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Negative equity is disproportionately concentrated in the Chicago region’s communities of color, Woodstock Institute report shows

March 23, 2012 Leave a comment

Tom Feltner | Vice President
Woodstock Institute

Homeowners with mortgages in African American communities more than twice as likely to be underwater as homeowners in white communities

CHICAGO–Negative equity is disproportionately concentrated in the Chicago region’s African American, Latino, and majority minority neighborhoods, a new report from Woodstock Institute found. The report also found that borrowers in communities of color have much less equity on average than do borrowers in predominantly white communities.

View the full report here:  http://bit.ly/strugglingtostayafloat

Join us for a telephone briefing Tuesday March 27 at 10am CT:  http://stayingafloat.eventbrite.com/

The report, “Struggling to Stay Afloat:  Negative Equity in Communities of Color in the Chicago Six County Region,” used data from a major provider of mortgage and home value data to examine patterns of underwater homes in communities of various racial and ethnic compositions in the Chicago six county region in 2011. It found that:

  • Nearly one in four residential properties in the Chicago six county region is underwater, with just under $25 billion of negative equity. The average underwater property has 31.8 percent more outstanding mortgage debt than the property is worth.
  • Borrowers in communities of color are much more likely to be underwater than are borrowers in white communities.
  • Borrowers in communities of color are more than twice as likely as are borrowers in white communities to have little to no equity in their homes. In highly African American communities in the Chicago six county region, 40.5 percent of borrowers are underwater, while another 5.4 percent are nearly underwater. Similarly, 40.3 percent of properties are underwater in predominantly Latino communities and 5.3 percent are nearly underwater. In contrast, only 16.7 percent of properties in predominantly white communities are underwater, with another 4.4 percent nearly underwater.
  • Almost three times as many properties in communities of color are severely underwater compared to properties in white communities. In predominantly African American communities, 30.1 percent of properties have loan-to-value (LTV) ratios—a comparison of outstanding mortgage debt to home value—exceeding 110 percent, while that figure is 30 percent in predominantly Latino communities. In contrast, just 10.1 percent of the properties in predominantly white communities have LTVs exceeding 110 percent.
  • Borrowers in communities of color have much less equity in their homes than do borrowers in white communities, resulting in a significant wealth gap.
  •  Only about one-third of homeowners in communities of color have significant equity in their homes. In predominantly African American communities, 34.5 percent of borrowers have more than 25 percent equity in their homes, while 33.1 percent of borrowers in Latino communities have more than 25 percent equity in their homes. Fifty-five percent of borrowers in predominantly white communities have more than 25 percent equity.
  • Borrowers in communities of color have much higher average loan-to-value ratios than do borrowers in predominantly white communities. The average LTV ratio is 92.1 in predominantly African American communities and 87.4 in Latino communities, compared with an average LTV ratio of 67.7 in predominantly white communities.

Negative equity contributes to community decline by potentially leading to increased foreclosure activity, threatening the success of foreclosure prevention programs, and draining neighborhood wealth. In addition, the destruction of assets caused by negative home equity may disproportionately threaten the economic security of people of color because home equity is a larger proportion of their net worth than it is for white people.

View the full report here:  http://bit.ly/strugglingtostayafloat

The report concluded with a number of policy recommendations to reduce the negative impacts of concentrated negative equity, including:

  • Servicers should use principal reduction as a foreclosure prevention tool more broadly.
  • The Federal Housing Finance Authority should permit loans backed by Fannie Mae and Freddie Mac to be eligible for principal reductions.
  • Servicers should streamline processes for short sales.

Tom Feltner | Vice President

Woodstock Institute

29 E Madison Suite 1710 | Chicago, Illinois 60602

T 312/368-0310 x2028  | F 312/368-0316 | M 312/927-0391

www.woodstockinst.org | tfeltner@woodstockinst.org | @tfeltner

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A good credit score did not protect Latino and black borrowers

January 20, 2012 2 comments

Economic Policy Institute
Research and Ideas for Shared Prosperity
EPI News: Read about EPI’s latest research, publications, upcoming events, and related stories
January 20, 2012

In recent years, Latino and African American consumers with good credit scores of 660 and higher have too often ended up with high-interest-rate mortgages—mortgages that are supposed to go to risky borrowers. This week’s Economic Snapshot illustrates that from 2004 to 2008, only 6.2 percent of white borrowers with credit scores of 660 and above ended up with higher-rate mortgages. Latinos and blacks with good credit scores were at least three times as likely to end up with higher-rate mortgages.

“Discriminatory housing practices are one reason why our country needs a strong Consumer Financial Protection Bureau,” said Algernon Austin, director of EPI’s Race, Ethnicity, and the Economy program.

Austin’s research on the recession’s overall impact on the economic status of African Americans continues to be a key resource for reporters. His work most recently appeared in Forbes and The Grio.

Focusing on Dr. Martin Luther King Jr.’s pursuit of economic justice for all Americans, Forbes contributor Joel Kotkin stressed the significant amount of work that remains to be done, particularly with respect to the African American community. “While African-Americans make up 12% of the nation’s population, they account for 21% of the nation’s unemployed. Unemployment for black men stands at a staggeringly high 19.1%, and the Economic Policy Institute estimates that overall black unemployment will remain well above 10% till at least 2014,” wrote Kotkin.

The Grio columnist Monique W. Morris highlighted Austin’s research showing that African American under-and unemployment statistics dwarf their white counterparts both in good economic times and downturns. Morris wrote, “Research by Algernon Austin at the Economic Policy Institute has demonstrated the consistently high rates of under- and unemployment among African-Americans as evidence of a ‘permanent recession.’ This is true, he argues, when the economy is strong. So, when the rest of the nation is experiencing a recession, what are African-Americans experiencing? That’s right, a depression.”

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