The untold costs of subprime lending: examining the links among higher-priced lending, foreclosures and race in California (original) (raw)
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Revisiting the subprime crisis: The dual mortgage market and mortgage defaults by race and ethnicity
Journal of Urban Affairs, 2016
The impacts of the foreclosure crisis have been widespread, catalyzing the worst economic downturn since the Great Depression and leading to dramatic declines in housing equity and wealth. However, Black and Hispanic households and communities have been disproportionately affected by the crisis, contributing to a tightening of credit standards and a retrenchment of lending in these communities. This study uses a unique, national data set of purchase mortgages originated between 2004 and 2007 to examine the racial and ethnic dimensions of subprime lending practices that were prevalent during the boom and explores the role that these lending practices had on subsequent rates of default. This study thus contributes to the debate on the causes of the housing crisis and its implications for racial inequality in America. Between 2006 and 2013, approximately 13.7 million homes entered the foreclosure process (RealtyTrac, 2015), and by some estimates, at least 9 million households in the United States lost their homes to foreclosure (Hall, Crowder, & Spring, 2015). The impacts of the foreclosure crisis have been widespread, catalyzing the worst economic downturn since the Great Depression and leading to dramatic declines in housing equity and wealth. The full toll of the crisis has yet to be revealed, but research has established links between foreclosures and a wide range of negative outcomes that extend beyond the financial, including adverse impacts on health and children's
William Mary Business Law Review, 2015
For decades the agencies charged with minding the 'fair credit and lending' shop turned a blind eye to those (lenders) who pilfered minority homeownership (and consequently minority wealth) by extending mortgage lending products that were, in many cases, unequal to similarly situated non-minority counterparts. Since the 1950s, when the federal government endorsed homeownership policies for minorities, and the 1960s, when antidiscriminatory lending laws were enacted, access to fair mortgage credit has been unattainable. Unbridled lending discrimination culminated in massive foreclosures for a disproportionate number of minority homeowners during the Housing and Foreclosure Crisis. Lenders disparately foreclosed upon upper class, middle class and lower class minority homeowners. The effect of these foreclosures widened homeownership gaps between whites and minorities. Foreclosures were more prevalent for minority homeowners regardless of economic class. Lending discrimination, and subsequent forfeiture of homes, undoubtedly altered the perception of the American Dream, and resulted in losses of generational wealth for minorities, furthered racial segregation and prolonged the stagnancy of the real estate market. Unquestionably then, lending discrimination is not a minority problem, but is an American problem. Therefore, agencies with jurisdiction to enforce lending and credit laws must, first, duly enforce these laws and, second, create civil or criminal mechanisms that effectively and finally eliminate unfair lending.
Race, Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse
Social Problems, 2015
In this article, we describe how residential segregation and individual racial disparities generate racialized patterns of subprime lending and lead to financial loss among black borrowers in segregated cities. We conceptualize race as a cumulative disadvantage because of its direct and indirect effects on socioeconomic status at the individual and neighborhood levels, with consequences that reverberate across a borrower’s life and between generations. Using Baltimore, Maryland as a case study setting, we combine data from reports filed under the Home Mortgage Disclosure Act with additional loan-level data from mortgage-backed securities. We find that race and neighborhood racial segregation are critical factors explaining black disadvantage across successive stages in the process of lending and foreclosure, controlling for differences in borrower credit scores, income, occupancy status, and loan-to-value ratios. We analyze the cumulative cost of predatory lending to black borrowers in terms of reduced disposable income and lost wealth. We find the cost to be substantial. Black borrowers paid an estimated additional 5 to 11 percent in monthly payments and those that completed foreclosure in the sample lost an excess of $2 million in home equity. These costs were magnified in mostly black neighborhoods and in turn heavily concentrated in communities of color. By elucidating the mechanisms that link black segregation to discrimination we demonstrate how processes of cumulative disadvantage continue to undermine black socioeconomic status in the United States today.
Racial Segregation and the American Foreclosure Crisis
American sociological review, 2010
The rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-identified in the literature, but it was also a highly racialized process. We argue that residential segregation created a unique niche of minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets. We test this argument by regressing foreclosure actions in the top 100 U.S. metropolitan areas on measures of black, Hispanic, and Asian segregation while controlling for a variety of housing market conditions, including average creditworthiness, the extent of coverage under the Community Reinvestment Act, the degree of zoning regulation, and the overall rate of subprime lending. We find that black residential dissimilarity and spatial isolation are powerful predictors of foreclosures across U.S. metropolitan areas. To isolate subprime lending as the causal mechanism through which segregation influences foreclosures, we estimate a two-stage least squares model that confirms the causal effect of black segregation on the number and rate of foreclosures across metropolitan areas. We thus conclude that segregation was an important contributing cause of the foreclosure crisis, along with overbuilding, risky lending practices, lax regulation, and the bursting of the housing price bubble.
Race, Power, and the Subprime/Foreclosure Crisis: A Mesoanalysis
Levy Economics Institute of …, 2011
Economists' principal explanations of the subprime crisis differ from those developed by noneconomists in that the latter see it as rooted in the US legacy of racial/ethnic inequality, and especially in racial residential segregation, whereas the former ignore race. This paper traces this disjuncture to two sources. What is missing in the social science view is any attention to the market mechanisms involved in subprime lending; and economists, on their side, have drawn too tight a boundary for "the economic," focusing on market mechanisms per se, to the exclusion of the households and community whose resources and outcomes these mechanisms affect. Economists' extensive empirical studies of racial redlining and discrimination in credit markets have, ironically, had the effect of making race analytically invisible. Because of these explanatory lacunae, two defining aspects of the subprime crisis have not been well explained. First, why were borrowers that had previously been excluded from equal access to mortgage credit instead super included in subprime lending? Second, why didn't the flood of mortgage brokers that accompanied the 2000s housing boom reduce the proportion of minority borrowers who were burdened with costly and ultimately unpayable mortgages? This paper develops a mesoanalysis to answer the first of these questions. This analysis traces the coevolution of banking strategies and client communities, shaped by and reinforcing patterns of racial/ethnic inequality. The second question is answered by showing how unequal power relations impacted patterns of subprime lending. Consequences for gender inequality in credit markets are also briefly discussed.
Race and Mortgage Lending in Metropolitan Centers of the Eastern United States
1999
Review of more than 500,000 mortgage applications in 30 metropolitan areas of the eastern United States reveals distinct differences in approval rates for black and white applicants. White applicants routinelv receive loan approvals at a much higher rate than black applicants regardless of applicant income and loan amount requested. City size affects black approval rates as does location of housing units within metropolitan areas. However, distinct regional differences are less evident. The findings suggest the need for greater efforts on the part oflending institutions to meet the credit needs of minorities. participate in this common process of capital accumulation While these laws are intended to protect minorities, their enforcement has been difficult given
Mortgage Lending and Race: Is Discrimination Still a Factor?
Environment and Planning A: Economy and Space, 1996
The significance of race in mortgage lending has emerged as a major public policy issue and focus of scholarly research in the United States. In this paper the experiences of black and Latino mortgage loan applicants in a large midwestern metropolitan area are examined by means of a database on the disposition of individual mortgage loan applications that is now available. It is found that, after controlling for income, age of housing, housing value, and occupancy status, black applicants and applicants from predominantly black communities are less likely to have their loan applications approved than are white applicants or applicants from predominantly white areas. Although no disparities were associated with Latino applicants, those applicants from predominantly Latino communities were less likely to be approved than were others. Specific research and policy recommendations are offered to develop a further understanding of the racial implications of the mortgage market and for red...
The High Cost of Segregation: Exploring Racial Disparities in High-Cost Lending
Fordham Urban Law Journal, 2009
This article argues that policy makers addressing racial disparities in the share of subprime mortgages must take into account the relationship between existing levels of racial segregation and the racial disparities in the types of mortgages homeowners received. The authors examine approximately 200 metropolitan areas across the country and note the significant racial disparities in the percentage of subprime mortgages received by different racial groups. Various mechanisms that explain these racial disparities are also explored. The authors ultimately conclude that residential segregation plays a significant role in shaping lending patterns.
Heterogeneity in Income: Effects of Racial Concentration on Foreclosures in Los Angeles
Housing Policy Debate, 2018
The United States continues to be defined by racial concentration, where most racial/ethnic groups live apart from each other. For homeownership, neighborhoods with large proportions of racial minorities is oftentimes linked to negative outcomes for minority homeowners, particularly during the Great Recession. However, middle- and upper-income ethnic neighborhoods, or resurgent neighborhoods, have grown in numbers due to a concentration of immigrants, federal policies favoring professionals, ethnic-specific resources, and affluence. In 2007, about 37% of Los Angeles Latino tracts were resurgent and 53% of Asian tracts were resurgent. This study finds that homeowners in resurgent neighborhoods had lower default/foreclosure rates and predicted probabilities than low-income neighborhoods. Asian resurgent neighborhoods had the lowest predicted probabilities of default or foreclosure, followed by Latino resurgent and White middle-class neighborhoods. There were also discrepancies among Asian neighborhoods based on nativity. Consequently, it is important to recognize that minority neighborhoods are heterogeneous, with differing impacts on homeownership opportunities when examined by class.