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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.

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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.

Dennis Fritz / March 31, 2010 9:27 AM

Race has a tremendous impact on housing, especially with regards to African-Americans. The fact is that the presence or absence of African-Americans is one of the main barometers whites use to decided whether a neighborhood is "good" or "bad," or whether a neighborhood is "getting better" or "getting worse."

Some years back, a study was done to gauge what African-Americans and whites had in mind when they described a neighborhood as "integrated." Both the blacks and whites who took part in the study agreed integration was desriable. But their definitions of what "integrated" meant were wildly different.

Blacks regarded a black/white ration of 70/30 to 30/70 as integrated, with 50/50 being ideal. If the racial mix fell outside these parameters, black participants no longer considered the neighborhood integrated and would start thinking about moving.

For the whites, once the neighborhood was 8% black, 25% of whites said they would move. Just 8%! Once the black population rose to 16%, 50% of the whites felt it was time to move. White Americans tend to be extremely leary of living in close prxomity to black Americans. Extremely leary. This has profound and far-reaching effects on housing policy.

If you want to learn more about the methodolgy and results of the study I described above, look it up in American Apartheid: Segregationa and the Making of the Underclass, by Douglas Massey and Nancy Denton.

Poor Policy / March 31, 2010 3:41 PM

Dennis - those numbers speak to the error of trying to find some magic equilibrium thru public policy.

Moreover, if you base your opinion on that type of analysis, you fall into a common fallacy. Those figures assign an entire group the same characteristics, when it is impossible to say that "all whites believe that they will leave when a neighborhood is 8% black". You don't account for the natural variance of opinion within that samping. (i.e. the number of whites who are comfortable with 15% or the number who are at 5%, the number who are at 60% etc...)

Its interesting though, based on those same numbers, that the blacks ideal of "integration" is a 50/50 split. I say interesting because it is statistically impossible for that to happen. The black population of the US is around 15%, so you'd never find that "ideal" unless you removed 70% of the remaining population and made sure the survivors were only white. Its also interesting because it only focuses on two groups - blacks and whites. Does anyone believe that those are the only two races that count in the US? What are the expectations of latinos? Of Asians? Of Indians? etc...

Each different group will have different expectations and requirements for where they want to live and with whom. If each group has different expectations and requirements, any policy will be destined to fail one or all of the parties, because there is no way for the originator of that policy to know the sum of those expectations and requirements.

And when you have public policy failing certain people, it breeds resentment, negativity, and anger, among other things.

Dennis Fritz / April 10, 2010 8:16 PM

Yes, yes, yes. Of course not all whites are racists who flee in panic as soon as a few black faces show up down the block. The study makes a general observation about white racial attitudes. It doesn't make a categorical claim about them. I wish discussions like this didn't always get bogged down in this kind of pointless, petty hair-splitting.

While blacks make up only 15% of the population nationally, they are far more concentrated in and around large urban centers. The study I described was done in the Detroit area, where a 50/50 racial split would be quite conceivable.

No, blacks and whites are not the only races in America that count. However, the black/white divide is still the major divide in American society. The hostility, fear and resentment that mar black/white relations simply have no parallel in he US. One has to look at places like Northern Ireland to find similar levels of antagonism between groups.

Let me put in another way. When was the last time hundreds of white home owners sold their houses at a loss and fled a neighborhood in panic in response to an influx of Pakistanis? When was the last time local businesses left a community en masse because too many Koreans were moving into the area? You haven't, because that kind of thing never happens. However, it happen all the time as a response to blacks coming into an area.

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