latinos and the mortgage crisis: implications for asset building carolina reid, ph.d. and vivian...
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Latinos and the Mortgage Crisis: Implications for Asset Building
Carolina Reid, Ph.D. and Vivian PachecoFederal Reserve Bank of San Francisco
September 4, 2008
Analysis of First American LoanPerformance data provided by the Federal Reserve Board of Governors. Do not cite or reproduce without permission. The views expressed in this presentation are my own and not necessarily those of the
Federal Reserve Bank of San Francisco or the Federal Reserve System.
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A rosy start to the decade
Between 2002 and 2006, most indicators pointed to increasingly prosperous conditions for low-income families Low unemployment rate Increased uptake of Earned Income Tax Credit Increased homeownership
Homeownership rate among Latinos rose from 46.3 to nearly 50 percent between 2000 and 2006, an addition of more than 1.6 million Latino homeowners
CFED: nationwide, between 2002 and 2004 median net worth jumped 25.8 percent, to $65,150
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Unstable foundation
These wealth gains, however, were built on a shaky foundation Irresponsible mortgage lending products
Predatory, and certainly unaffordable
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Distribution of High Cost Lending: Los Angeles
Source: Home Mortgage Disclosure Act
HMDA 2004
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Source: Home Mortgage Disclosure Act
Distribution of High Cost Lending: Los AngelesHMDA 2005
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Source: Home Mortgage Disclosure Act
Distribution of High Cost Lending: Los AngelesHMDA 2006
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Latinos and subprime lending
Black and Hispanic borrowers are more likely to obtain higher priced—i.e. subprime—loans than are non-Hispanic white borrowers In 2006, 46.6 percent of loans made to white Hispanic
borrowers were higher priced, compared to 17.7 percent for white, non-Hispanics
While some of these differences may be due to different borrower profiles, a study by CRL found that these disparities remained true even after controlling for a variety of factors
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Percent of Hispanic Population
Source: Census 2000
Census 2000
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Unstable foundation
These wealth gains, however, were built on a shaky foundation Irresponsible mortgage lending products
Predatory, and certainly unaffordable Unsustainable growth in house values
According to Case-Shiller index, US house prices have dropped 18.8 percent since their peak in July 2006
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U.S. house valuesS&P/Case-Shiller Home Price Index: Composite 20
NSA, Jan-00=100
0807060504030201
Source: S&P/Case Shiller /Haver Analytics 09/03/08
220
200
180
160
140
120
100
220
200
180
160
140
120
100
Case Shiller Index (2000=100)
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Unstable foundation
These wealth gains, however, were built on a shaky foundation Irresponsible mortgage lending products
Predatory, and certainly unaffordable Unsustainable growth in house values
According to Case-Shiller index, US house prices have dropped 18.8 percent since their peak in July 2006
Over-reliance on credit 40 percent of families carry credit card balance Savings rate is a mere .04 percent Cash-out refinances: loss of equity
Rising foreclosures threaten to undermine homeownership gains
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Source: Mortgage Bankers Association, National Delinquency Survey, 1st Quarter 2008
Foreclosures concentrated in subprime ARM market
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Percent of Mortgage Loans in Foreclosure or REO (by zip code)
Source: McDash Analytics, LLC and FRBSF calculations
April 2008
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Percent of Mortgage Loans in Foreclosure or REO (by zip code)
Source: McDash Analytics, LLC and FRBSF calculations
September 2007
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Percent of Mortgage Loans in Foreclosure or REO (by zip code)
Source: McDash Analytics, LLC and FRBSF calculations
April 2008
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Who is affected?
Key question, but no easy quantifiable answer Oakland “drill down”
More than 50 percent have Hispanic surnames Interview results
Preliminary analysis of California data Using census data at the zip code level significantly
underestimates the proportion of families that are Latino SF Fed trying to develop better measures of who is
affected, early results show disproportionate impact on Latinos and some Asian groups
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Key challenges
Housing market instability Negative spillover effects on the neighborhood
Labor force vulnerability While Latinos comprise about 14 percent of the U.S. labor
force, they represent 33 percent of workers who involuntarily shifted to part-time work
Because more than half of Latino workers are immigrants and are more likely to be young and less skilled, they are more susceptible to economic cycles
State budget crisis 29 States face significant budget shortfalls, and propose to
cut programs such as public health, education, and programs for the elderly and disabled
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Implications for asset building Expand current asset building programs: critical to remember that
families who went through nonprofits have not seen widespread defaults
Bridge the divide between the poverty/income support and asset building fields Many low-income families will need access to critical income supports, a
broad based coalition could help to create a policy framework that supports both financial stability and asset building
Innovate in how we broker access to financial services and knowledge
Develop and market other asset building products that don’t rely on access to credit Is there a way for us to close the wealth gap that takes into account
current demographic, social, and economic realities?
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For more information, www.frbsf.org/community