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Tuesday, October 19, 2010

Black Homeowners Hit Hardest By Foreclosure Crisis: Black In America










Housing Crisis Hits Blacks Hardest

The Foreclosure crisis has hit Blacks harder than any other group in America and it will be tough for them to regain their footing in the housing market.

Blacks' homeownership rate has plummeted nearly 6 percent to 46.2 percent since its peak in 2004. That's more than twice that of any other racial or ethnic group, as well as the nation's rate as a whole, which fell only 2.3 percent, according to U.S. Census data.

Also, among recent borrowers, nearly 8 percent of blacks have lost their homes to foreclosure, compared to 4.5 percent of whites, according to the Center for Responsible Lending. Latinos, who have also been pummeled by the mortgage meltdown, came in a close second behind blacks in foreclosure losses.

The consequences are devastating. Fewer blacks own their home now than any other racial or ethnic group and that makes it even more difficult for them to achieve financial security and attain wealth.

"We built the middle class on homeownership," said Marc Morial, head of the National Urban League, which works to empower the black community. "How many people have built their business with the equity in their home? How many people have sent their kids to college with the equity in their home?"

The loss of homeownership is more than the difference between a mortgage payment and a rent check, experts say. Purchasing property is the key to building wealth, which not only allows people to improve their quality of life and provide more for their children, but also gives them a cushion during tough economic times.

Billions and billions of dollars were stripped away from a community that already had lower levels of wealth than white communities," said Debbie Bocian, senior researcher at the Center for Responsible Lending, which estimates blacks will lose $194 billion in wealth through 2012 due to the mortgage meltdown. "It exacerbates all the socio-economic divides. The consequences are intergenerational."

Subprime lending and unemployment

During the housing boom, nearly seven in 10 Americans owned their home, a gain of 7.8 percent from a decade earlier. Black Americans saw their home ownership rates rise twice as fast to 49.1 percent, thanks in large part to easy credit.

But many of those new mortgages -- which often came with low teaser rates that would adjust upward after two or three years -- would prove unaffordable.

Overall, blacks were 150 percent more likely to get high-cost loans, according to the Center for Responsible Lending. Even when they had similar income and credit scores as white borrowers, blacks were about 30 percent more likely to be steered to expensive mortgages.

When home prices started to fall, borrowers found themselves trapped in subprime loans. And since so many people in the black community had these mortgages, they suffered disproportionately in the early stages of the mortgage meltdown.

Now, the foreclosure crisis has now expanded beyond the subprime market. More and more people with stronger credit backgrounds and more stable mortgages are defaulting on their loans because they've lost their jobs.

But here too, blacks are at a disadvantage. Black unemployment stood at 16.1 percent in September, the highest of any group and 6.5 percentage points above the national average.

"The unemployment rate in the African-American community is sky high," said Chris Herbert, research director at the Joint Center for Housing Studies at Harvard University. "That's certainly behind their high foreclosure rate."

Tight credit going forward

It's tough for anyone to get a mortgage these days. But it's even more difficult if you are black.

Nearly one-third of blacks were denied loans in 2009, compared to 13.1 percent of whites and 25.6 percent of Latinos, according to federal data released last month. The disparity can't be explained solely by differences in applicants' incomes and loan amount requested. Even when these factors are the same, blacks are still twice as likely to be turned down, a Home Mortgage Disclosure Act report found.

Nearly 49.8 percent of blacks had their refinance applications rejected, compared to 21 percent of whites and 41 percent of Latinos.

These stats mean that many blacks can't shift into lower-cost mortgages in order to save their homes, nor can they purchase their first property and boost homeownership rates.

"Credit constraints are a real concern," Herbert said. "While there is a need for tighter underwriting standards, we have to be careful not to go too far and unnecessarily limit access to credit that helps families manage their finances and build wealth."

One solution that the National Urban League is pushing is more homebuyer education programs. First-time purchasers who go through a course that teaches them about budgets, debt, home maintenance costs and risky, expensive loans are less likely to default, experts say.

"We need a fundamental commitment to housing counseling to prepare people to become homeowners," Morial said.



Sources: CNN

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