The Housing Crisis, Foreclosure and Race: Impacts and Challenges

Department of City and Regional Planning, The Ohio State University

Columbus, OH, December 5th 2008

THE HOUSING CRISIS, FORECLOSURE AND RACE:IMPACTS AND CHALLENGES

Jason Reece, AICP

Senior Researcher

Kirwan Institute for the Study of Race & Ethnicity

The Ohio State University

Race and the Credit, Housing, Foreclosure Crisis

Race, community development and the crisis, where are we now? Trends, numbers and impacts

How did we get here? From redlining to reverse redlining Global phenomena and disparate outcomes

What’s next? Systemic problem, requires complex solutions Deflecting attacks on equitable policies From crisis to opportunity?

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Housing and Neighborhood Revitalization: What are the Challenges?

Housing Challenges

Challenges Pre-existing

Affordability Concentration

Subsidized Housing Affordability Steering & Discrimination

Lending From Redlining to Reverse Redlining

New Foreclosure Epidemic

More to Come The Future: A New Wave of Redlining

Neighborhood Revitalization Challenges

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o General Issues/Concerns in all Projectso Common challenges

o Concentrated poverty, limited opportunity, disinvestmento Larger market forces are critical

o Movement back to the city; gas prices and urban living (+)o Housing market trends & foreclosures (-)

o Geographic context is criticalo Both within the city and when thinking about the region

o Language, Framing and Definitions are Importanto Avoid the terminology-concept of gentrificationo We still need to define successful (and equitable)

revitalization

Neighborhood Revitalization Challenges

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o General Issues/Concerns (continued)o Limited public resources

o Must be strategically usedo Must catalyze private investment/individual

actiono Social/Organizational/Human capital critical

o Neighborhood leadership and technical capability

o Issues outside of the direct influence of neighborhood planning are criticalo Public safety (crime) and educational

opportunity

Neighborhood Revitalization:Challengs and Opportunities

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o General Issues/Concerns (continued)o A

combination of elements provide the best opportunity for revitalization

Neighborhood

Revitalization

Housing Stock

Public Investme

nt

Geography (Local; Regional)

Larger Market Forces

Neighborhood

Leadership

Institutional

Partners

Anchor Institutio

ns

Emerging Challenges

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The escalation of the national housing/foreclosure crisis is going to create new challenges in many of these neighborhoods. Hitting “on the

fence” neighborhoods

Undermining re-investment/spurring vacancy

Undermining community organization/capacity

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Foreclosure Trends

Foreclosures in U.S. by Loan Type: 2006 – 2008

0

2

4

6

8

10

12

1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08

% o

f Loan

s in

Fore

clo

su

re

Subprime FHA VA All Loans Prime

Source: Mortgage Bankers Association, National Delinquency Survey, First Quarter 2008.

Institutionalized Disinvestment: Redlining Map of Philadelphia

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From Redlining to Reverse Redlining:A historical view of redlining zones in

Philadelphia and areas of foreclosure in minority

communities.

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0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Hamtramck Eastpointe HarperWoods

Melvindale Pontiac Ecorse RiverRouge

Inkster Detroit HighlandPark

Foreclosure Rate Vacant Residence Rate High Cost Loan Rate

High Cost Loans & Vacant Residences for Cities with the Highest Foreclosure Rates in the Detroit MSASource: HUD

The Result

Surge in foreclosures Nearly 900,000 homes repossessed by banks in just the last

12 months; more than 80,000 in September 2008 More than 265,000 foreclosure notice filings in September

2008 alone At least 7 million homeowners now owe more than their homes

value A global crisis with racially disparate impacts

Nearly half of all subprime loans went to African American and Latino borrowers

“Equity Rich, Cash Poor” – less than 10% of subprime went to first time homebuyers and half of subprime loans were for refinancing

People of color were 30% more likely to receive subprime 30% of subprime borrowers qualified for prime loans

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Baltimore: Foreclosure & Race/Income

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Cleveland: Foreclosure and Race - Same Trends

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Maps: Produced and adapted from Charles Bromley, SAGES Presidential Fellow, Case Western University

Connecticut

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Columbus

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The Impact of Concentrated Foreclosures in a neighborhood

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Foreclosures pull wealth/equity and assets out of the neighborhood

Widespread displacement of renters, homeowners which rips the neighborhood’s social fabric and creates instability for school age children

The growth of vacant property encourages crime, disinvestment and public safety risks

Challenges which eventually ensnare all residents (even those who were never foreclosed upon)

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The High Cost of Foreclosure

Source: “Sheltering Neighborhoods from the Subprime Foreclosure Storm.” Special Report from the Joint Economic Committee. April 2007.

Slide Adapted from Presentation by: Solomon Greene, Open Society Institute, Neighborhood Stabilization Initiative

Impacts

Communities of color further inundated with vacant properties

Mortgage applications for African Americans and Latinos dropped approximately 40% from 06 to 08 Compared to 19% for White’s

African American and Latino homeowners are expected to lose more than $250 trillion in assets due to the crisis Compounding the existing 900% racial wealth gap Research in Boston has identified additional “asset stripping”

for borrowers of color who are drawing down 401K accounts and other savings to avoid foreclosure

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More than Just Foreclosures and a

Few Bad Borrowers:

Understanding the Credit Crisis Impact in Communities of

Color

Why Were Subprime Loans Concentrated in

These Neighborhoods?

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Why is the growing foreclosure problem causing problem in communities of color?

-Lenders targeted communities of color with subprime loans

-Lack of load information or understanding for consumers in many of these communities

-Communities were historically starved of credit

-Mortgage securitization and the growth of the subprime industry created incentives to target new markets with mortgages

Institutionalized Disinvestment: Redlining Map of Philadelphia

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Foreclosure Outlook: Rate Resets

Source: Credit Suisse

Monthly Mortgage Rate Resets (in billions of dollars)

Slide Adapted from Presentation by: Solomon

Greene, Open Society Institute,

Neighborhood Stabilization Initiative

The Credit and Foreclosure Crisis

The current global credit and national foreclosure crisis is a powerful example of our interconnected world Securitization and the growth of global

investment capital fueled poor lending behavior Which caused a surge in foreclosures, an

unstable housing market Producing negative impacts on the local,

national and global scale A two way relationship – global economic

activity impacts us; we impact the rest of the world

A paradigm shift Risk becomes a public burden Profit is distributed privately (and globally) How do we do community development in a

global economy? Where forces outside of our control may impact our communities?

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Opportunities Amid Crisis

What is the response? Crisis – danger and opportunity The Housing market and neighborhoods

will be reshaped Are neighborhood interests/urban interests

taking part in that reshaping (have a seat at the table)?

Are we planning for the future are acting in “triage” mode?

Small Scale and Big Picture Issues Many Important Issues

Strategically using HUD money? Still need for foreclosure prevention

But we also need to think big picture How can we reshape neighborhoods? How can we use this crisis to address future

affordable housing challenges? What are strategies for assuring sustainable credit

and credit providing institutions are offered and active in these communities (prevent another era of redlining)

Look for strategic action points, leverage actions and resources

What’s Next? (Big Picture)

Systemic problem, requires complex solutions Need more than just changing Wall Street, we also must provide

funds for communities, while changing the rules which produce disparate lending outcomes

Deflecting attacks on equitable policies Attacks on CRA and first time homebuyer programs are misguided

and inaccurate A response should not starve communities of color of sustainable

credit options From crisis to opportunity?

Can the federal government utilize its new leverage over Fannie and Freddie to provide more sustainable credit (expanding scope of the Fair Housing Act)

New federal resources to confront the long term vacant property challenge facing urban communities?

Can the challenge open new affordable housing opportunities (in the long term)

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Questions or Comments: Reece.35@osu.edu

For more information about the racial impacts of the foreclosure crisis, visit our convening web site at:

http://www.kirwaninstitute.org/events/archive/subprime-convening/index.php

To Learn More about the Kirwan Institute: www.kirwaninstitute.org