by Doug Miller
The home foreclosure crisis isn’t even halfway over, according to a new report. Ethnically targeted mortgaging practices between 2004 and 2008 have left one quarter of all Latinos and African Americans either without their homes, in foreclosure, or seriously delinquent. “Blacks and Latinos were much more likely to receive high-interest subprime loans and mortgages with prepayment penalties.”
Blacks/Latinos Hit Particularly Hard As Mortgage Crisis Lingers
by Doug Miller
This article previously appeared in The Defenders Online, a publication of the NAACP Legal Defense and Educational Fund.
“Overall, low- and moderate-income African Americans and middle- and higher-income Latinos have experienced the highest foreclosure rates.”
Despite a staggering 2.7 million loans having already ended in foreclosure, a new report from the Center for Responsible Lending (CRL) says America isn’t even half way through its mortgage crisis: Another 3.6 million mortgages are likely to fail over the next several years.
The study, Lost Ground, 2011, also found that low- and moderate-income African Americans and Latino Americans have suffered a disproportionate share of losses. They’ve lost their homes at a clip that’s 80 percent higher than the rate for comparable white households – often because they were subjected to predatory home loans structured around prepayment penalties, interest rate resets of less than five years, negative amortization and interest-only payment schedules.
Among the key findings of the report, which studied home loans made by banks and mortgage brokers from 2004 through 2008, is that fact that – while the majority of affected borrowers have been white – black and Latino borrowers were almost twice as likely to have suffered losses. “Approximately one quarter of all Latino and African-American borrowers have lost their home(s) to foreclosure or are seriously delinquent,” according to the research, “compared to just under 12 percent for white borrowers.”
Good May Not Get You Better
Additionally, the CRL report found that black and Latino borrowers who qualified as good credit risks were more likely to receive a high-cost mortgage with risky and questionable payback features. In fact, African Americans with 660-plus+ FICO scores received high-cost mortgages more than three times as often as white borrowers. FICO, or Fair Isaac Corp., is a public company that provides analytics used by financial services companies to make decisions about the credit-worthiness of potential borrowers. Consumers Union, the non-profit publisher of Consumer Reports, says a borrower with a score of 660 or greater is considered to be of less risk to a lender, while a score of 620 or lower is a poor credit rating.
The CRL report goes on to suggest that racial differences in foreclosure rates persist regardless of borrower income levels.
“Racial and ethnic disparities in foreclosure rates cannot be explained by income,” according to the report, “since disparities persist even among higher-income groups. For example, approximately 10 percent of higher-income African-American borrowers have lost their homes to foreclosure compared with 4.6 percent of higher-income, non-Hispanic white borrowers. Overall, low- and moderate-income African Americans and middle- and higher-income Latinos have experienced the highest foreclosure rates.”
“There’s something wrong with this picture.”
The study found, as well, that blacks and Latinos were much more likely to receive high-interest subprime loans and mortgages with prepayment penalties.
Asked if those discoveries suggested racial discrimination in the structuring and approval of mortgages during the period of the study, CRL spokesperson Kathleen Day said that, while it would be difficult to ascertain intent, “There’s something wrong with this picture. There’s a pattern here that’s troubling. Banks have some explaining to do.”
Projecting that 3.6 million additional mortgages likely will result in foreclosure during the next few years, the report concludes by placing a good deal of responsibility squarely at the doorsteps of banks and mortgage brokers. “While some blame the subprime disaster on policies designed to expand access to mortgage credit, such as the Community Reinvestment Act and the affordable housing goals of Fannie Mae and Freddie Mac (government-sponsored mortgage enterprises), the facts undercut these claims.
“Rather,” the study continues, “dangerous products, aggressive marketing and poor loan underwriting were major drivers of foreclosures in the subprime market.”
Doug Miller is a writer living in Westchester County, New York.