Tag Archives: mortgages

The racial bias in predatory lending

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A new study in the American Sociological Review explores how race impacted predatory lending and the larger U.S. housing crisis:

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

The financial institutions likely to be found in minority areas tended to be predatory — pawn shops, payday lenders and check cashing services that “charge high fees and usurious rates of interest,” they said in the study.

“By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions,” the study says.

The larger tale is that minority neighborhoods still do not have the same access to banks and lending institutions that non-minority neighborhoods enjoy. While the practices are now less covert (no redlining, restrictive deeds and covenants, riots when minorities moved into white neighborhoods), there are still clear race lines in American lending. These lending patterns have a strong impact on where people live, contributing to residential segregation (as seen in these maps).

Large “shadow inventory” lurking behind foreclosures

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While foreclosures have drawn a lot of attention, there may be yet another threat: the “shadow inventory” of homes where owners are at least one month delinquent on their payments.

In the eight-county Chicago area, 19 percent of mortgages — representing nearly 1 in 5 residential properties with a loan — are delinquent by at least one month, helping create an inventory of almost 204,000 homes at risk of reverting back to lenders, according to data provided to the Chicago Tribune by John Burns Real Estate Consulting in Irvine, Calif. That “shadow inventory,” as experts define distressed homes not yet put up for sale, is the largest in absolute terms for any metropolitan area in the country.

Based on its calculations, the firm believes that 80 percent of those homeowners eventually will lose their property, either through foreclosure or a short sale, in which the lender permits the home to be sold for less than the value of the loan.

If these figures are correct, or even close to correct, the housing crisis will continue for years to come as they properties eventually come up for sale. This will continue to have a strong effect on housing values and new building starts.

This could also have specific effects for the Chicago region. While most of the foreclosure attention seems to be focused on the Southwest and Florida, this data suggests many homeowners are teetering on the edge of keeping their homes.

Mortgage problems continue; 9.9% have missed at least one payment

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Some new data suggests the mortgage crisis is continuing and still affecting a large number of people:

One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

Even if this data were to improve soon, there would still be a long way to go to get back to anything resembling the housing markets of the 1990s or 2000s.