I posted last week about the correlation between foreclosures and minorities. The National Urban League (NUL) released a report yesterday that provided additional numbers to back this pattern up, tracing the correlation back to subprime loans.

"With 45.8 percent of African-American households headed by women vs. 13.6 percent of white households, black women are particularly hard hit when considering issues such as subprime lending," according to a NUL press release about the report, called The State of Black America.

The State of Black America, published annually since 1976 by the National Urban League, covers issues critical to black America. Last year's report focused on black men and the current report focuses on black women. The report covers a wide variety of issues, but I am going to focus on one issue first: homeownership.

"Homeownership is a cornerstone of the American dream, and home equity an important path to prosperity as a foundation for acquiring other assets like a college education, a small business and a secure retirement. Fixing the subprime market is important, but homeownership can still remain within the reach of the less affluent if the focus is shifted toward encouraging a higher savings rate," Lisa Mensah, executive director of the Initiative on Financial Security, wrote in an essay published in the report.

Americans across the board are dismal savers (for more information, see our previous article on Americans' Negative Savings Rate). Mensah proposed a down payment savings account, called a Home Account, with a 50 percent government match on their savings--up to $5,000--that could only be used by first-time, low- and moderate-income homebuyers. In theory, this would decrease the dependency of such homebuyers on subprime loans and allow more of them to purchase homes they could actually afford. The ability to afford a home could boost the economic standing of black Americans.

"Nearly two-thirds of the wealth possessed by African-American families is in the form of home equity. Without homeownership, most of these households own very little and have few opportunities to build economic security," Andrea Harris, president of the North Carolina Institute for Minority Economic Development, wrote in an essay published in the report. "Half of all African-American households with children are headed by women; therefore, homeownership is an important economic advantage for these families."

These women face serious economic disadvantages, though. "Subprime loans have gone disproportionately to women, and...African-American and Latina women have the highest rates of subprime lending when compared to all other Americans, especially white men who receive the lowest share of subprime loans," Harris wrote.

"Over half of all loans made to black borrowers in 2005 and 2006 were subprime…African-American women account for 48.8 percent of all African-American subprime borrowers in 2006," she wrote. "The subprime mortgage crisis will drain $213 billion in wealth [from] black Americans, producing for African Americans the greatest wealth loss in modern U.S. history."

Not all the news in the report was so dire, though; check back later for my post on small business ownership among black women.

Labels: Foreclosures, Minorities

"The housing boom of the last decade helped push minority home ownership rates above 50 percent for the first time in 2004," according to a New York Times article.

Subprime lending allowed those who perhaps couldn't truly afford homes to buy them anyway. Now that interest rates are readjusting and mortgage payments are skyrocketing, many people are being forced out of their homes.

"The increase in foreclosures could be the first of a wave of financial distress for many minority homeowners, experts say, because they are twice as likely as whites to have taken out expensive subprime mortgages," according to the article.

"Neighborhoods where the population is more than 80 percent non-white account for 65 percent of all cases" of foreclosure activity, according to the article, which cites data from the National Training and Information Center. "The same trends have been documented in Atlanta and Philadelphia, according to researchers from Harvard and the Reinvestment Fund."

"For all the talk of expanding opportunities to the less well-off [by providing mortgages to borrowers with low income and little to no down payment or credit history], experts note that the gap between minority and white home ownership remains unchanged from a decade ago at about 25 percentage points," according to the article.

"Minorities are far more likely to receive subprime loans than whites. About 30 percent of home purchase loans made to blacks from 1999 to 2004 and 20 percent of home loans made to Hispanics were subprime," according to the article. These are the homeowners whose mortgages are readjusting, who can no longer afford their monthly mortgage payments, who are facing foreclosure.

What really needs to be expanded--to minority communities especially--is personal finance education. People need to understand how to save, borrow and invest responsibly. Many people who are now facing foreclosure didn't understand the situation they were getting themselves into when they signed those mortgage documents.

Labels: Foreclosures, Minorities

Foreclosures are on many people's minds these days, and it's not hard to see why. Foreclosures increased 57 percent in the past year, according to numbers recently released by RealtyTrac. Most of the attention paid to foreclosures focuses on their effect on the economy. But the impact of the foreclosure crisis is more broadly felt than that and extends even to crime rates in areas hit hard by foreclosures.

"Using data on foreclosures, neighborhood characteristics, and crime, we find that higher foreclosure levels do contribute to higher levels of violent crime," according to a 2005 study by the Federal Reserve Bank of Chicago. "A standard deviation increase in the foreclosure rate (about 2.8 foreclosures for every 100 owner-occupied properties in one year) corresponds to an increase in neighborhood violent crime of approximately 6.7 percent."

Charlotte, N.C., is one area that has experienced an increase in crime as foreclosures have climbed.

"While the crime rate citywide held steady, the rate in the heart of Charlotte's 10 highest-foreclosure areas rose 33 percent between 2003 and 2006, an Observer analysis found. All of them are suburban areas filled with starter-home subdivisions," according to a story published in the Charlotte Observer in December 2007.

"[The subdivision] Windy Ridge is 5 years old, but already 81 of its 132 homes have lapsed into foreclosure. Dozens stand boarded up or vacant, with windows smashed and doors kicked in. Vandals have ripped copper wire from walls. Vagrants and drug users frequent the empty houses--next door to families who thought they'd invested wisely in their northwest Charlotte suburb," according to the article.

"Violent crime at rental homes in single-family neighborhoods happens at three times the rate of crime at owner-occupied homes, according to Charlotte-Mecklenburg police. The property crime rate is 1.6 times higher."

Some who have purchased homes in these subdivisions want to sell, but they can't afford to because of the state of the market.

And the problem extends to all Charlotte residents, even those not in foreclosure and those who do not live in the areas with increased crime. "Taxpayers must cover the increased cost for police, housing inspectors and other government services in these neighborhoods," according to the article. "Sinking home values mean less tax revenue."

"Foreclosures can have implications for surrounding neighborhoods and even for their larger communities. Cities, counties, and school districts may lose tax revenue from abandoned homes," according to the study.

These abandoned homes can become havens for garbage, animals, squatters and drug dealers, according to the study. "Indirectly, the presence of boarded-up and abandoned buildings may lead to a lack of collective concern by neighborhood residents with neighborhood crime," according to the study.

This line of thinking is similar to the broken window theory, originally proposed by James K. Wilson and George L. Kelling in The Atlantic Monthly in 1982 and made more famous by Malcolm Gladwell's 2000 book The Tipping Point. The theory goes that the little things, such as a building with a few broken windows, can escalate into big problems, such as that same building being neglected further and becoming a site of criminal activity.

And maybe foreclosures once seemed like a little problem, but now they have escalated into a nationwide crisis. And not only are some people being forced out of their homes, but widespread foreclosures are leading to higher crime in some areas, so that their neighbors are not always safe in theirs.

Labels: Crime, Foreclosures