Latinos and African Americans were hit hardest by the subprime mortgage meltdown that has widened the homeownership gap between minorities and whites after an era of national policies intended to make it easier for minorities to buy houses, according to a report published Thursday by UC Riverside.
“The housing downturn is exacerbating racial inequality in home ownership,” said Vanesa Estrada Correa, a UCR sociologist and author of the report that appears in Policy Matters, a quarterly journal of the university.
Correa said while subprime mortgages made it possible for more minorities with lower incomes and weaker credit to buy houses during the boom years, the higher failure rate of such mortgages also made minorities more vulnerable to losing their homes in foreclosure.
Both President Bill Clinton and President George W. Bush adopted policies designed to narrow the gap in home ownership between minorities and whites, she said, and during the 1990s and early 2000s new lending products were introduced to lower barriers to first-time homebuyers.
One outcome, she said, was an explosion of subprime lending designed for borrowers with blemished or limited credit histories. Such loans, which carried a higher rate of interest to compensate for the higher credit risk, were disproportionately used by minority home buyers, regardless of their income, she said.
“Even in upper-income African American neighborhoods, borrowers were one and a half times as likely to have a subprime loan than persons in low-income white neighborhoods,” Correa wrote, citing data from the U.S Department of Housing and Urban Development.
She reported that in Riverside and San Bernardino counties in 2007 more than 30 percent of mortgages to Latino and African American homebuyers were subprime loans while fewer than 15 percent of white homebuyers had subprime loans.
Correa wrote that as subprime mortgages have failed, the racial homeownership gap worsened.
Minorities who have kept their homes tend to be more financially strained than their white counterparts, the report said. In Riverside County 63 percent of Latinos, 54 percent of Asian Americans and 53 percent of African Americans are spending more than 30 percent of their household income on their mortgages, compared to only 41 percent of whites. This discrepancy, the report said, illustrates how minority families could be more vulnerable to losing their homes as home values fall and unemployment rises.
Also Correa said a survey of home mortgage counselors by the California Reinvestment Coalition revealed that minorities have less chance than whites to save their homes from foreclosure by negotiating loan modifications with their lenders.
The reasons counselors gave for the difficulties minorities face in obtaining loan modifications were, in order of importance, language, income, holding mortgages much higher than their homes were worth, and inability to document income. The least significant factor, the counselors said, was racial discrimination by lenders, which they blamed for 18 percent of the modification failures.
Correa wrote that loss of home ownership “is emerging as a key factor for racial inequality for homeownership and ultimately a new stratifying factor for wealth inequality more broadly.” She said the next generation of public policy should address the long term sustainability of home ownership for minority families.
Copyright (c) 2009, The Press-Enterprise. Source: McClatchy-Tribune Information Services.