The Housing Crisis, Foreclosure and Race: Impacts and Challenges
THE HOUSINGCRISIS, FORECLOSUREAND RACE:IMPACTS AND CHALLENGESJason Reece, AICPSenior ResearcherKirwan Institute for the Study of Race & EthnicityThe Ohio State University Department of City and Regional Planning, The Ohio State University Columbus, OH, December 5th 2008
Race and the Credit, Housing,2 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?
Housing andNeighborhoodRevitalization:What are theChallenges?
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 Revitalization5 Challenges o General Issues/Concerns in all Projects o Common challenges o Concentrated poverty, limited opportunity, disinvestment o 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 critical o Both within the city and when thinking about the region o Language, Framing and Definitions are Important o Avoid the terminology-concept of gentrification o We still need to define successful (and equitable) revitalization
Neighborhood Revitalization6 Challenges o General Issues/Concerns (continued) o Limited public resources o Must be strategically used o Must catalyze private investment/individual action o Social/Organizational/Human capital critical o Neighborhood leadership and technical capability o Issues outside of the direct influence of neighborhood planning are critical o Public safety (crime) and educational opportunity
Neighborhood Revitalization: 7 Challengs and Opportunitieso General Issues/Concer ns (continued) o A combination of elements provide the best opportunity for revitalization
Emerging Challenges8 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
Foreclosure Trends Foreclosures in U.S. by Loan Type: 2006 – 2008 12 10 % of Loans in Foreclosure 8 6 4 2 0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Subprime FHA VA All Loans PrimeSource: Mortgage Bankers Association, National Delinquency Survey, First Quarter 2008. 9
Institutionalized Disinvestment:Redlining Map of Philadelphia 10
From Redlining to Reverse Redlining: A historical view of redlining zones in Philadelphia and areas of foreclosure in minority communities.11
High Cost Loans & Vacant Residences forCities with the Highest Foreclosure Rates inthe Detroit MSA 80.0%Source: HUD 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Hamtramck Eastpointe Harper Melvindale Pontiac Ecorse River Inkster Detroit Highland Woods Rouge Park Foreclosure Rate Vacant Residence Rate High Cost Loan Rate
The Result14 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
The Impact of ConcentratedForeclosures in aneighborhood 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 19 eventually ensnare all residents (even those who were never
Slide Adapted from Presentation by: Solomon Greene, The High Cost of Foreclosure Open Society Institute, Neighborhood Stabilization Initiative20 Source: “Sheltering Neighborhoods from the Subprime Foreclosure Storm.” Special Report from the Joint Economic Committee. April 2007.
Impacts21 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
Why is the growing foreclosure problem causing problem in communities of More than Just color? Foreclosures and a -Lenders targeted Few Bad Borrowers: communities of color with subprime Understanding the loansCredit Crisis Impact in -Lack of loadCommunities of Color information or understanding for consumers in manyWhy Were Subprime of these communitiesLoans Concentrated in These -Communities were historically starved Neighborhoods? of credit -Mortgage securitization and the growth of the subprime industry created incentives 22 to target new markets with mortgages
Institutionalized Disinvestment:Redlining Map of Philadelphia 23
Foreclosure Outlook: RateResets Monthly Mortgage Rate Resets (in billions of dollars)Source: Credit Suisse Slide Adapted from Presentation by: Solomon Greene, 24Open Society Institute, Neighborhood
The Credit and Foreclosure25 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?
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 PictureIssues 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)28 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)
To Learn More about the Kirwan Institute: www.kirwaninstitute.orgFor more informationabout the racial impactsof the foreclosurecrisis, visit our http://www.kirwaninstitute.org/events/archivconvening web site at: e/subprime-convening/index.php Questions or Comments: Reece.firstname.lastname@example.org