Deferring the dream? Homeownership may be more out of reach for minorities
This article first appeared in the St. Louis Beacon, Oct. 14, 2009 - On one hand, the decision by the Obama administration to build thousands of federally subsidized rental units in American cities for low- and moderate-income families has been welcomed by nonprofit organizations that work with St. Louisans displaced by foreclosure.
On the other hand, Housing and Urban Development Secretary Shaun Donovan's acknowledgment that not everyone can or should own a home is being seen as a major policy shift from the Bush administration's emphasis on expanding minority homeownership as a means of accumulating generational wealth.
The government plans to spend $4.25 billion in economic stimulus funds for the construction of low-rise rental apartment buildings -- and to buy foreclosed homes that will be rehabbed and rented to families at affordable rates.
While homeownership remains a worthy goal, people need a place to live now, says Eric Madkins, director of housing and foreclosure intervention for the Urban League of Metropolitan St. Louis.
He sees Obama's investment in affordable rental housing as a practical and necessary response to the nation's housing and credit crisis.
"We have a segment of the population that needs assistance with basic shelter at this point,'' Madkins said. "Since we're still searching for the bottom as far as the housing bubble, this is going to help in trying to stabilize things at the moment.''
Madkins adds that the value of homeownership is too important to abandon.
"Once we reach stabilization, that's when we can revisit homeownership,'' he said.
Foreclosure's toll on minorities
The nation's foreclosure rate remains staggering. In the two-year period between July 2007 and August 2009, there were more than 7 million foreclosure filings in the United States, according to RealtyTrac. Though the crisis is far from over, researchers and fair-lending advocates say the sub-prime mortgage meltdown has already stripped billions of dollars of wealth from Americans, with minority homeowners losing a disproportionate share.
"Our last estimate -- in 2008 -- was that loss of wealth due to subprime loans for blacks, Latinos and Asians was $164 billion to $213 billion, over the eight-year period from 1998 to 2006," said Amaad Rivera of United For a Fair Economy, a Boston-based nonprofit advocacy group that raises awareness about unequal wealth distribution.
The organization estimates the subprime market loss to white borrowers at between $198 billion and $249 billion.
"Blacks and Latinos made up 40 percent of the subprime market but carried almost the same burden as their white counterparts," he said.
The organization bases its numbers on a variety of sources, including data collected by the federal Home Mortgage Disclosure Act on the demographic breakdown of who gets high-priced loans, plus loan default rates and foreclosure petitions.
It's no easy task because housing data aren't collected with the goal of finding discrimination, Rivera acknowledges.
Peter Salsich, a law professor at St. Louis University, says that on some levels, the current foreclosure mess is frustratingly similar to a wave of foreclosures that beset minority Americans in the 1960s -- an outgrowth of a Federal Housing Administration loan subsidy program aimed at helping low-income people buy homes.
One of the problems with the program -- called Section 235 -- was that people who didn't meet the minimum income level were given loans.
"They got into the homes, but they had no money to pay for things like repairs and heating bills. So there was a wave of foreclosures," said Salsich, who studies issues of affordable housing and land-use laws.
Historians say that while FHA's underwriting standards helped improve the standard of the nation's housing in the decades after the Great Depression, they also discriminated against minorities and further reinforced segregation in the nation's cities.
FHA's exclusion of minorities -- redlining -- was an accepted policy done under the guise of ensuring stability, Salsich said.
Rivera said that while the redlining of the New Deal era worked to keep homeownership away from people of color, the 21st century version has been dubbed "reverse redlining'' because it worked to take homeownership away from people of color.
"Regardless of income or credit score, people of color were steered toward subprime loans more than their white counterparts. Even a wealthy person of color with a good credit score was more likely than a middle-class or lower- income white to get a predatory subprime loan," Rivera said.
What's new is old
The old Section 235 program was rife with fraud, as documented in a January 1971 article published by Time magazine under the headline: "Housing: Subsidized Fraud." And, interestingly, some of the descriptions resemble the "flipping" of properties that helped drive the current crisis.
"Prompted by a torrent of complaints from victimized buyers, Banking Committee staff members investigated Section 235 homes in 10 cities," reported Time. "It is common practice in the inner city to pick up houses for minimal amounts, perform a so-called 'paste-up' or 'cosmetic' rehabilitation which, in many cases, amounts to a few hundred dollars, and then resell the property under Section 235 for a profit of thousands of dollars. Buyers are willing to pay outrageous prices partly because of the exceptionally easy terms made possible by the subsidies."
In light of the current foreclosure mess, Salsich believes it is a good time for Americans to rethink the notion that homeownership should always be preferred over renting.
"In some respects, we again got caught in the trap of thinking that everyone should be able to own a home," he said. "But there are a certain number of people who simply don't have the income to afford that process. That's one of the lessons that has come out of this."
Salsich said a new focus on renting can work if it is accompanied by new attitudes.
"Rental housing is an important part of our overall housing stock," Salsich said. "But we've created this environment where local governments won't allow apartments in their community. They zone them out. And people think that everybody who's renting -- there must be something wrong with them. I think that's hurt us a lot in the overall attempt to develop a balanced housing program where people at every level of society can have decent shelter."
Salsich believes that using your home as your major investment is not an appropriate solution for everyone.
"We've gotten caught up in this idea that what you need is shelter, plus investment. Investment is fine if you can afford the cost of that investment, but maybe what you really need is shelter," he said. "And maybe you build your wealth in some other ways."
The foreclosures of the 1960s were limited in scale, unlike the current crisis that has cut across the economy owing to the mushrooming of subprime loans that grew from about $34 billion of the mortgage market in 1994 to more about $600 billion in 2005, Rivera said.
He points to the widening gulf between the nation's wealthy and the middle- and lower-income classes as a contributing factor to the current recession.
"We are looking at some of the greatest inequality that we've seen since the Great Depression, and yet we don't care. It's stopped being talked about. We have people saying the country is recovering, but this is a jobless recovery -- meaning a large number of Americans are not working or are underemployed," Rivera said.
Homes for the newly homeless
In addition to funding for affordable housing, the Obama administration has targeted $1.5 billion in economic stimulus money for the Homeless Prevention and Rapid Re-housing program.
The federal assistance is welcome because it will be a long time before people who lost homes to foreclosure are able to recover financially -- particularly in this era of tightened credit, said Karen Wallensak, director of the Housing Resource Center of Catholic Charities of St. Louis.
"We are beginning to see people in emergency shelters who have been through foreclosure, and we are seeing renters who have lost their homes because the property has gone into foreclosure. But most are doubled up with another family -- living in mom and dad's basement or with a brother and sister while they try to figure out what their next step is. But that only works for so long,'' she said.
Wallensak, whose agency provides free foreclosure counseling, said the working poor succumbed first because many were barely making ends meet, sometimes stringing together multiple low-paying, part-time jobs, with no health insurance. One financial setback -- a car accident or illness -- pushed many over the edge.
Often, she adds, it was refinancing out of conventional loans that got people into trouble -- accessing their home equity worked as a form of wealth stripping.
"I don't think there's any doubt that mortgage brokers were feasting off of lower-income neighborhoods and the conditions in those neighborhoods,'' Wallensak said. "Where foreclosures were most intense were neighborhoods with older housing that required more maintenance than places like Chesterfield and Ellisville where housing is newer. People would refinance five and six times as they just tried to cope with life, all the time counting on the continued appreciation of their homes. When home prices started to fall, they were upside down on their loans and owed more than their houses were worth.''
Rivera blames it on stagnating wages, coupled with rising prices for everyday expenses, such as food, health care, utilities and rent.
"Unemployment was the breaking point of a larger system of inequity that was happening to everyone. But within that, people of color were being disproportionately affected for the better part of five or six years,'' he said.