Foreclosures and the Ongoing Wealth Wipeout
The political history of race in America will record the Obama era as a breakthrough moment and a huge step forward. But any economic racial history will tell a nearly opposite story: Under the first black president, African-Americans have lost much of the wealth they built up over previous decades. The main culprit has been an ongoing foreclosure crisis that Washington has done very little to stop, even as it has shoveled trillions in nearly free loans to big banks who have enjoyed record profits.
This is hardly news for anyone who has kept an eye on data releases by groups like the Pew Research Center, which have shown wealth for households of color falling by over 50 percent as a result of the crash. In fairness to Obama, the wealth wipeout got started before the President took office as the housing market collapsed.
Less well known, though, is how unrelenting foreclosures have continued to strip African-Americans and Latinos of astonishing amounts of wealth year after year under Obama while the government dithered.
This is the takeaway of a disturbing new report out by a coalition of groups that includes the Alliance for a Just Society, the New Bottom Line, and the Home Defenders League. Drawing the on latest data, the report finds that the "foreclosure crisis continued to destroy wealth on a large scale in 2012, with $192.6 billion in wealth lost." Community of colors are being hit hardest: "ZIP codes with majority people of color populations saw 17 foreclosures per thousand households with an average of $2,200 in lost wealth per household."
That figure is 70 percent higher than the rate for white communities, and shows the devastating impact of subprime and predatory mortgage lending, which was disproportionately concentrated in non-white neighborhoods. Indeed, ex-employees of large banks like Wells Fargo have exposed how and why they specifically targeted minority homeowners for subprime loans and were financially incentivized to get even home owners with good credit to pay the highest possible rates. I wrote about this here last year, calling it "capitalism at its worst."
The foreclosure crisis shows no sign of abating, with 13 million homes still under water.
Where has Washington been in all this? It's a sorry story. Just as the federal government did nothing to stop subprime predatory lending as it reached an apex during the Bush years, so too has it done little to bail out homeowners that ended up in trouble. This failure started with TARP, which was supposed to help distressed homeowners as much as banks, but never did -- with top Obama Administration officials obstructing this side of TARP, as revealed by Neil Barofsky's recent book.
That failure was compounded by a series of inept homeowner relief programs which have done strikingly little for communities of color.
But it's not too late to limit the damage, which is ongoing every day as people lose their homes and whatever equity they had in those homes. The report calls for an aggressive strategy of principal reduction for distressed homeowners and other relief efforts at the federal, state, and local level.
While principal reduction has been seen as political dynamite because of "moral hazard" -- e.g., delinquent homeowners getting help while others do not -- the report shows that everyone benefits from principal reduction. Foreclosures drag down home values, which means all homewoners have less wealth. And excessive mortgage payments leave less walking around money for distressed homeowners who otherwise could be helping to pump up consumer demand and help businesses.
Beyond all this, there is a broader imperative at stake here: America still owes a huge debt to African-Americans who were locked out of opportunities to create housing wealth for generations thanks to Jim Crow, redlining, deed covenants, and the discriminatory aspects of the FHA and GI Bill. And we owe a debt because we turned a blind eye to predatory lending by banks for years. Now is the time to make amends.