The Intersection of Race, Ethnicity and the Subprime Crisis

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The Intersection of Race, Ethnicity and the
Subprime Crisis
Debbie Gruenstein Bocian October 2nd, 2008
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Overview

• African Americans and Latinos have
  disproportionately received the riskiest loans.
• Foreclosures are concentrated in communities of
  color.
• The worst is not over.
• Dramatic need for policy intervention now.

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Background Race, Ethnicity and the Subprime
Market

• African-American and Latinos disproportionately
  receive high-cost loans

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Background Race, Ethnicity and the Subprime
Market

• CRLs Unfair Lending Report
• - Disparities cannot be explained by legitimate
  risk characteristics
• - Borrowers of color about 30 more likely to
  receive higher cost loans than similarly-risky
  white borrowers
• Possible Causes of Price Disparities
• - Traditional discrimination
• - Market segmentation (e.g. marketing, targeting
  of high-cost vs low-cost lenders)

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Profile of Subprime Borrowers
Source 2005-2007 HMDA
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Neighborhood Demographics and Foreclosure

• What is the difference in the likelihood of
  foreclosure for loans in neighborhoods with high
  concentrations of minorities versus white
  neighborhoods?

Increased Odds of Foreclosure by Neighborhood
Type
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Subprime Foreclosures
Source CRL Calculations based on McDash and HMDA
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Estimated Total Foreclosures
Source CRL Calculations based on McDash and HMDA
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Overall Impact

• CRL estimates 2.2 million subprime foreclosures
• 40.6 million surrounding homes will lose value as
  a result of proximity to foreclosures
• Total 352 billion in lost wealth to families
• Disproportionate impact on African-American and
  Latino families and communities

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What about the bailout?

• Bailout proposals ignore fundamental cause of
  crisis, i.e. foreclosures and falling housing
  prices
• Need for bankruptcy reform and foreclosure
  deferments
• Need to drastically improve borrower protections
  going forward