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The color of foreclosure

“For black America, the ‘mortgage meltdown’ looks less like a market hiccup than a massive stip mining of hard-won wealth.” (“The Subprime Swindle: How the mortgage industry stole black America’s hard-won wealth,” The Nation, July 14)

“A lot of our older African-Americans were house rich but cash poor,” says Nikitra Baily of the Center for Responsible Lending.  “So lenders came up with these scams to siphon the wealth away.”

The Nation cites a United for a Fair Economy estimate in January that “put the wealth loss for people of color at between $164 billion and $213 billion, roughly half the nation’s overall loss.”  

Blacks were excluded from massive federal programs that financed the post-war home-ownership boom.  Now the mortgage industry blames the market’s current collapse on the 1977 Community Reinvestment Act, which aimed at ending lending bias in the housing market.

“But subprime lending didn’t start with the demand that banks serve the community; it grew out of the removal of usury laws that governed how much banks could charge for their lending services,” writes author Kai Wright.  “Having fought CRA tooth and nail in the late ’70s, by 1980 the banks were pushing for regulatory changes that would allow them to profit from the requirement….

“The problems started when the housing market took off at the turn of the milennium, driven by historically low interest rates, skyrocketing sales prices and the resulting global rush to invest in the U.S. mortgage market.  Suddenly, suprime loans turned into trapdoors — increasingly exotic products through which lenders, desperate to feed the mortgage investment beast, lured people into needless debt.”

“Irresponsible borrowers”?  Read the case study the Nation presents.

Wright traces the mortgage industry lobby’s success in state after state in quashing attempts to require lenders to demonstrate a “tangible net benefit” to borrowers refinancing new home loans — with the added muscle of Standard & Poor, which issued credit rating threats  to back the lobbyists.  Those lobbyists are now concentrating on the U.S. Congress and limiting a federal response — particularly, blocking legislation to allow bankruptcy courts to modify loans.

Now neighborhoods “are falling further and further into decay.  The ugly reality is that banks can foreclose on properties, but they can’t resell them.  With thousands of already overvalued homes up for sale, the market is flooded, further driving down property values.  Banks, however, are hostage to the securities on which they gambled and cannot price the foreclosed homes at their actual value.”

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Category: African Americans, foreclosures

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