rssRace and the Housing Crisis
Friday, July 25, 2008 at 4:30 pm
- 15 Comments
When troubled borrower Diane McLeod’s debt problems made the front page of The New York Times earlier this week, she ignited a debate over borrowers, lenders and personal responsibility that shows no signs of slowing down.
Op-Ed columnist David Brooks took the opportunity to point out that McLeod’s money problems were caused, in part, by her own behavior — she shopped at the mall to relieve the emotional pain of her divorce and spent thousands on home shopping channels while recovering from surgery. But mortgage companies and credit card lenders also saw her as an easy target, he noted, marketing loans to her they knew she couldn’t afford and most likely couldn’t repay.
Illustration by: Matt Mahurin
This was something of a revelation to Brooks, who recently wrote an entire column denouncing financial decadence in America without ever mentioning Wall Street’s role in foreclosures.
Now with a belief that both borrowers and lenders share equal blame, Brooks predicted a cultural shift in attitudes away from the easy acceptance of debt:
After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.
If only it were that simple. On Tuesday I talked with borrowers waiting in the soaring temperatures and long lines outside the Capitol Hilton in Washington for a chance to get their loans restructured through the Neighborhood Assistance Corp. of America, a housing advocacy group based in Boston. The first three women I chatted with all were from Prince George’s County, Md., which The Washington Post describes as the nation’s wealthiest majority black jurisdiction. It also has more foreclosures than any other Maryland community.
Is that a coincidence? Of course not. Even when their credit scores were similar, blacks and Latinos were far more likely to get subprime loans than white borrowers during the housing boom, report after report has shown. In majority black and Latino communities, nearly half of all mortgages made in 2006 were high-cost subprime loans, according to research by the Local Initiatives Support Corp.
I asked the women outside the Hilton if they had felt targeted by lenders, and they all laughed in unison – doesn’t everyone know that? Brokers didn’t just make repeated cold calls in Prince George’s. It went beyond that. Mortgage lenders came to you. They mingled at church, and they showed up in person at your house with loan papers, they said. They were always at your door. That’s not how loans get sold in upper-middle-class white neighborhoods.
The women I talked with didn’t take out those loans to buy McMansions. They were refinancing, and they’d been in their houses for more than 25 years. And their situations weren’t unusual. Most of Prince George’s County foreclosures involve refinancings, not new home purchases, according to John McClain, deputy director of George Mason University’s Center for Regional Analysis who has studied the neighborhoods there.
Some people in neighborhoods like this will get help from housing advocacy groups or refinanced by a lender. But many won’t. The damage done will last for years — ruined credit, neighborhoods marked by vacant houses, once-stable communities upset by comings and going, future loans that will become harder and more expensive than ever to get, a falling homeownership rate, and fewer chances to build up net worth for the future.
Even if you accept that borrowers and lenders are equally responsible for the housing mess, that doesn’t mean the price they’ll pay for it will be the same.
Yes, there are plenty of failed lenders on the Mortgage Lender Implode-o-Meter. But as Michael Hudson, who authored the Center for Responsible Lending’s report on the failed bank IndyMac explained, you could be a minimum-wage grocery clerk during the housing boom and then suddenly find yourself with a six-figure income as a mortgage broker.
So when it comes to borrowers and lenders, and their share of the blame in this crisis, let’s not call it even, just yet. Brooks and others who decry the nation’s culture of debt need to press the issue even more.
They need to acknowledge that we won’t fully understand the mortgage mess until we investigate the interplay of race and credit that occurred during the housing boom. Until we question why minorities ended up with so many subprime loans, and why they paid so much more for their mortgages. And until we care about what will will mean for their financial futures.
That hasn’t happened yet, and it’s not clear that it ever will. For now, there are just the images of what happened in Washington earlier this week: The almost absurdly long line of anxious people clutching loan papers in the brutal heat, desperate to hang on to their houses.
All of it just a few blocks away from the White House — in the capital of the most prosperous country in the world. The people who are paying the price.
15 Comments
Comment posted July 29, 2008 @ 4:04 pm
Race is too often misused. In the case of the home mortgage discussion, race is a surrogate for being poor. More (not all) black and brown folks are poor and those folks in worse economic conditions take out more subprime loans. Poverty does not prevent people from using a calculator, but it does convince people to take greater short term risks than those who are more financially secure. More poor people play the lottery. Nobody cares, because the cause of a lottery ticket is cheap. More poor people took out subprime loans. Everybody cares because of the housing crises. But the motivation to take the risk in both cases is the same- the expectation of living the American dream. Are poor people entitled to that dream, to take risks to obtain it?
It is easy to blame the poor. The don’t usually live next door, and are somewhat invisible to the middle/upper class. But I think those same people who blame the poor and their lack of calculator skills, should be mad as anything about the predatory practices of the banking elite. They take enormous risks daily, lobby congress for lessening banking regulations, for expanded free trade- anything to enable the expansion of their risky behavior. They take advantage of all of us asking for a mortgage. Have you ever looked at the amount of interest paid for a 15-year or 30-year mortgage? Who is backing Fannie and Freddie? I think the answer is “us”.
The mortgage crises is a shared blame and I think, if you don’t know how to use a calculator, you couldn’t have the privilege of running a bank either.
Comment posted July 29, 2008 @ 1:36 pm
The point is not that the “coloured folks” or whatever they are called in your neighborhood just made poor financial decisions and now are playing the race card, it’s that we don’t all get the same menu to choose from in the first place! Wake up and smell the coffee America! The rest of the world sees your segregated society but white people and Bill Cosby say there’s no more racism standing in people’s way.
I’m a white mom in Vancouver, Canada, and minorities here have it tough, but we try to work together to fight poverty and build a better country. Our poor neighbourhoods have few banks and lots of cheque cashing payday loan places, and I’m sure yours do too, so before the bank even gets a look at you, you have probably been drained financially and don’t know it. And I just heard an ad for mortgage loans here promise “property value guaranteed to increase”. So how were you clever people the only ones in the economy to see the truth?
Comment posted July 28, 2008 @ 6:46 am
If you don’t know how to use a calculator, then you shouldn’t own a house anyhow.
I’m white and when I was asked if I would like an ARM or a normal mortgage, I went with the normal, old school yo, fixed rate!! Even after the broker (who was black) tried to pressure us into taking the ARM.
I can’t stand that people try to tie race to this issue, because it’s the subtle racism of lowered expectations, which in a way is worse than overt racism because it’s invisible.
They all knew what they were getting into. They knew that the rate would go up, and that when that happened, they wouldn’t be able to pay, so then it’s time to sell. Oh well. Try thinking next time.
Comment posted July 27, 2008 @ 11:06 pm
It was bound to happen. Someone starts counting the colors and because more greens and yellows got the shaft, It’s prejudice! I get calls all the time from people trying to sell me something too good to be true. It’s not a matter of being green or yellow, it’s a matter of being stupid.
Comment posted July 27, 2008 @ 6:06 pm
It was bound to happen. Someone starts counting the colors and because more greens and yellows got the shaft, It's prejudice! I get calls all the time from people trying to sell me something too good to be true. It's not a matter of being green or yellow, it's a matter of being stupid.
Comment posted July 28, 2008 @ 1:46 am
If you don't know how to use a calculator, then you shouldn't own a house anyhow.
I'm white and when I was asked if I would like an ARM or a normal mortgage, I went with the normal, old school yo, fixed rate!! Even after the broker (who was black) tried to pressure us into taking the ARM.
I can't stand that people try to tie race to this issue, because it's the subtle racism of lowered expectations, which in a way is worse than overt racism because it's invisible.
They all knew what they were getting into. They knew that the rate would go up, and that when that happened, they wouldn't be able to pay, so then it's time to sell. Oh well. Try thinking next time.
Comment posted July 29, 2008 @ 8:36 am
The point is not that the “coloured folks” or whatever they are called in your neighborhood just made poor financial decisions and now are playing the race card, it's that we don't all get the same menu to choose from in the first place! Wake up and smell the coffee America! The rest of the world sees your segregated society but white people and Bill Cosby say there's no more racism standing in people's way.
I'm a white mom in Vancouver, Canada, and minorities here have it tough, but we try to work together to fight poverty and build a better country. Our poor neighbourhoods have few banks and lots of cheque cashing payday loan places, and I'm sure yours do too, so before the bank even gets a look at you, you have probably been drained financially and don't know it. And I just heard an ad for mortgage loans here promise “property value guaranteed to increase”. So how were you clever people the only ones in the economy to see the truth?
Comment posted July 29, 2008 @ 11:04 am
Race is too often misused. In the case of the home mortgage discussion, race is a surrogate for being poor. More (not all) black and brown folks are poor and those folks in worse economic conditions take out more subprime loans. Poverty does not prevent people from using a calculator, but it does convince people to take greater short term risks than those who are more financially secure. More poor people play the lottery. Nobody cares, because the cause of a lottery ticket is cheap. More poor people took out subprime loans. Everybody cares because of the housing crises. But the motivation to take the risk in both cases is the same- the expectation of living the American dream. Are poor people entitled to that dream, to take risks to obtain it?
It is easy to blame the poor. The don't usually live next door, and are somewhat invisible to the middle/upper class. But I think those same people who blame the poor and their lack of calculator skills, should be mad as anything about the predatory practices of the banking elite. They take enormous risks daily, lobby congress for lessening banking regulations, for expanded free trade- anything to enable the expansion of their risky behavior. They take advantage of all of us asking for a mortgage. Have you ever looked at the amount of interest paid for a 15-year or 30-year mortgage? Who is backing Fannie and Freddie? I think the answer is “us”.
The mortgage crises is a shared blame and I think, if you don't know how to use a calculator, you couldn't have the privilege of running a bank either.
Comment posted December 7, 2008 @ 9:06 pm
What seems to be missing here is the percentage of white mortgage applicants that recieved no mortgage at all. For this story to be complete, the data concerning regection rates of both groups needs to be disclosed.
Comment posted April 6, 2009 @ 11:44 am
That was then and this is now. Guess what we're still all in this together and a house divided against itself cannot and will not stand. One nation under God…… get real.
Comment posted April 10, 2009 @ 8:04 pm
Race and the Housing Crisis, I love this issue very much Karl’s Mortgage Calculators . Thank you for sharing this information.
Comment posted April 11, 2009 @ 3:04 am
Race and the Housing Crisis, I love this issue verymuch Karls Mortgage Calculator . Thank you for sharing this information.
Comment posted November 14, 2009 @ 12:58 am
The article was about minorities in the same financial situation as their white counterparts being more likely to be offered a sub prime loan and as a result end up either paying more for their home or having to foreclose. It had nothing to do with poor people getting sub prime loans.
Comment posted November 14, 2009 @ 5:58 am
The article was about minorities in the same financial situation as their white counterparts being more likely to be offered a sub prime loan and as a result end up either paying more for their home or having to foreclose. It had nothing to do with poor people getting sub prime loans.
Comment posted August 3, 2010 @ 1:50 am
It is easy to blame the poor. The don't usually live next door, and are somewhat invisible to the middle/upper class. But I think those same people who blame the poor and their lack of calculator skills, should be mad as anything about the predatory practices of the banking elite. They take enormous risks daily, lobby congress for lessening banking regulations, for expanded free trade- anything to enable the expansion of their risky behavior. They take advantage of all of us asking for a mortgage. Have you ever looked at the amount of interest paid for a 15-year or 30-year mortgage? Who is backing Fannie and Freddie? I think the answer is “us”.
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