Race and the Housing Crisis
Blacks and Latinos With Identical Credit Far More Likely than Whites to Receive Subprime Loans
When troubled borrower Diane McLeod's debt problems made the front page of The New York Times earlier this week, she ignited a debate over borrowers, lenders and personal responsibility that shows no signs of slowing down.
Op-Ed columnist David Brooks took the opportunity to point out that McLeod's money problems were caused, in part, by her own behavior -- she shopped at the mall to relieve the emotional pain of her divorce and spent thousands on home shopping channels while recovering from surgery. But mortgage companies and credit card lenders also saw her as an easy target, he noted, marketing loans to her they knew she couldn't afford and most likely couldn't repay.
This was something of a revelation to Brooks, who recently wrote an entire column denouncing financial decadence in America without ever mentioning Wall Street's role in foreclosures.
Now with a belief that both borrowers and lenders share equal blame, Brooks predicted a cultural shift in attitudes away from the easy acceptance of debt:
After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.
If only it were that simple. On Tuesday I talked with borrowers waiting in the soaring temperatures and long lines outside the Capitol Hilton in Washington for a chance to get their loans restructured through the Neighborhood Assistance Corp. of America, a housing advocacy group based in Boston. The first three women I chatted with all were from Prince George's County, Md., which The Washington Post describes as the nation's wealthiest majority black jurisdiction. It also has more foreclosures than any other Maryland community.
Is that a coincidence? Of course not. Even when their credit scores were similar, blacks and Latinos were far more likely to get subprime loans than white borrowers during the housing boom, report after report has shown. In majority black and Latino communities, nearly half of all mortgages made in 2006 were high-cost subprime loans, according to research by the Local Initiatives Support Corp.
I asked the women outside the Hilton if they had felt targeted by lenders, and they all laughed in unison - doesn't everyone know that? Brokers didn't just make repeated cold calls in Prince George's. It went beyond that. Mortgage lenders came to you. They mingled at church, and they showed up in person at your house with loan papers, they said. They were always at your door. That's not how loans get sold in upper-middle-class white neighborhoods.
The women I talked with didn't take out those loans to buy McMansions. They were refinancing, and they'd been in their houses for more than 25 years. And their situations weren't unusual. Most of Prince George's County foreclosures involve refinancings, not new home purchases, according to John McClain, deputy director of George Mason University's Center for Regional Analysis who has studied the neighborhoods there.
Some people in neighborhoods like this will get help from housing advocacy groups or refinanced by a lender. But many won't. The damage done will last for years -- ruined credit, neighborhoods marked by vacant houses, once-stable communities upset by comings and going, future loans that will become harder and more expensive than ever to get, a falling homeownership rate, and fewer chances to build up net worth for the future.
Even if you accept that borrowers and lenders are equally responsible for the housing mess, that doesn't mean the price they'll pay for it will be the same.
Yes, there are plenty of failed lenders on the Mortgage Lender Implode-o-Meter. But as Michael Hudson, who authored the Center for Responsible Lending's report on the failed bank IndyMac explained, you could be a minimum-wage grocery clerk during the housing boom and then suddenly find yourself with a six-figure income as a mortgage broker.
So when it comes to borrowers and lenders, and their share of the blame in this crisis, let's not call it even, just yet. Brooks and others who decry the nation's culture of debt need to press the issue even more.
They need to acknowledge that we won't fully understand the mortgage mess until we investigate the interplay of race and credit that occurred during the housing boom. Until we question why minorities ended up with so many subprime loans, and why they paid so much more for their mortgages. And until we care about what will will mean for their financial futures.
That hasn't happened yet, and it's not clear that it ever will. For now, there are just the images of what happened in Washington earlier this week: The almost absurdly long line of anxious people clutching loan papers in the brutal heat, desperate to hang on to their houses.
All of it just a few blocks away from the White House -- in the capital of the most prosperous country in the world. The people who are paying the price.
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