Foreclosure Rates by Race

Currently, I am an intern at United Housing Inc., an organization that helps new homeowners in Memphis make smart decisions when purchasing so that they are less likely to face foreclosure in the future. Additionally, they help those who are facing foreclosure by providing counsel about the options available to those who are in foreclosure about regaining their homes. Unsurprisingly, a large percentage of the clients who come into UHI are African American, but this could in part be because of the demographic breakdown of Memphis. However, nationally, the statistics for those affected by foreclosure are skewed racially. An estimated 11% of African American homeowners entered foreclosure during the 2006-2009 period, as compared to a 7% of White homeowners. While there are more foreclosures filled by non-hispanic whites than blacks (this makes sense simply because of population breakdowns), the African American community is affected at a much greater rate than the White population. This is the result of both a long history of exclusionary practices in the homeownership business and new predatory tactics employed by banks and mortgage brokers. Historically, African Americans have been victims of redlining and loan denial. Today, African Americans are more likely than any other racial group to be targeted for subprime loans. Subprime loans or second-choice lending, is when mortgage lenders give loans to people who have a documented issue affecting repayment such as child support/alimony, high debt, unemployment, etc. These loans always have high interest rates-the lender justifies this by stating they are taking a risk on the borrower because of their history of repayment issues or because of their current financial situation. This justification might be more valid if it were not for the fact that African American’s are chosen for these types of loans at a disproportionately higher rate than any other ethnic group. 49% of all mortgage loans granted to African Americans are considered subprime.

Another issue with this type of loan is the criteria that banks use to to determine if borrowers qualify. While the most common qualification is a history of loan repayment issues, there are several other factors that banks can use to justify their decisions. These include those who have limited debt experience (African American’s are denied loans more often and thus it is difficult for them to build up loan experience) and a lack of possession of other assets.  

Data found at: http://www.urban.org/events/upload/Panel-1-1-Bocian.pdf