One of the most disturbing aspects of the foreclosure crisis is how much damage it has caused in minority communities. Now, the activist group Committee for Responsible Lending (CRL) has spelled out the depth of the problem in stark detail.
Research by CRL found that about 17% of Latino homeowners and 11% of African American homeowners have already lost their home to foreclosure or are at imminent risk of doing so. The percentage among non-Hispanic white borrowers is 7%.
In terms of actual foreclosures, black and Hispanic borrowers are nearly twice as likely to have already lost their homes. The data shows that for every 10,000 loans made to African Americans, 790 foreclosures were completed, compared to 769 for every 10,000 loans made to Latinos and 452 for every 10,000 loans made to whites. As a result of these home losses, $193 billion in wealth will be drained from the African American community between 2009 and 2012, while the Latino community will lose $180 billion during that same period. Civil rights groups are outraged.
"The findings in this report describe the devastating impact that the casino culture of Wall Street and the mortgage industry is having on communities of color," said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, in a press release. "Instead of owning a piece of the American dream, these hardworking families have borne the brunt of an anything-goes regulatory system that has turned a blind eye toward predatory lending and the needs of vulnerable consumers, who may never recover the wealth they have lost. "
Irresponsible Lenders and Irresponsible Borrowers
CRL is often critical of the financial services industry, but its report underscores a trend the media has been reporting on for several years: Subprime lenders aggressively marketed their high interest and high fee loans to minorities. It's difficult to say how many of these borrowers should have gotten conventional 30-year mortgages.
It's also hard to say how many people deluded themselves into buying homes that they could not afford. In that situation, though, it takes an irresponsible lender to give money to an irresponsible borrower. Some conservatives have claimed that banks made risky loans to minorities to meet the requirements of the Community Reinvestment Act, an argument that has been refuted by Slate's Daniel Gross among others.
This CRL data, which also shows that people living near foreclosed properties in minority communities have seen their home values drop by more than $350 billion, underscores the need for a strong Consumer Financial Protection Agency (CFPA) to be part of the financial reform legislation working its way through Congress, according to activists. Business groups oppose the creation of the CFPA, saying that it adds a needless layer of bureaucracy to the system.
How about doing something that works? The federal government's mortgage-modification program has been a dismal failure: Data has shown many participants in the program wind up defaulting on their loans anyway. Some banks, including Bank of America (BAC), are reducing the principals of underwater mortgages on homes that are worth less than their outstanding balance. But such reductions are not being done often enough, because financial services firms are worried that they would lead to massive write-downs. The U.S. foreclosure rate is slowly improving, but it remains too high.
Unfortunately, the only sure-fire cure for the housing crisis is for the unemployment rate to be lowered -- easier said than done.
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