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Chapter 3

For Minorities, Signs of Trouble In Foreclosures

For Minorities, Signs of Trouble In Foreclosures

This activity contains 3 questions.

	What 'emerging trend' among low income minority homeowners is identified in the article, and what data are reported to support the existence of this new 'trend?'   "Last year, black home ownership fell slightly, to 48.8 percent, from 49.7 percent in 2004, only the second year the rate has declined in the last 10 years." "There were 17 auctions of foreclosed properties for every 100 regular single-family homes sold in the county in 2005, up from 10 in 2004 and 5 in 1995, according to data tabulated by Cleveland State University" "In the eastern part of the county, which is 52 percent black and 7 percent Hispanic, the ratio of auctions to regular sales was 23 per 100 last year, up from 9 in 1995. In the west, which is 82 percent white, the ratio was 11 per 100, up from 2.5." In Cleveland..."court filings by lenders seeking foreclose on delinquent borrowers totaled more than 11,000 in 2005, more than triple the number in 1995." "A similar pattern can be seen in Chicago, where foreclosure filings tripled, to 7,576, from 1993 to 2005. Neighborhoods where the population is more than 80 percent non-white account for 65 percent of all cases, up from 61 percent in 1993... The same trends have been documented in Atlanta and Philadelphia..." in the last several years, neighborhoods with large poor and minority populations in places like Cleveland, Chicago, Philadelphia and Atlanta have experienced a sharp rise in foreclosures, in some cases more than a doubling...

	How are 'subprime' loans a double-edged sword for low income homeowners?   Loan data that mortgage lenders must disclose show that 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, compared with 10.4 percent of loans to Asian-Americans, only slightly higher than for white borrowers. In 2004, the latest year with data available, nearly 27 percent of loans taken out by minorities were subprime, up from 15 percent in 1999. Advocates for the poor say that aggressive lenders and mortgage brokers have given loans to borrowers who are lured by dreams of home ownership but have few savings and little job security. Many families might be better off, and receive less expensive loans, if they saved for a down payment and paid down other debts before buying a home, said Kathleen E. Keest, a senior policy counsel at the Center for Responsible Lending, a housing advocacy and research group based in Durham, N.C. Subprime loans, which are made to borrowers with credit histories that the industry considers less than prime, have interest rates that are, on average, three points higher than the prime rate, about 6.2 percent now, and they carry higher fees and prepayment penalties that make it expensive to refinance. Almost 70 percent of subprime loans issued since 2001 will shift from low, fixed introductory rates to higher adjustable rates in the next two years, according to an analysis by Fannie Mae. Still, Mr. Duncan added, subprime lending has benefited minorities and lower-income borrowers. For every 100 subprime loans made nationally, only 5 end in foreclosure. Experts attribute the recent increase in minority ownership to income and employment gains, but also to the growth of subprime lending, which provides credit in areas where few lenders and banks operated before. The expansion of credit, particularly to the poorest minorities, has been controversial.

	What are the implications for current trends in economic, housing, and lending?   Some housing experts worry that the minority foreclosure rate could worsen if the economy or the housing market, nationally or regionally, hits a rough patch... 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, most of which will jump to higher interest rates in the next two years, according to an analysis of data that lenders disclose under the federal Home Mortgage Disclosure Act. At stake are historic gains in minority home ownership rates, which until the mid-1990's had been stagnant for two decades.

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