King's Dream Deferred, One More Victim of the Subprime Mortgage Crisis
As we spend this month celebrating the achievements of African Americans, I'm saddened by a report that concludes that the subprime mortgage crisis has caused the largest loss of wealth for black and Latino homeowners in modern U.S. history.
The erosion of wealth is staggering.
Subprime borrowers of color will lose between $164 billion and $213 billion for loans taken in the past eight years, according to United for a Fair Economy, a nonprofit, nonpartisan organization. For the past five years, the group has examined the racial wealth divide in this country.
UFE is the latest organization to try to put a dollar figure on the losses resulting from the proliferation of subprime loans. And while some might want to dismiss the findings in the group's report as alarmist, one fact is clearly troubling: Minorities have been hit hardest.
Black borrowers will lose between $72 billion and $93 billion, and Latino borrowers will lose between $76 billion and $98 billion, UFE reports.
"The dream of economic stability and opportunity for everyone living in the U.S., so eloquently described by Martin Luther King Jr., is bound up with homeownership, the most significant source of wealth for most people," said Dedrick Muhammad, senior organizer and research associate at the Institute for Policy Studies and co-author of the UFE report.
Of late, much has been made of blacks' buying power. A study by the University of Georgia's Selig Center for Economic Growth put black spending at about $845 billion last year. That spending is projected to top $1.1 trillion by 2012. The center describes this buying power, or disposable income, as the total personal income available for spending on goods and services after taxes.
However, it's not enough to consider what people will spend. Wealth is created by what you keep and invest or save. It's also created when people own appreciable assets, such as a home.
"As income comes and goes like a flowing river, wealth -- what you own minus what you owe -- is a reservoir to handle hard economic times, make large purchases, help secure the future of new generations, and protect individuals and families as they age," the report said.
As UFE points out, homeownership is key to achieving economic security. Nearly 60 percent of the total wealth held by middle-class families exists in their home equity. Although home values are declining, owning a home is still the biggest wealth equalizer.
The housing crisis has affected many communities regardless of race or income, but it has disproportionately affected minorities. That's because people of color are more than three times as likely to have subprime loans, the UFE found.
High-cost subprime loans account for 55 percent of loans to blacks but only 17 percent of loans to whites, the UFE report said.