Segregation and the Subprime Mortgage Crisis

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Segregation and the Subprime Mortgage Crisis

• The Kirwan Institute for the Study of Race
  Ethnicity at The Ohio State University
• October 2, 2008
• Gregory D. Squires
• George Washington University

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• I love Puerto Ricans and Negroes
• As long as they dont move next door.
• Phil Ochs 1965 (Love Me, Im a Liberal)

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• The black community today is the main obstacle
  to achieving the full integration our Civil
  Rights leaders sought.
• John McWhorter, Losing the Race (2000)

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Overt and intentional disparate treatment

• Areas surrounding a location are to be
  investigated to determine whether incompatible
  racial and social groups are present, for purpose
  of making a prediction regarding the probability
  of the location being invaded by such groups. If
  a neighborhood is to retain stability, it is
  necessary that properties shall continue to be
  occupied by the same social and racial classes.
  A change in social or racial occupancy generally
  contributes to instability and a decline in
  values.
• U.S. Federal Housing Administration 1938

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Overt and intentional disparate treatment

• there is one difference in people, namely race,
  which can result in very rapid decline. Usually
  such declines can be partially avoided by
  segregation and this device has always been in
  common usage in the South where white and negro
  populations have been separated
• Frederick Babcock 1932

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the ranking of race and nationalities with
respect to their beneficial effect upon land
values. Those having the most favorable effect
come first in the list and those exerting the
most detrimental effect appear last

• English, Germans, Scots, Irish, Scandinavians
• North Italians
• Bohemians or Czechoslovakians
• Poles
• Lithuanians
• Greeks
• Russian Jews of lower class
• South Italians
• Negroes
• Mexicans"
• Homer Hoyt sociologist and consultant to FHA

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Disparate Impact

• Underwriting guidelines minimum loan amount,
  age of housing
• Branch bank location
• Character lending cultural affinity,

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From Redlining to Reinvestment

• Federal Fair Housing Act
• Home Mortgage Disclosure Act
• Community Reinvestment Act

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Two Landmarks

• Color of Money
• Bill Dedman, Atlanta Journal
  Constitution
• Boston Federal Reserve Study
• Mortgage Lending in Boston
  Interpreting HMDA Data, American Economic
  Review,
• Alicia Munnell, Geoffrey M.B. Tootell, Lynn
  e. Browne, and James McEneaney

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Causes of Mortgage Meltdown and Foreclosure Crises

• Uninformed borrowers
• Irresponsible lenders
• Greedy investors
• Lax regulators
• Corrupt appraisers and bond rating agencies
• Fraudulent financial service providers
• Lost in current discussions is the broader
  context of economic inequality

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Household Income Growth1990-2004
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Measures of Inequality

• Median household income (2007) of white
  median
• white 54,920
• black 33,916 62
• Hispanic 38,679 70
• Asian 66,103 120
• 24 of whites and 11 of blacks receive an
  inheritance
• Average white inheritance - 115,000
• Average black inheritance - 32,000
• Ratio of typical CEO to production worker
  increased from 30/1 to 400/1

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Concentrated Poverty

• Tracts
  Population
• 1970 2000 1970 2000
• U.S. 1,177 2510 4.1 mil 7.9
  mil
• Columbus 6 13 26,994
  38,637
• DC 10 24 36,054
  77,563
• New York 74 253
  300,527 945,255
• Number of middle income neighborhoods declined
  from 58 to 41, 1970-2000
• Half of lower income households lived in middle
  income neighborhoods in 1970, 37 did so in 2000

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High Priced Loans by Borrower and Tract
IncomeU.S. and Columbus, 2006
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Race/Ethnicity and High Priced LoansU.S. and
Columbus, 2006
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Race/Ethnic Composition of Neighborhood and High
Priced LoansU.S. and Columbus, 2006
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High Priced Loans by Borrower and Tract
IncomeU.S. and Columbus, 2007
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Race/Ethnicity and High Priced LoansU.S. and
Columbus, 2007
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Race/Ethnic Composition of Neighborhood and High
Priced LoansU.S. and Columbus, 2007
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Segregation and High Priced Loans

• Controlling on credit rating, poverty level,
  unemployment rate, percent black, racial
  segregation has a statistically significant
  impact on levels of subprime lending across the
  nations 371 metropolitan areas

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Policy Responses to Inequality

• Increase EITC all levels of government
• Index minimum wage for inflation/cost of living
  adjustments
• Expand living wage ordinances currently in over
  100 communities (apply to economic development
  subsidies)
• Enact Income Equity Act eliminating corporate tax
  deductions when executive pay exceeds 25 times
  that of the lowest paid worker
• Provide universal health insurance
• Strengthen union organizing efforts e.g. enact
  Employee Free Choice Act creating union dues
  check off system
• Equitable school funding and school
  desegregation-
• fair housing enforcement, redrawing school
  district lines,
• new construction, preference for students from
  diverse schools by elite universities, deny tax
  deductions in segregated communities

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Aggressive organizing

• NFHA generated 215 million for plaintiffs since
  1990
• NCRC reported that CRA generated 4.7 trillion
  for reinvestment in underserved markets
• ACORN victories created 15 billion for
  low-income communities (e.g. predatory lending,
  living wage, CRA agreements)
• Broader coalitions unions, faith-based
  organizations, cities, affordable housing
  advocates (including some lenders developers),
  neighborhood groups, foundations, media,
  universities e.g. lawsuits by Baltimore and
  Cleveland

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Predators

• If you cant maintain a certain amount
• No bankers going to let you have a checking
  account
• So when you gotta cash a check cause your kids
  need to eat
• Theres a check cashing place about a block up
  the street
• When the moneys tight, you dont have to wait
• Theres a 500 percent interest rate
• That you keep rolling over on that payday loan
• And if you cant afford a freezer you can
  rent-to-own
• You gotta make those payments for you cant miss
  one
• You can buy it three times over by the time that
  youre done
• If you do miss a payment, they will repossess
• And when your ice cream melts, its going to make
  a mess
• Cause theyre predators, predators, they keep
  devouring more and more
• theyre predators, predators that keep gettin
  richer by preying on the poor
• Rap song
• Predators
• Music and lyric by Clifford J. Tasner Wil b.
• _at_2006 by Tasner Tunes Lu Chi Fu Music

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