Dr. Phillips

12MM foreclosed homes by 2012 1 in 8 US homeowners with mortgages are in

foreclosure or behind on mortgage payments Percentage of US mortgages 90 days or more

delinquent and in foreclosure hit an all time high during the 2nd quarter of ’09.

Mortgage delinquencies are rising sharply in high-income, predominantly white enclaves

Lending continues to fall Blacks experienced the sharpest reversal in

homeownership rates in recent years

(A) Give an historical overview

of homeownership and African Americans

(B) Discuss the impact of the current and still unfolding crisis in the home finance

market on African Americans

(C) Offer

a set of recommendations that

can help African Americans and other

minorities prevail in this crisis, and that can potentially help us

increase home ownership over the long

run.

There  is a long history of unfair housing and lending practices in the United States.

Before the 1900s housing was segregated not by race but by economic conditions.

After this period, restrictive covenants were enacted that forbade whites from selling their property to blacks, or allowing blacks to otherwise occupy the home.

Although the Supreme Court ruled against this practice in 1948, it continued through the 1950s.

“Without any past or current discrimination to prevent blacks from accumulating housing at the same rates as whites, the housing wealth of blacks would be $487 billion higher than it actually is” John Yinger, 2005.

The Pruitt-Igoe project in St. Louis 

1930-1940

During the ‘40s and ‘50s the federal government not only relied on the HOLC ratings when making VA and FHA lending decisions, but recommended the use of restrictive covenants that had been deemed to be unenforceable and contrary to public opinion in 1948.

By guaranteeing loans made by private parties, the FHA and VA transformed the residential housing market and allocated millions of dollars to the housing industry during the postwar era.

This provided momentum for the rapid suburbanization of the US after 1945 and contributed significantly to the decline of the inner city by encouraging the selective out-migration of middle-class whites to the suburbs while blatantly ignoring the lending needs of the black urban core (Massey, 2008).

By the late ‘50s, many blacks turned to speculators.

White speculators bought property at low prices and would quickly resell the property to a black buyer who would then pay two to four times the original cost.

If black purchasers missed even one payment, the white property owner would evict the occupants and resell the property.

The black purchaser was not given title to the building until the entire debt had been paid (Satter, 2009).

The economic impact of this practice was enormous as blacks were routinely grossly overcharged by real estate agents and speculators, and none of the money invested in the property was recoverable.

This scenario is eerily similar to the recent subprime crisis, but the speculator has transformed into a “legitimate” financial institution.

In 1975, HMDA was enacted Not until a 1989 amendment to HMDA requiring

banks to include in their annual filing the number of loan applications accepted/rejected by race that it became possible to uncover differences in lending patterns between whites and non whites (Phillips, 2003).

For every one rejection of a white loan application there were three rejected applications for blacks. More important, the difference in rejection rates could not be attributed to non-racial factors (Phillips & Scannell, 2003).

All Subprime Loan Predatory

All Predatory Loans Subprime

This pattern of discrimination in mortgage lending continued throughout the ‘90s

Due in part to technological advances, discrimination in lending continues with lenders providing credit on discriminatory terms—this is predatory lending

In 1995, the top 25 subprime loan originators controlled 39.3% of the market; by 2003 the top 25 originators controlled 93.4% of the market

Originated roughly 80% of the subprime loans made

A larger percentage of total loans are made in predominately black census tracts than prime lenders

Barely 1 in 10 traditional commercial banks were in inner-city, minority neighborhoods

Five times more visible in black neighborhoods than in white neighborhoods

52.4% of African American families hold subprime loans

Black middle class has been hit the hardest by the foreclosure crisis and are five times more likely to hold high-interest subprime mortgages than whites of similar or even lower incomes

At least 33 percent of the subprime mortgages originated went to borrowers with credit scores that should have qualified them for conventional prevailing-rate loans

6 times more likely than a prime borrower to go into foreclosure within 2 years of origination

Default rates are 7 times those for prime borrowers

Individual African Americans have not had the same

opportunities as whites to own homes and build wealth.• Black homeowner pays 3% more than white

homeowner, adding over $100,000 Persistent lending discrimination has

prevented minorities from gaining a financial footing so that they can qualify for low-cost loans. • Black homeowners frequently pay over 50% of

income for housing

At least a 1% decline in the value of homes in proximity to foreclosed properties. Some estimates are as high as 9.7%

For each 1% increase in neighborhood

property-tax delinquencies, sales prices fall $778 per home

Costs to cities of resolving abandoned and foreclosed residential properties range to upwards of $40,000 per home

Vigorous enforcement of current housing laws: FHA and ECOAo Make it Easier for Private Plaintiffs to Prove Lending Discrimination

Support new legislative initiativeo The Community Reinvestment Modernization Act of 2009o The Mortgage Reform and Anti-Predatory Lending Act o Housing Fairness Act of 2009 o Home Ownership and Equity Protection Act (HOPEA) o Consumer Financial Protection Agency

Other Measureso Making Subprime Prices Comparable and Transparento Making Prime Market More Accessible by Improving Automated

Underwritingo Make homeowners wholeo sue those responsible for fraudulent activitieso Institute inclusionary zoning laws

The housing and related economic crises are inextricably linked to the pervasive forces of inequality and uneven investment of the past

It is important that policy makers focus on sustaining homeownership while providing housing that is affordable to all.