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Housing Tue Mar 30 2010
Reporter Editor Kimbriell Kelly Breaks Down the Housing Crisis
The Chicago Reporter's editor, Kimbriell Kelly, provided testimony to a joint state and city hearing convened by the Latino Policy Forum and Spanish Coalition for Housing yesterday detailing the Reporter's research on home foreclosure's in Chicago's neighborhoods. Kelly's testimony is a challenging reminder of the depth of the crisis and the long-term ramifications for Chicago's neighborhoods of dysfunctional financial regulations--and not just for homeowners, for renters, as well.
A small portion of her testimony follows; follow the link above, as the text provides links to sources:
Much of the foreclosure crisis that we're seeing stems from subprime lending. Back in November 2007, we broke a story that the Chicago metro area led the nation with the most high-cost loans. We analyzed millions of records from the federal Home Mortgage Disclosure Act and found that it was the third consecutive year that the Chicago area held this distinction. Minorities carried the greater burden. Combined, African American and Latino homeowners received nearly 50 percent of all high-cost loans in 2006 compared to nearly 22 percent of prime-rate loans.
Subsequently, many homeowners tried to refinance their mortgages. In 2008, we analyzed refinance data and found that people were successful just 47 percent of the time. White and Asian borrowers fared the best, though black and Latino homebuyers in 2006 had higher rates of high-cost loans. The approval rate for white people was 75 percent, 72 percent for Asians, 59 percent for Latinos and 54 percent for black borrowers.
The end result wasn't surprising. In 2008, 65 percent of all foreclosures in Chicago were in majority-minority census tracts, according to a 2008 report published by the Chicago-based National Training and Information Center.
Homeowners weren't the only ones impacted. Between 2006 and 2007, a year after the housing crisis began, the number of small buildings that foreclosed more than doubled, to 2,497. The city's predominantly black South and West sides were hardest hit. In black communities, the rate of small-apartment-building foreclosures was 20 times higher than the rate in white communities; it was three times higher than the rate in Latino communities. We estimated that anywhere between 13,000 to 18,300 rental households could have been affected in 2007.
Poor Policy / March 30, 2010 2:11 PM
It really makes you wonder why politicians continually push for the "affordable housing" shangri la, when it is really irresponsible policy.
If you take a step back and look at this objectively, does it make sense to lower lending standards in order to increase minority home ownership?
From their own report: A “high-cost” loan is identified in federal mortgage lending data as first-lien home purchase loans where the interest rate is at least three percentage points above the U.S. Treasury standard
- In other words, a "high cost" loan is given to a high default risk borrower.
If a borrower is a high default risk , their credit worthiness will leave them with the fewest options if adverse conditions should arise.
...and arise they did, leaving these people in serious financial condition (not that the borrower is devoid of responsibility)
I don't see the relevance of the race issue here. The original article also states: "In 2006, the Chicago metro area ranked first in the nation in high-cost loans to white homeowners." and "Part of the racial disparity in high-cost loans occurs because African Americans and Latinos more often do business with subprime lenders. In the Chicago metro area in 2005, about 51 percent of all consumers of subprime lenders were either black or Latino."
- so part of that is self selection on the part of minority borrowers.
Race is a poor way to distinguish what groups were more likely to modify their loans. If they segmented their data based on credit rating and income levels, I would expect that race would have no significance. It is in a lender's own interest to maximize the reduction of its portfolio risk.
However, the stated goal of of the Latino Policy Forum is to "Develop effective policies and practices to address the issues of housing affordability and accessibility that affect many Latinos", so by definition it is only interested in one specific minority and is committed to demonstrably poor policy.