Foreclosure Crisis:
Disproportionate Impact On African-American and Latino Householdsand Neighborhoods
An Analysis of Newly Released Data
A report by New York Communities for Change2-4 Nevins StreetBrooklyn, NY 11217(347) 410-6919info@nycommunities.orgwww.nycommunities.orgIssued January 2011
Executive Summary
Everyone knows there is a huge foreclosure crisis. Recently the country has seen banks forced tosuspend foreclosures as more and more irresponsible, sloppy and potentially illegal practicescome to light. This new analysis provides a closer look at New York City and Long Island toreveal the disproportionate depth of the impact on minority communities, where modificationshave been scarce and widespread foreclosures threaten African-American and Latinoneighborhoods. New data from 2010 shows that there is an indisputable connection betweenrace and the likelihood of being served with pre-foreclosure notices.In New York City, Long Island and Westchester, there are thousands of African-American andLatino families and many neighborhoods that can be helped were banks to make more mortgagemodifications. These minority neighborhoods are in crisis – a crisis created by both speculativehome pricing, which allowed families to refinance their properties for more and more moneywhile stripping out any equity, and by lenders who targeted these neighborhoods with predatoryloans (including adjustable-rate mortgages, option arms, interest-only loans and loans withnegative amortization). From 2004 to 2007, in both New York City and Long Island, lenderswere four to five times more likely to issue high-cost loans to African-Americans and Latinosthan they were to whites – and this fact held true for both purchase loans and refinance loans.Often these loans were specifically marketed to African-Americans, Latinos, low- and moderate-income homebuyers and seniors.In 2007, the mortgage market started to collapse, and as a result house values started declining.This left many homeowners underwater on their mortgages – that is, with mortgage balanceshigher than the current value of their homes. Being underwater prevents families fromrefinancing their homes. Additionally, many homebuyers are losing their jobs because of the2008 financial collapse. African-Americans and Latinos have been hardest hit by job losses:between June 2009 and November 2010, 557,000 African-Americans and 292,000 Latinos losttheir jobs nationally.
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New data analyzed for this study show that African-Americans and Latinos make up 32%of homeowners in New York City, but accounted for 56% of the December 2009 toDecember 2010 pre-foreclosure notices issued, making them 175% more likely than thegeneral population of homeowners to be in foreclosure. Similarly, in Long Island’s SuffolkCounty, African-American and Latino homeowners are more than twice as likely as whitesto be in foreclosure, as they constitute only 13% of homeowners but have received 30% of the pre-foreclosure notices issued.
An aggressive program of mortgage modification is theabsolutely most certain vehicle to stabilize these neighborhoods.The homeownership gains of African-Americans and Latinos need to be protected in the NewYork metropolitan area. The stability of these neighborhoods is at stake. (The cost of foreclosures to communities is discussed in the appendix of this report.) The banks and servicersneed to come forward and quickly modify mortgages for people who are in danger of losing their
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http://online.wsj.com/article/SB10001424052748703946504575470001733933356.html#articleTabs%3Dinteractive
homes, which is not currently happening. Informal discussions with loan counseling operationsin New York City show that at most 16% of households that apply for permanent modificationsget them. Additionally, when banks do modify loans, they must start reducing the principalbalance. As recently stated in a report by Amherst® Securities Group, LP:“We have repeatedly made the case that principal reduction is the least costly andonly permanent solution for defaulted loans.”
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The third- and fourth-largest servicers of mortgages, JP Morgan Chase and CitiBank, are basedright here in New York City and especially need to step forward, to lead the way, and to dealwith this challenge.Overall banks and servicers need to:
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Offer homeowners who are underwater on their mortgages principal reduction instead of merely requiring all of the debt to be repaid at a later date (forbearance).
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Offer sustainable long-term loan modifications to homeowners with a permanentaffordable interest rate. This sustainability includes lowering the interest rate, taking intoaccount household debts and medical expenses, and it must be in place for the life of loan.
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Eliminate all fees that have accumulated as a result of being behind on the mortgage oncea modification is requested.
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Amherst Mortgage Insight, October 1, 2010, Page 13.
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