets

People in these communities were subject to sub-par lending from rent-to-own to payday lenders to check cashing places that all charged exorbitant interest rates◦ And finally…

subprime home loans

ForeclosuresForeclosuresNearly half of all subprime loans went to

African American and Latino borrowers --- even though many qualified for prime loans

African American and Latino homeowners are expected to lose between $164 - $213 BILLION in assets due to the crisis

United for a Fair Economy, “Foreclosed: State of the Dream 2008”

The Impact of Concentrated The Impact of Concentrated Foreclosures in a Foreclosures in a neighborhoodneighborhood

Foreclosures pull wealth/equity and assets out of the neighborhood

Individuals strip personal savings (i.e. raid their 401(K)s to try and save the home

Widespread displacement which disrupts the neighborhood’s social fabric and creates instability for children

The growth of vacant property encourages crime, disinvestment and public safety risks

…Challenges which eventually ensnare all neighborhood residents

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Reverse RedliningReverse RedliningReverse Redlining – “practice of targeting

residents in certain geographic areas for credit on unfair terms due to the racial or ethnic composition of the area.”

Unlike redlining, which is denying prime credit to those communities, reverse redlining is targeting an area for deceptive, predatory, or otherwise unfair lending practices. Reverse redlining has repeatedly been held to violate the Fair Housing Act.

Reverse redlining requires the condition of residential segregation, often a product of twentieth century federal government, mortgage lender, and real estate industry practices.

Ex: BaltimoreEx: Baltimore In Baltimore, the neighborhoods with 90% African

American populations are at the center of the foreclosure crisis. This was a result of predatory practices. ◦ Two-Thirds of Wells Fargo’s foreclosures in 2005 to 2006

were in census tracts that were over 60% African-American, but only 15.6% were in tracts that were 20% or less African-American.

◦ Wells-Fargo loans in predominantly African-American neighborhood were four times as likely to result in foreclosures as a Wells Fargo loan in a predominantly white neighborhood.

◦ Wells-Fargo made high-cost loans to 65% of its African-American mortgage customers in Baltimore, but only to 15% of its white customers in Baltimore.

◦ An African-American borrower was 2.5 times more likely to be subject to a high cost refinance loan than a white borrower.

Baltimore: Baltimore: Foreclosure & Foreclosure & Race/IncomeRace/Income

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Ex: Institutionalized Ex: Institutionalized Disinvestment: Disinvestment: Redlining Map of PhiladelphiaRedlining Map of Philadelphia

From Redlining to

Reverse Redlining in Philadelphia

ConnecticutConnecticut

Columbus, OHColumbus, OH

Housing is Most of Our Net Housing is Most of Our Net WorthWorth

In 2000, home equity accounted for 75% of the assets held by the median U.S. household

African American homeownership gains were reversed after 2004; they have reverted to 2000 levels.

Austin, Algernon. “Reversal of Fortune.” EPI Briefing Paper #220 18 Sept. 2008.

The Miner’s Canary…The Miner’s Canary…

◦ Nationwide, nearly 55% of all high cost loans went to African American borrowers

◦ Experts estimate that the loss in home equity to African American and Latino homeowners will exceed a quarter of trillion dollars

◦ Direct asset loss (foreclosure) and loss in home value due to the geographic concentration of foreclosures in minority neighborhoods

Capital Market ‘Credit crunch’

Affected neighborhoods are being reduced to ‘ghost towns’

Reduced spending and retail flight

Families lose their homes, wealth and safety

Banks, police and courts saddled with foreclosures

SUBPRIME LENDING: We didn’t care about the canary...

An Uneven Recession…An Uneven Recession…

Since the recession began in December 2007:

Latino unemployment up 4.7 percentage points, to 10.9 percent

Black unemployment up 4.5 points, to 13.4 percent◦ Between November 2007 and March 2009,

black men experienced the highest rate of job loss among any gender or racial/ethnic group.

White unemployment up 2.9 points, to 7.3 percent

Bureau of Labor Statistics & http://www.msnbc.msn.com/id/29843053 & Marlow, Ron, and Andrew Sum. “A Job Crisis for Young Black Men.” The Boston Globe 22 Apr 2009.

The black-white median income ratio The black-white median income ratio has dropped below 1995 levels. has dropped below 1995 levels.

Black/White Median Income Ratio

60.9%

63.5%

60.2%

58.0%

59.0%

60.0%

61.0%

62.0%

63.0%

64.0%

1995 2000 2005

Year

Med

ian

In

com

e R

atio

Austin, Algernon. “What a Recession Means for Black America.” EPI Issue Brief # 241. 18 Jan. 2008.