While the economy is showing signs of slow recovery, foreclosures continue to decimate American cities. Six million families have already lost their homes, and the Center for Responsible Lending estimates that six million more will do so before the housing crisis is over. Black communities have been impacted the most, experiencing a foreclosure rate twice as high as their white counterparts.
Right-wing pundits blame greedy borrowers, arguing that they took out loans on homes they couldn’t afford, and federal policy, which “required” banks to give loans to unqualified inner city residents in order to counteract years of redlining. But research by the Federal Reserve, and others, shows that such loans were typically home equity loans, given to homeowners in which their home acts as collateral.
Predatory lenders used aggressive marketing tactics to entrap unwary buyers with high fees and interest rates, variable rates, prepayment penalties, and other costly provisions. Lenders also often falsified information to get families to borrow more money than they needed, or could afford to pay back. The Department of Justice recently found that Wells Fargo Bank, for example, targeted black communities with these kinds of “ghetto loans.”
Missing from debates about the roots of the crisis is the role played by housing investors. Sociologist Gregory Squires and urban affairs scholar John Gilderbloom, researching foreclosure activity in Louisville, Kentucky, found that among people who live in the houses they own, race had little to do with foreclosures. Race was, however, a significant predictor of foreclosures of investor-owned properties that were rented out to others—particularly among suburban whites renting out properties in predominantly black inner-city areas.
The foreclosure crisis, in other words, has little to do with the risky behavior of homeowners—or their race.