Minorities hit harder by foreclosure crisis
Saturday, June 19, 2010
Minority homeowners have been disproportionately affected by the foreclosure crisis and stand to lose homes at a faster pace than white borrowers in the future, according to a report released Friday by a nonprofit research group.
The study by the Center for Responsible Lending found that whites made up the majority of the 2.5 million foreclosures completed between 2007 and 2009 -- about 56 percent -- but that minority communities had significantly higher foreclosure rates.
While about 4.5 percent of white borrowers lost their homes to foreclosure during that period, black and Latino borrowers had 7.9 and 7.7 percent foreclosure rates, respectively. That means that blacks and Latinos were more than 70 percent more likely to lose their homes to foreclosure during that period, the study found.
Overall, blacks lost about 240,020 homes to foreclosure, while Latinos lost about 335,950, according to the study, which analyzed government and industry data on millions of loans issued between 2005 and 2008 -- the height of the housing boom.
The "analysis suggests dramatic differences in how the foreclosure crisis has affected racial and ethnic groups," the report said. "African American and Latino borrowers have borne and will continue to disproportionately bear the burden of foreclosures."
The study is the latest to examine the housing crisis and its disparate impact on minority communities. A study by the National Community Reinvestment Coalition released in April found that black and Latino homeowners in the Washington region were almost 20 percent and 90 percent more likely, respectively, to face foreclosure or lose their homes than similarly situated whites.
Housing experts have pointed to a variety of factors to explain the disparity, including higher unemployment rates in minority communities and traditionally fewer financial resources for black and Latino borrowers to fall back on.
But the Center for Responsible Lending's study found that the disparate foreclosure rates also apply to well-to-do homeowners. High-income black borrowers, for example, were 80 percent more likely to lose their homes to foreclosure than their white counterparts, while Latino borrowers were 90 percent more likely.
Research has shown that minority borrowers were more likely to receive subprime loans during the housing boom even if they had credit scores, incomes and loan sizes similar to those of whites. Some housing experts say that minority borrowers received higher rates on subprime loans compared with similarly situated white borrowers, resulting in higher monthly payments and quicker defaults.
"I think it reflects that minority borrowers were targeted by the sellers of these [risky] mortgages," said Barry Zigas, director of housing and credit policy at the Consumer Federation of America.
The Treasury Department has said it will collect data on the racial makeup of homeowners helped under its Making Home Affordable foreclosure-prevention program. That program's standards and processes should minimize disparities between how homeowners are treated, lending industry officials have said.
"It is incumbent upon us to make sure that we look at all of the options" under the federal program to help all homeowners, said Faith Schwartz, senior adviser and consultant to Hope Now, an industry group. "We can always step back and say, 'Is there anything more that can be done to neutralize any negative impact on minorities or borrowers' " with particularly risky types of loans.
In addition to the millions of borrowers who have already lost their homes, about 5.7 million are at risk of foreclosure, the report said. About 494,930 blacks and 731,660 Latinos are at imminent risk of foreclosure, the report said.
The report comes as government foreclosure-prevention efforts falter and banks make their way through a backlog of seriously delinquent homeowners and repossess homes at a higher rate. Economists expect distressed properties to be a drag on the housing market for years, particularly if high unemployment levels persist. Moody's Economy.com estimates that more than 1.5 million homes will be lost to foreclosure this year.