WASHINGTON (NNPA) – A recent study by a consumer awareness group showed the current housing crisis, caused in part by the predatory and unregulated practices of the sub-prime lending market, has a dual effect on communities of color.
The United for a Fair Economy’s study showed that two million homes are expected to foreclose in the coming year. Because of its magnitude, the impact of the housing crisis reaches far beyond the individual consumer.
”At the current rate, parity for homeownership for Blacks compared to Whites will not be achieved for another 5,423 years…”
The report, entitled, Foreclosed: State of the Dream 2008, said comparisons between projected losses for each racial group showed clearly the sub-prime loans are racially predatory. If the loans were distributed equitably, it concludes, Whites would lose more wealth and people of color would lose less wealth than actual projections.
”Predatory sub-prime loans are faulty products from the start,” said Amaad Rivera, researcher for United for a Fair Economy. “The lenders are giving the loans to people knowing that the deal would eventually go into foreclosure.”
According to the report:
The estimated total loss of wealth for people of color is approximately $213 billion for sub-prime loans taken during the last eight years. We believe this represents the greatest loss of wealth for people of color in recent modern U.S. history.
African-American borrowers will lose over $71 billion, while Latinos will lose over $75 billion for the same period.
According to federal data, people of color are more than three times more likely to have sub-prime loans. High cost loans account for 55 percent of loans for Blacks, but only 17 percent for Whites.
If sub-prime loans had been distributed equitably, losses for Whites would be 44.5 percent higher and 24 percent lower for people of color.
At the current rate, parity for homeownership for Blacks compared to Whites will not be achieved for another 5,423 years.
Broad racial and economic inequalities need to be addressed for the success of any policy solutions to the sub-prime crisis.
”Just as Katrina revealed the great racial wealth divide in this country and sent many African-Americans into a life of less stability and greater economic insecurity, the sub-prime crisis is promising to be a hurricane that will turn back wealth development for African Americans nationwide,” said Dedrick Muhammad, of the Institute for Policy Studies.
The report also highlighted that the spillover effect from wholesale writing of bad loans is that communities are torn apart. As one house after the other in a neighborhood goes vacant, the values of homes for people who did not take out sub-prime loans decreases.
”Homeowners who have always made their payments are finding out foreclosures in a neighborhood reduces the quantity and quality of public services and diminishes the value of their homes,” said Dick Gregory, consumer advocate and activist.
Anthony Yezer, a professor of economics at George Washington University, said some of the staggering statistics in the report are quite surprising and need to be monitored closely for accuracy.
”I don’t know of that many academic studies of the subject and certainly none that have produced these results,” Yezer said.
Yezer recently wrote a paper on the homeownership gap by race and income levels. His findings showed that Whites at the lowest income level were more likely to own homes than Blacks at that same level. He also noted that the gap vanishes at the higher income levels between Whites and Blacks.
”We must start paying more attention to the trends at the lower end of the scale,” Yezer said. ”Sub-prime lending allows people, especially the poor to gamble in this market. There are some successes stories and many failures. In about a year or two, we will know exactly what happened to the rate of African Americans and people of color.”