The Challenges Facing Communities of Color

Yesterday, I posted a chart highlighting changes in refinance lending in Chicago between 2008 and 2009.  It showed lending doubling in predominantly white communities but dropping by over 40 percent in communities of color. To me, this chart illustrates my concerns about the directions in which these respective communities might be heading in the wake of the foreclosure and economic crisis. Whatever the reasons are behind the drop in conventional lending to communities of color, it ultimately means that they will face significant challenges to recovery.

As some noted yesterday in the comments to my post, these trends should not be surprising.  Communities of color in Chicago and across the country have been devastated by the foreclosure and economic crisis.  They have seen disproportionately high concentrations of foreclosure activity which affects neighborhood property values and likely puts a substantial portion of non-delinquent homeowners  underwater.  Areas with high concentrations of foreclosure activity are also going to see higher levels of distressed sales (properties that are sold either during the foreclosure process as a short sale or after the completion of a foreclosure as a lender-owned property).  The prices of distressed sales are often below market value and can affect appraisals.  In areas where the only sales are distressed, it is difficult for lenders to assess the true value of a non-distressed property for a refinance loan, making lending in these communities more challenging.  In addition, we know that communities of color have disproportionately high levels of unemployment; that large quantities of wealth have been extracted from these communities through payday lending, predatory mortgages, and other costs associated with the fringe financial system; that a higher percentage of people in communities of color have low or no credit scores; and that many people in these communities have overwhelming levels of debt.      

A lot of Woodstock’s work revolves around documenting these challenges because, without evidence and data showing their scale, distribution, and concentration, it’s difficult for stakeholders to act effectively and intelligently.  There is no shortage of challenges to document, but what are the solutions?  On the mortgage side, we have a roster of policies we support, which include fair lending enforcement to ensure that people who are good credit risks have access to or are not being unfairly denied credit; community stabilization through foreclosure mitigation such as sustainable loan modifications and keeping properties occupied; consumer protection to make sure that abusive financial products don’t proliferate; initiatives to improve the credit profiles for people in hard-hit communities; and broadening incentives for responsible investment to help rebuild communities, such as the Community Reinvestment Act.

Broadly speaking, these are the types of policies that help stabilize and rebuild communities.  However, the challenges described above are perhaps bigger than these solutions.  They did not emerge over the course of a few years, but are the product of larger structural challenges that have faced communities of color for decades and are tied to dramatic gaps in wealth and prosperity between communities.  How can we fix these structural gaps?  Without a workable answer to that question, the above policies only have limited opportunities for success.  I’m looking forward to hearing your ideas.

Comments

[Greg Raven]

Good news: We live in a somewhat free country! So instead of resorting to bloviation about this topic, you can set up your very own lending institution and show all those evil, racist lenders how they're are missing the boat by not continuing to lend to people who will default on those loans. Sure, everyone else who has tried this has lost billions of dollars, and that's on top of the trillions that have been spent attempting to erase all the imaginary color gaps and poverty gaps and income gaps and gender gaps and you-name-it gaps, but ideology always trumps reality, right? So, stop whining and start lending!

[Unsympathetic]

That's been done for 20 years, Greg. It's called the CRA. But of course you won't recognize all the data conclusively showing the lower rate of default from those loans, because in the Republican world, ideology always trumps reality. Troll fail.

[Russ]

Geoff, what you are pointing out is a symptom of much larger cultural problems with minority communities of today - single parenting, education (or lack thereof), low expectations, etc. All of the issues are related and the results have a way of showing up in the finances of the community.

While some of the things you suggest may help (or hurt), none really address the root causes.

Lending is pretty color blind these days as underwriting decisions are based largely on statistical models and race isn't one of the factors. In fact, usually if there is any predatory lending at all it is being done by minorities themselves such as Hispanic loan officers taking advantage of non-english speaking immigrants.

More laws and regulation are not needed. What is needed is real financial education about debt, lifestyle choices, etc.

[Bill]

Not getting a loan in 2009 was probably a blessing in disguise.

By the way, loans nationwide declined significantly during this period. They are just now beginning to rebound.

http://scottgrannis.blogspot.com/2011/05/bank-lending-continues-to-pick-up.html#links

I would guess everyone was affected by this trend. I know that my very pale self was not able to access credit as freely during this period either.