AP, Jan. 18, 2009
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Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data.
While minorities have made significant gains in wealth and home ownership since 1990, “things are going into reverse gear,” and now the homeownership rate for blacks and Hispanics is falling, said Edward Wolff, a New York University economist who studies income and wealth distribution.
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The AP’s analysis reveals the enormous scope of the U.S. housing market bust and how unevenly the burdens are spread, both geographically and demographically. And the situation is worsening—a record 10 percent of U.S. homeowners with a mortgage are at least one payment behind or were in foreclosure as of last fall, compared with 7.5 percent a year earlier and just under 6 percent in 2006.
The burden is clearly more arduous among minority households, the AP analysis found.
Just under a third of Hispanic homeowners spend at least 38 percent of their income on housing expenses, compared with about a quarter of Asian and black households and nearly 16 percent of white households.
In much of the country, the trend is more pronounced. For example, included among those who spent at least 38 percent of their income on housing are:
About 40 percent of black borrowers in California, Nevada, Oregon and Massachusetts.
More than 30 percent of Asian borrowers in California and Florida.
Nearly half of Hispanic homeowners in Rhode Island and at least 40 percent in Alaska, California, Florida, Hawaii, Maryland, New Jersey and New York.
Many Latino families wound up with expensive subprime mortgages because they often have cash income and no bank account, said Janis Bowdler, associate director for wealth building at National Council of La Raza in Washington.
It is common for Latino families to have stable incomes, but limited credit histories—and hence lower credit scores, which lenders use to gauge risk. Many have multiple sources of income, some of it in cash.
During the housing boom, consumer advocates say it was both faster and more profitable for mortgage brokers and loan officers to put Hispanic families in loans that didn’t require proof of income, but charged higher interest rates.
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Now, Hispanic households like the Cazares family of Visalia, Calif are caught up in the mortgage crisis. Out of work for more than a year after contracting a rare disease caused by an airborne fungus, Joel, 36, brings in $550 a week in disability payments. His wife Maria, 34, makes about that much money weekly by working as a hair stylist.
They haven’t made their $2,500 home loan payment in four months. The couple, who have three kids, have been waiting since October for a loan modification from IndyMac Bank, which was seized by the federal government last July. They hope it will bring their payment down to a more manageable level of around of $1,500.
In the meantime, they buy supersized bags of generic cereal to make ends meet. They’ve canceled their Internet service and are only using one of their two cars, a pickup truck, because it gets better gas mileage.
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As the pain from the mortgage crisis spreads, Washington is abuzz with talk of new efforts to stabilize the housing market and stop the freefall in home prices. President-elect Barack Obama has pledged to direct up to $100 billion in financial bailout money toward a sweeping effort to prevent foreclosures.
Frustrated housing counselors around the country say that if the Bush administration had grasped the severity of the foreclosure crisis earlier and enacted more ambitious programs long ago, the pain for American families and the economy might not be so severe.
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To be sure, housing counselors acknowledge that some borrowers only have themselves to blame. They clearly got in over their heads and many knowingly took out risky loans. But they also say that mortgage brokers and lenders took advantage of the elderly, immigrants and the unsophisticated.
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Original article
(Posted on January 19, 2009)
Comments
The headline of this article has the explanation for the problem. The “foreclosure crisis” demonstrates that the “era of minority gains” were due to cheating and faked up affirmative action mortgages.
The best solution IMO is to allow buyers to buy the homes at the auctions, but allow the inhabitants to remain as renters. The reason is that so many people on the street would cause chaos. Actually, some mortgages have the option of allowing the bank to take the title but allow the residents to continue living in the house in question.
There are many ways the problem of the Great Depression could be avoided, at least where having 20% of the population on the move goes…
Just remember that 20% of the population is a lot more now than it was in 1933. And also recall that it was mostly White and native born. Everything I can find on the period indicates also that Whites and Blacks were more civil to one another in that period than they are now. I can just imagine the likely response to a ’30s style beggar knocking at doors today for “a handout” in nearly 200 different languages!
“That’s especially true now that prices are falling and around 13 million households, or about one in four with a mortgage, owes more to the bank than their properties are worth, according to Mark Zandi, chief economist at economic forecasting firm Moody’s Economy.com.”
25%! That’s worse than I estimated. There’s supposed to be millions more defaulting and going bankrupt this year, but I never thought the figure was quite that high. If just 50% of them default, that will be 6.5 million forclosures. More if my estimate is low. Conceivable it could be all 13 million if the housing market drops even further. Who wants to make payments on a $150,000 mortgage on a home worth just $100,000?
No wonder so many business big wigs are predicting a doom and gloom scenario.
But they also say that mortgage brokers and lenders took advantage of the elderly, immigrants and the unsophisticated.
I was in the mortgage industry during the bubble, and I can assure you that it was co-ethnics taking advantage of blacks, hispanics and immigrants. Black mortgage brokers were the worst, making HUGE write-up loan fees on their subprime mortgages. It wasn’t unheard-of for them to charge 6 points to refi a deadbeat into a subprime mortgage with a pre-payment penalty. “I’ll hook you up, brutha!” Mexicans were almost as bad.
Shady mortgage brokers usually solicited immigrant customers within their country of origin and sometimes even by foreign provinces within countries of origin! If subprime borrowers were from Cameroon, Vietnam, Guatemala, Liberia, a particular section of Mexico, etc…yup, there was a broker from their tribe salivating to “refinance” them!
Recent 3rd world immigrants don’t even read the papers if someone from their village tells them to sign the dotted line. They do business with whoever speaks their language and is recommended by a family member or friend; they don’t bother to research anything, but they usually blame the bank for misunderstanding the contract they signed. Remember that next time you hear a sob-story on the news.
WRT to the current credit crisis,I have been researching the role of the “Community Reinvestment Act of 1977” and the resultant Fanny Mae and Freddie Mac government handouts to people of color.
There is CLEARLY a connection to the 12 trillion dollars of defaulted properties financed by Freddy and Fanny.
Looks like some others have been sniffing around this pile of mortgage poop as well…
” “THEY GAVE YOUR MORTGAGE TO A LESS QUALIFIED MINORITY!”
Coulter is putting forward an argument popular among besieged conservatives, that “social engineering” is the root cause of the current economic crisis — in the form of a 31-year-old law passed during the Carter administration by a Democratic Congress, the Community Reinvestment Act of 1977, “intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.”
In Coulter’s words, traditional yardsticks of a mortgage applicant’s ability to make payments were replaced with “nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named ‘Caylee’;” the result, Coulter continues, is that “middle-class taxpayers are going to be forced to bail out the Democrats’ two most important constituent groups: rich Wall Street bankers and welfare recipients.”
To make sure her meaning is clear, Coulter echoes a line from the famous anti-affirmative action “White Hands” commercial Jesse Helms used in his 1990 campaign against black challenger Harvey Gantt. The ad shows a pair of white hands crumpling a job rejection slip as the voiceover intones, “You needed that job, you were the best qualified. But they have to give it to a minority because of a racial quota.”
Coulter is in the forefront of a concerted drive to shift the partisan consequences of the collapse on Wall Street from helping Democrats to favoring the GOP. To this end, conservatives have initiated a racially explosive argument, shifting the blame for the current economic crisis to legislation designed up improve access to mortgage financing for African Americans, other minorities and residents of low-income neighborhoods generally.”
http://www.huffingtonpost.com/2008/10/01/conservatives-seek-to-shi_n_131020.html
Found an excellent followup on the minority extortion CRA by Loyola University professor of economics Thomas J. DiLorenzo:
http://www.lewrockwell.com/dilorenzo/dilorenzo125.html
“The thousands of mortgage defaults and foreclosures in the “subprime” housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call “communities of color” that they might not otherwise make based on purely economic criteria.
The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various “neighborhood organizations,” as they like to call themselves, such as “ACORN” (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.
So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the “Neighborhood Assistance Corporation of America.” He once boasted to the New York Times that he had “won” loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one “community group” operating in one city – Boston.
Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.
Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as “subprime” loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.
But this is discriminatory!, complained the “community organizations.” Thus, if one browses the ACORN web site, one can read of their boasts of having “predatory lending laws” passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to “subprime” borrowers.
These are price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above. So-called predatory lending laws therefore force the banks to “eat” the losses. This is undoubtedly a contributing factor to the bankruptcy of dozens of mortgage lenders over the past year.
Then of course there is the issue of the Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA. They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.
The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward. Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the “subprime” mortgage meltdown.
Don’t expect to read about this in the “mainstream media,” however, which generally views groups like ACORN as heroic champions of the poor, laws like the CRA as anti-discrimination laws, and places all of the blame for the subprime mortgage meltdown on greedy capitalists, especially mortgage brokers. Encouraged by such reporting, the odious Senator Charles Schumer of New York has promised federal legislation that will reign in these miscreants, while the Bush administration is proposing an indirect bank bailout by having the Federal Housing Administration cover many of the bad “subprime” loans. This will create what economists call a “moral hazard” by encouraging even more bad loans to be extended in the future. Every banker in America will be glad to extend loans (at high rates of interest) to the most uncreditworthy borrowers if he thinks there is no possibility of default with the FHA effectively guaranteeing the loan.
After viewing THIS www.youtube.com video from C-span…I rest my case!
http://www.youtube.com/watch?v=usvG-s_Ssb0&feature=related
“Inequality in America has traditionally followed familiar patterns of race, age and education”
Let’s face fact. Blacks and hispanics, especially hispanics, are much more likely to drop out of school or not go on to college,despite the fact that they can get any university aid from the government they want. Blacks/hispanics are also more likely to be single parent families with absentee fathers and blacks and hispanics have kids on average at a younger age, have more kids than whites and are much more likely to have multiple kids out of wedlock. Thus on average, they have a “inequality of household income”. Ooops wait a minute, blacks/hispanics can’t be at fault for anything, it’s all whitey’s fault. Sorry, my mistake.
