By Gilderbloom, John I.; Squires, Gregory D.
American Banker , Vol. 176, No. F335
Byline: John I. Gilderbloom &Gregory D. Squires
Foreclosures continue to decimate communities around the nation, with black neighborhoods being the hardest hit. Some pundits and politicians point to federal policies that encouraged homeownership in low- and moderate-income communities, coupled with reckless behavior on the part of greedy homeowners, as the crux of the problem. One example is the statement by Fox News reporter Neil Cavuto that "loaning to minorities and risky borrowers is a disaster." To the contrary, our recent research demonstrates that it is outside investors living in other, predominantly white neighborhoods, not local homeowners, who account for the adverse impact on our nation's black communities.
Recent foreclosure activity and the subsequent costs are not race neutral. According to the Center for Responsible Lending approximately 8% of African-American and Latino families have lost their homes to foreclosure, compared with 4.5% of white families. United for a Fair Economy has estimated that a third of black households and 40% of Latinos are at risk of falling out of the middle class and into poverty as a result of the foreclosure and related economic crises.
So what accounts for the concentration of subprime lending and foreclosures in minority neighborhoods? The culprit, at least in Louisville, Ky., is investors, primarily white investors who do not reside in the affected communities. In our research we found that in 2007 and 2008 there were approximately 2,000 foreclosure sales each year in Louisville. There were 39 per census tract (a rough approximation of a neighborhood) in black communities, compared with 20 in white tracts. More telling is the fact that there were 15 foreclosures on properties owned by investors rather than owner-occupants in black communities compared to two foreclosures in white areas. A close examination of foreclosed properties in black neighborhoods found most owners were white and often living miles away in suburbs.
It is investors seeking a quick profit, not homeowners, who are the real problem in black neighborhoods. We suspect Louisville's story is not unique. Louisville is right in the middle of this pack, ranking 103 out of 203 metropolitan regions in the rate of foreclosures in recent years.
Several factors account for why a property goes into foreclosure and why foreclosure rates are higher in some neighborhoods than others. …