'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Wednesday, September 05, 2007

The Backstory: People of Color and the Housing Bubble 

From today's San Francisco Chronicle:

Minorities were far more likely than whites to be given high-cost subprime mortgages last year, according to a study to be released today by the Association of Community Organizations for Reform Now, an advocacy group.

In the Bay Area, the disparity between high-cost home loans made to minorities and whites was particularly pronounced, even among borrowers with similar incomes, the study found.

"This is a problem with risky loans, not risky people," said Lindsay Gebhart, development associate at ACORN in San Francisco. "A vast majority of these loans were given to people who do not have bad credit. Especially minorities were given loans far worse than what they qualified for."

Nationwide, the study found that African American home purchasers were 2.7 times more likely to receive a high-cost loan than white borrowers, while Latinos were 2.3 times more likely to receive subprime loans than whites. (The report uses a federal definition of high-cost loans as those with an annual percentage rate at least three points above the rate for comparable U.S. Treasury securities.)

For home refinances, high-cost loans were made to African Americans 1.8 times more often and to Latinos 1.4 times more often.

The racial disparities were even more noticeable among homeowners of similar incomes. Among upper-income borrowers - defined as those with incomes 120 percent or greater than their area medians - African Americans were 3.3 times more likely than whites to receive high-cost loans, and Latinos were three times more likely than whites.

Here, in a nutshell, we have that historic intersection between race and American capitalism. People of color here are more analogous to the people of Central and South America, or, to cite a more high profile example, the people of Iraq, than they are to whites. They retain the residue of their past experience as colonial subjects, still perceived by too many as opportunities for unscrupulous profit and expropriation. In other words, too many still believe, either consciously or subconsciously, that they aren't entitled to be treated like whites, and whites have every right to proudly enrich themselves off them.

The current abuse of people of color during the housing bubble is consistent with past history. As a result of the New Deal, whites received government subsidized home mortgages that were unavailable to people of color, and the creation of home equity wealth over the decades partially explains current income and wealth disparities. Redlining, the practice of denying or increasing the cost of services, insurance and loans to communities of color, was official US government policy, and persisted into the 1960s, and, possibly, beyond.

Along with an inability to obtain mortgages, or limited access to ones with higher rates of interest, people of color were also excluded from post war housing developments by racist realtors and home builders. Modernist home builder Joseph Eichler was an exception, selling homes to people regardless of religion or race. He resigned from the National Association of Home Builders in 1958 when it refused to support a policy of non-discrimination.

Beyond the more idealistic world of Eichler's developments, and the efforts of the United Housing Foundation in New York City to build integrated housing cooperatives, suburban neighborhoods excluded people of color, with a classic example being the San Fernando Valley, where, during the 1960s, there was an actual housing shortage for African Americans, who were confined primarily within South Central Los Angeles. Similar conditions prevailed in virtually all major urban areas, in cities such as Chicago, New York, Newark, Atlanta, San Francisco, New Orleans, Boston, Houston, Miami, Saint Louis . . . indeed, it is impossible to identify any major American city that had not been effectively segregated.

By the 1970s, it was no longer acceptable for state and federal governments to promote or even passively accept discriminatory lending practices. The Community Reinvestment Act was passed in 1977, prohibiting redlining and requiring lenders to establish that they have served all of the communities within their market area. Predictably, financial institutions have sought to weaken, if not repeal, the Act.

The extent to which the Act has successfully required financial institutions to provide loans, including mortgages, to people of color is highly disputed. It is increasingly apparent, however, that the proliferation of exotic financial instruments for home purchases, instruments such as adjustable rate mortgages with low introductory teaser rates that reset to ones substantially above the 30 year rate within a few years, including ones with introductory rates so low that the borrower is experiencing a negative amortization, has created unprecedented opportunities for engaging in discriminatory lending practices.

It is easy to recycle the right wing rhetoric: no one made them sign for these loans. Such a perspective, probably emphasized predominately by realtors, mortgage brokers and their allies, ignores the fact that many of these loans were fraudulent. Even so, even if we accept this criticism as valid, it doesn't address the fundamental problem, the creation of two separate capital markets for home mortgages, one primarily for whites, who obtain the more favorable terms, based upon a sincere effort to tailor the mortgage to their needs, and a separate one for people of color, with more unfavorable terms, generated by an either conscious or subconscious belief that they exist for the purpose of financial exploitation.

Back when I first posted on the housing bubble, I speculated that the consequences would be two migrations, one of millions of people out of foreclosed homes, and another of many of these same people to other parts of the country, possibly even into homelessness, upon discovering that they could no longer even afford to rent in the communities near their lost properties. Because of the lending practices exposed by ACORN, it is probable that people of color will be disproportinately represented in both of them. They will form the backbone of the incremental, ongoing sub-proletarianization of the US.

Labels: , , , , , ,

This page is powered by Blogger. Isn't yours?