A recent report by United for a Fair Economy has found that the subprime lending crisis has cost the greatest wealth loss to people of color in modern United States history. The loss–documented in a report titled “Foreclosed: State of the Dream 2008“–is estimated to be between $164 and $213 billion. The report argues that this is the consequence of housing discrimination against people of color.
The report explains how the subprime crisis became a racial issue:
“At the beginning of the twenty-first century, millions of people at the lower end of the economic spectrum face a new obstacle, one that has spread its tentacles across the country and across the globe. a financial product intended for limited use by a limited number of people has been parlayed into another ill-fated bubble by some mortgage lenders lacking in integrity, foresight, and any vestige of civic concern. The crisis has ruined many economic lives and many communities. It has cost the financial institutions that underwrote massive numbers of shaky subprime loans hundreds of billions of dollars. of a government bail-out. These losses triggered an economic crisis, the end of which we have not yet seen. And the next chapter in the subprime crisis could well be a deep US economic recession.
More important than all of these consequences is the targeting of people of color and poor people as the best candidates to sign up for one of these loans. In the hands of the mortgage lending industry, subprime loans became predatory loans–a faulty product that was ruthlessly hawked even though financial institutions were aware of its defects. Even a surface check of the demographics shows that, in city after city, a solid majority of subprime loan recipients were people of color.”
The key findings of the report:
* We estimate the total loss of wealth for people of color to be between $164 billion and $213 billion for subprime loans taken during the past eight years. We believe this represents the greatest loss of wealth for people of color in modern US history.
* From subprime loans, Black/African American borrowers will lose between $71 billion and $92 billion, while Latino borrowers will lose between $75 billion and $98 billion for the same period.
* According to federal data, people of color are more than three times more likely to have subprime loans: high-cost loans account for 55% of loans to Blacks, but only 17% of loans to Whites.
* If subprime loans had been distributed equitably, losses for white people would be 44.5% higher and losses for people of color would be about 24% lower.
* Based on improvements in Median Household Net Worth before the current crisis (from 1982 to 2004), it would take 594 more years for Blacks/African- Americans to achieve parity with Whites. The current crisis is likely to make it take much longer.
* Homeownership rates for Blacks/African-Americans compared to Whites are already starting to take back recent gains. At the current rate of improvement (from 1970 to 2006), parity will not be achieved for another 5,423 years.
* The spillover effect of the subprime crisis affects whole communities negatively, in terms of abandoned houses, increased crime, devaluation of neighboring houses, and erosion of the tax base, causing revenue shortfalls that mandate service cuts. The crisis is having a negative impact on poroperty owners, as well as neighborhoods, and local and state governments.
* Rules made the crisis worse, and rule change can make it better via better policies. Just as many policies in the past and today have supported asset development for the wealthy, so can new policies support asset development for those injured by the subprime crisis.
* Broad racial and economic inequalities need to be addressed for the success of any policy solutions to the subprime crisis.
Moreover, the racism around foreclosures and sub-prime loans must be put into the context of significant inequalities between whites and African-Americans. Some statistics included in the report:
* Forty-six percent of people of color own homes compared to 76% of their White counterparts
* A quarter of the Black population lives in poverty compared to 8% of Whites
* People of color are three times as likely as their White counterparts to live in poverty
* White median family income is more than twice Black median family income
* For every dollar of White wealth, people of color have 15 cents
In Grand Rapids, foreclosures could have a similar economic impact. A study released last fall by the neighborhood group ACORN documented the potential costs of the current rate of foreclosures. The study estimated that 521 of the high-cost loans made to in 2006 are likely to go into foreclosure, meaning a conservative loss of some $45 million for Grand Rapids area economy. Unfortunately, ACORN’s numbers for Grand Rapids do not mention race.
ACORN continues to organize on the issue and recently held a protest at a Department of Veterans Affairs (VA) office. ACORN offices across the country held protests due to the VA’s work with a company called Ocwen that has been unwilling to work with borrowers facing foreclosure. The local ACORN office can be reached by phone at 616-233-7518.
Additionally, Michigan Attorney General Mike Cox’s office is hosting a series of “Avoid Foreclosure” events. A February 14 event is planned in Grand Rapids and will take place from 12:00pm – 7:00pm at the DeltaPlex.