Are foreclosures racist?

By Felix Salmon
June 18, 2010
new report from the Center for Responsible Lending.

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If you’re a high-income Latino with a mortgage, you’re almost twice as likely to be facing foreclosure than a high-income non-Hispanic white person. And in general, the foreclosure crisis is hitting blacks and Latinos much harder than it is whites, according to a startling new report from the Center for Responsible Lending.

Overall, there have been 790 foreclosures per 10,000 loans to blacks, and 769 for Hispanics — compared to just 452 to non-Hispanic whites. And within every income group, the disparities are startling: here’s the chart.

disparity.tiff

The “Disparity Ratio” here is essentially the likelihood of being foreclosed upon, compared to the likelihood of a similar-income non-Hispanic white being foreclosed on. It’s interesting that the disparity ratio is pretty stable for blacks, but rises sharply with income for Latinos. I’ll hazard a guess and say that this probably has something to do with a lot of middle- and high-income Latinos in California and Arizona being sold subprime mortgages, even when they qualified for a prime loan.

Why would Latinos be more susceptible to being taken advantage of in that way than non-Hispanic whites? Now I’m really speculating, but it stands to reason that financial sophistication is a function not only of your income today but also of your family’s income when you were growing up. If rich Latinos are more likely to come from poor families than rich whites, then that might explain some of the disparity here.

Even so, it’s very depressing to see the results here. Already the median non-Hispanic white family reported $171,200 in net worth versus only $28,300 for non-white and Hispanic families, and this crisis is only making matters worse. The CRL reports:

The indirect losses in wealth that result from foreclosures as a result of depreciation to nearby properties will disproportionately impact communities of color. We estimate that, between 2009 and 2012, $193 billion and $180 billion, respectively, will have been drained from African-American and Latino communities in these indirect “spillover” losses alone.

Those are really big numbers. One might have hoped that blacks and Hispanics might have been less badly hit by the foreclosure crisis simply by dint of their much lower levels of homeownership. But it seems that isn’t the case.

Update: Barry Ritholtz reckons we might be seeing the effects of unemployment here, since unemployment, too, has hit blacks and Hispanics worse than whites. It’s a good point.

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Comments
22 comments so far

This was addressed early in the subprime crisis in the WaPo and NYT etc. A significant part of the answer being that members of minority communities were deliberately targetted by members of their own communities. That is, hispanics were falling victim to appraisal and broker fraud as they were seen as an easy mark by fraudsters from their own communities. The WaPo did a particularly good article on this way back – Hispanic and black mortgage fraud rings concentrated on making their pitch to their own communities, often selling subprime where the borrower could have afforded a prime mtg. (In fact there was a fairly recent example of this in north Dallas too, far away from the headline areas, people are now in jail) Very very sleazy, the newspapers had some quite appalling examples.

Posted by AbDabs | Report as abusive

I see you are really going for the provocative headline.

Obviously foreclosures aren’t racist. You gave the answer yourself:

“Already the median non-Hispanic white family reported $171,200 in net worth versus only $28,300 for non-white and Hispanic families, and this crisis is only making matters worse.”

If you have a cash pile available, you are much less likely to default, same as for corporations.

Posted by DanHess | Report as abusive

This is much more a story about geography than it is about race. Hispanics disproportionately live in the west and Florida (http://www.hispanictips.com/2005/08/12/ percent-of-hispanics-by-us-state-graph/) . That is also the locations where the biggest home price collapses and therefore the highest foreclosure rates occurred. Therefore, it would be surprising if Hispanics _did not_ have a higher share of foreclosures than whites did.

Posted by OneEyedMan | Report as abusive

Assets income.

Posted by MattJ | Report as abusive

Hmmm…..I wonder why this study didn’t include Asians?

Do you think that might have negated their conclusion a bit?

Ya think?

Posted by Nichols7 | Report as abusive

It goes deeper than that, but simpler analogies are called for.

Subprime mortgages were being sold like crack to easily-addicted people, not by accident but for a reason. Like crack addicts, only the hardiest and luckiest of subprimers would have the support network to make it through rehab onto prime territory. The rest were destined from the outset to get caught in the issuer’s web of deceit. And we all know what happens then – the world divides into lemmings with sympathy for the poor bankers, and humans.

Unless you believe in coincidence, similarities to the long con against Native Americans are compelling.

Posted by HBC | Report as abusive

I think this data is useful, but no proof for racism. You should also include the statistics of payment defaults by race. And of time between payment default and foreclosure.

As far as I know foreclosures don’t happen with lenders who are current on their loans. So the real question is: what does it take for a black person to lose his house through foreclosure vs a white person?

Posted by MarcVdB | Report as abusive

Some lending agencies were criminal operations, money launderers and many mortgage brokers were unlicensed. They are still being rounded up, but many are still in business… and Florida seems to have the most mortgage fraud or the best law enforcement. (and a high Hispanic population)

As Ab Dabs has said, the mortgage brokers were ‘selling’ the loans to those in their neighbourhoods who were higher risk.

When there was no one who wanted a home, they were lied to and talked into buying them, knowing that they couldn’t read the fine print, to feed the risky CDO business. How much was deliberate, being they were literally designed to default.

There have been lots of little guys sent to jail, but most are still operating and so far none of the big guys have been caught.

If sub prime mortgages contributed to nearly half of the foreclosure in the 10 years before the crunch, how is it that they more then doubled in the last 2 years before the bubble burst.

The fact that mortgage brokers represented not the borrower, but the lender (and who knows how corrupt and how far up) and often neither as they literally used the lender that offered them the best ‘fees’ or incentives. So yes, in some respects it was rascist in that non whites and the poor were targeted, so being almost half were destined to fail… the outcome of foreclosure has rascist overtones indeed.

Posted by hsvkitty | Report as abusive

Maybe the racism was in giving people who could, at best, marginally afford the homes mortgages that would spring on them like a bear trap just a few years later….

Posted by corcoran310 | Report as abusive

I note the are comparing completed foreclosures against originations. Wouldn’t it make more sense to compare against defaults?

Posted by Danny_Black | Report as abusive

I agree with One-Eyed Man. A disproportionate amount of Hispanics live in areas that pariticpated in the housing boom while a lot of the areas that did not participate are dominated by white populations.

Posted by ErnieD | Report as abusive

An extremely high proportion of Latinos are in construction and building jobs, which have gotten just decimated by the recession.

Areas of the economy that have seen fewer job losses, such as government and health care, have relatively few Latinos.

Posted by DanHess | Report as abusive

Totally meaningless data without comparing foreclosures for people of similar economic status: income and other demographics. If you just compare ethnic heritage to foreclosures, you will learn nothing about the “why” of foreclosures…

Posted by charlie1939 | Report as abusive

“One might have hoped that blacks and Hispanics might have been less badly hit by the foreclosure crisis simply by dint of their much lower levels of homeownership.”

According to the federal Home Mortgage Disclosure Act database, minorities received half of all subprime mortgage dollars nationally between 2004-2007. In California in 2006, minorities got 77 percent of all home purchase subprime dollars and 56 percent of total home purchase dollars.

Since the housing bubble was all about making skeevy loans to uncreditworthy borrowers, and those borrowers are disproportionately black and latino, the popping of the bubble was always going to hurt minorities. It was also pretty devastating to those who lent to them and the country at large.

“I’ll hazard a guess and say that this probably has something to do with a lot of middle- and high-income Latinos in California and Arizona being sold subprime mortgages, even when they qualified for a prime loan.”

Black and Hispanic borrowers underperform their credit scores, i.e. they are much more likely to default than whites with the same credit score and wealth. And generally speaking, they have much less wealth.

You have a lot to learn in this area, Mr. Salmon.

Posted by keypusher | Report as abusive

Mr Salom – I have a suggestion for “High Income Latinos” (and any-one else, for that matter) to avoid defaulting – pay your mortgage. Don’t buy homes you cannot afford. Find homes that you can afford. Then pay your mortgage.

It’s really simply. Pay your bills. I know this is an absolutely groundbreaking concept, for “minorities” – but it’s What White People Do. A top secret YT key to not defaulting.

And as far as “racism” – I am SICK TO BLOODY DEATH of “minorities” screaming “racism” EVERY time they do something stupid, wrong, or criminal. The real Racist are those that bring up Race.

STOP BLAMING WHITEY. PAY YOUR BILLS.

Posted by Denise22 | Report as abusive

Denise22, since you are “sick to bloody death of minorities screaming racism,” you are in the right place! No one screaming “racism” here at Felix Salmon Blog of any race, creed or color, that’s for sure!

Now, I suggest you read up a little on another thing done almost entirely, as it happens, by white people. It’s called investing in synthetic collateralized debt obligations and derivatives based on them. It may sound a little obscure, but it’s actually just the thing that made possible most of the bad mortgages that are making you so upset.

What happened to the bad mortgage or home equity loan after Mr. Whiner or Mr. Lazy or Mr. I-Can’t-Afford-It, or whoever you are mad at, took it from the bank (or whoever)? It didn’t just sit there in your local bank waiting for Mr. Whiner to come back and complain about it. It was sliced and diced and sold far, far away to some very hungry investors. This is what is meant by “there is a lot of blame to go around.”

Posted by SelenesMom | Report as abusive

Absolute must-read: Steve Sailer on the topic

http://vdare.com/sailer/100620_mortgage_ meltdown.htm

Posted by Zarzuela | Report as abusive

Zarzuela, that is not a must read, that is a man trying his dangdest to BLAME the housing bubble on non whites! he should have called his blog triple k instead… *shudders*

And Denise 22 is no doubt an angry 22 year old so she can be forgiven as 25 is the age where we can start to judge as the mind is pretty well as adult as it ever will be. I do hope she starts to read rather then just spout off in future.

Posted by hsvkitty | Report as abusive

Nonsense, just nonsense about imagined racism.
If certain groups can’t pay their bills, oh well..

Posted by r1000 | Report as abusive

So if an upper middle class white person loses their house (many many of them did) then its the bank’s fault, its the fault of morgages going way up, its the fault of minorities and a terrible and UNFAIR loss for white people.

BUT If an upper middle class minority loses their house, they are lazy and stupid and shouldn’t have bought the house in the first place. AND not only that, they caused white people to lose their houses TOO!

And yall don’t think you’re racist?!?

Read and inform yourselves. If you had minority friends, you’d know that they worked their butts off to get a good job and get that house. You’d know that they don’t have family memebers to advise them on getting a good morgage, because they come from poor families.

Why were minorities hit harder?

1. White people ussually come from families with money, so if they come upon hard times, they pick up the phone and get cash from mom and dad.

Minorities with money on the other hand often come from poor families. They have nothing to fall back on if they get sick or lose their job.

2. Unfair and RACIST morgage practices to minorities caused them to have a dispoportionate number of bad loan deals.

And WHY are minorities poor in the first place? Racist practices and assumptions like the ones above make it very very difficult to move up the social ladder. How will you get hired for a job when the employer thinks you’re lazy and stupid? Even if you went to harvard? How will you get a good morgage rate if the bank thinks you can’t pay?

Minorities just want to be treated with the same respect and privlege as white people in this country. And every time they point out a disparity, white people claim its all made up. I’m sorry, but statistics don’t lie.

Posted by meskarune | Report as abusive

Did you ever control foreclosures with unemployment

I suspect if you cross reference the two, you will s9olve the racist foreclosure quandry

IE, see http://www.epi.org/publications/entry/ib 270/

Posted by Ritholtz | Report as abusive

The problem is that you can turn down those with poor credit and be called racist or you can offer them credit with a higher interest rate to cover the anticipated losses and be called a racist and then when you have to foreclose on the defaulters you will be called a racist. Those looking for racists will always be able to find them according to their criteria.

Posted by streetsmart | Report as abusive
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