by James Parks, Jun 21, 2008

Graciela Aponte

Not only has the nation’s slumping economy hit black workers and Latino workers hard, the mortgage crisis has had a disproportionate impact on them as well. In fact, some experts fear the mortgage crisis could undo a huge portion of the wealth built up by the growing African American and Latino middle classes.

The Joint Center for Political and Economic Studies reports that the rate of subprime mortgages for Latinos and African Americans is about double the rate for whites. In 2006, subprimes made up one in four mortgages (26 percent) made to whites, 47 percent of those to Latinos and 53 percent of mortgages that went to African Americans. 

At a recent forum sponsored by the Economic Policy Institute (EPI) and its Agenda for Shared Prosperity, Wilhelmina Leigh of the Joint Center said the legacy of discrimination against people of color combined with a recent federal push for higher homeownership rates created the opportunity for predatory subprime lenders to prey on people of color.  

Graciela Aponte of the National Council of La Raza, a former housing counselor, recalls ads in Spanish-language newspapers that promised zero-down, 1 percent mortgages and other exotic vehicles that paid high commissions to the brokers who pushed them. She estimates that one in 12 home loans made to Latinos in recent years will end in foreclosure.  

EPI economist Algernon Austin, who heads the institute’s Race, Ethnicity and the Economy program, says in a study released last week that creditworthiness—alone or in combination with factors other than race—cannot account for the disparities in subprime loan rates. When the Federal Reserve and the Wharton School of Business conducted an analysis that took into account how many adults in a neighborhood were high-credit risks, they still found a link between the amount of subprime loans and the number of minorities in the neighborhood. An analysis by the Center for Responsible Lending found that even after taking into account individual credit scores, Latino and African American borrowers were more than 30 percent more likely to receive higher-rate subprime loans.

Meanwhile, a startling new report has predicted the subprime mortgage crisis will cause people of color to lose up to $213 billion, leading to the greatest loss of wealth in modern U.S. history. The report,  Foreclosed: State of the Dream 2008, by United for a Fair Economy, accuses mortgage lenders of deliberately targeting the poor and people of color with high-cost loans.  

According to the report:  

The spillover effect from the wholesale writing of bad loans is that communities are torn apart. As one house after another in a neighborhood goes vacant, squatters move in, crime and the likelihood of fires spike, local stores and businesses close. The value of the houses other people in the vicinity, who have not taken out subprime loans, live in deteriorates by thousands of dollars. The subprime crisis has pulled a large chunk of wealth away from many, many middle- and lower-income people, in the form of homes and home equity—a primary, even sole, asset for those without great wealth. The government has remained silent and inactive. 

Click here to download a copy of the report. 

The AFL-CIO Executive Council in March outlined several steps to address the mortgage crisis, including a six- to 12-month moratorium on mortgage foreclosures and changes in bankruptcy laws to allow mortgages to be modified so families can keep their homes. The council also called for an end to servicing agreements that reward mortgage companies for foreclosing on homes rather than encouraging refinancing or other workout strategies and supported strong new rules for the mortgage and financial markets that hold the industry accountable.

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