Understanding the Racial Impacts of the Foreclosure Crisis

by Jason Reece, Senior Researcher at the Kirwan Institute

The news has been saturated with coverage of the recent crisis in foreclosures and the housing “slump” that is impacting the nation. Unfortunately little of this coverage has looked at the racial and spatial dimensions of the foreclosure problem. Housing has long been a critical plank of the civil rights platform and will continue to be crucial in promoting equality. Housing is important in many ways outside of merely providing shelter; housing acts as a gateway to opportunity, while homeownership facilitates wealth building and provides financial stability. Many people of color have been denied access to the benefits of fair housing. Although progress has been made in recent decades in improving homeownership for people of color, the foreclosure phenomenon gripping the nation today may work to offset and undermine these gains.

Much of the foreclosure issues are fueled by predatory lending practices and non-traditional mortgages offered to families, with little thought of their ability to maintain the financial burden of the mortgages if the housing market changes. Teaser mortgages, sub prime loans and other adjustable rate mortgages have placed many homeowners on the edge of an economic precipice, with even the slightest change in the market or their financial standing pushing them into foreclosure. An estimated 2 million foreclosures are expected in the next two years due to these factors. If current trends continue a disproportionate share of these foreclosures will occur in urban communities of color. The foreclosure challenge impacts everyone, even those not immediately at risk for foreclosure, bringing additional hardship to all homeowners with lending institutions tightening lending guidelines, interest rates rising and homeowners in neighborhoods with high foreclosure rates experiencing a decline in their property values due to nearby vacant properties.

How can we address this new housing challenge? The answer to this question remains unclear at this stage, but certain steps can help offset this trend. Aggressive land banking and community development policies are needed to help inner city neighborhoods burdened with high foreclosure rates. Some type of direct assistance and counseling must be provided for families on the brink of foreclosure, and policies must be enacted to stem future predatory lending practices in urban communities of color. The housing market is always evolving and housing advocates must adapt to meet new challenges; a rapid and comprehensive response is needed.