reprinted from civilrights.org
Tyler Lewis
African-American and Latinos could be devastated by a dramatic increase in foreclosures, which will affect 2.2 million families, according to new research by the Center for Responsible Lending (CRL).
“Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners” estimates that foreclosures will affect 8 percent of Latino families and 10 percent of African American borrowers. Comparatively, about 4 percent of white borrowers will be affected by foreclosures.
CRL’s report says that communities of color will be hit the hardest because high-cost subprime loans – higher-interest loans to borrowers with impaired or non-existent credit histories – are disproportionately made in those communities. And predatory lending practices –where borrowers are often strapped with balloons they are incapable of paying –are found more frequently in the subprime market.
Recent data released under the Home Mortgage Disclosure Act shows that half of all loans to African-Americans are high-cost loans and 40 percent of all loans to Latinos are high cost loans. “Homeownership rates for minorities are up but so, too, is the cost of that homeownership,” said Wade Henderson, president and CEO of the Leadership Conference on Civil Rights.
The report analyzed more than six million subprime mortgages from 1998 through 2004 and found one out of five subprime mortgages originated in the past two years will end in foreclosure, costing American families $164 billion dollars.
“For most people, owning a home is their best chance to achieve sustainable economic security. Losing that home, in many cases, means losing life savings,” said CRL President Michael D. Calhoun. “Given the size of the subprime market today—nearly a quarter of all loans made this year—this epidemic of foreclosures will have a negative impact on the economy as a whole.”
The crisis has been brutal even during periods of housing appreciation. Thirteen percent of subprime home loans ended in foreclosure within five years of origination.
High-cost subprime loans often include features like adjustable interest rates, balloon payments, limited income documentation, and prepayment penalties that make them more risky. “The research…shows that subprime lenders are selling the most dangerous loans to the most vulnerable borrowers,” said Calhoun.
Housing advocates have called for more regulations to protect borrowers who receive these loans. “Regulators have given borrowers in the prime market protection against the higher risks of those products, but borrowers in the subprime market are left without similar protections,” said Henderson. “Homeowners in the subprime market should have the same protections.”
CRL says that there should be regulations to ensure that subprime lenders are operating in good faith and that they offer borrowers “work-out plans” to ensure they don’t lose their homes.
“Low-wealth communities have the most to gain from homeownership,” said Henderson. “Our sincere hope is that this research will serve as a wake-up call to policymakers and leaders to staunch the flow of foreclosures with fair, common-sense protections.”
