Study: An Estimated 240,000 Black Homeowners Have Lost Their Homes

The nation’s banks foreclosed on an estimated 240,020 homes owned and occupied by black families between 2007 and 2009, but that was just the beginning of the economic devastation foreclosures caused in African-American neighborhoods, according to a study by a national organization that promotes home ownership.

Eight percent of African Americans who borrowed money to re-finance existing mortgages or were approved for mortgages to buy homes between 2005 and 2008 later defaulted on their loans within two years, the Center for Responsible Lending wrote in the study, “Foreclosures by Race and Ethnicity: The Demographics of a Crisis.” The Center for Responsible Lending is a Durham, N.C.-based nonprofit, nonpartisan research and policy organization dedicated to protecting home ownership and family assets.

Although there has been substantial anecdotal evidence African-American homeowners are the face of the nation's mortgage crisis, the Center for Responsible Lending’s report reveals in detail the extent foreclosures have affected black homeowners.

Center for Responsible Lending researchers studied data collected through the federal government’s Home Mortgage Disclosure Act. The information includes mortgage data, borrowers’ race, ethnicity and income. Lender Processing Services Inc., a Jacksonville, Fla.-based company, analyzed loan performances, including whether borrowers paid on time or were delinquent.

Lender Processing Services estimated banks foreclosed on 2.5 million homes, beginning in January 2007, when housing prices began to decline. Although foreclosures have hit white homeowners hard, they have disproportionately affected African-Americans.

Between 2007 and 2009, whites represented 65.9% of mortgage originations compared with 7.8% for African Americans. The foreclosure rate for white homeowners, however, was 4.5% compared with a 7.9%.

The Center for Responsible Lending reported between 2005 and 2009, banks foreclosed on 790 homes owned by blacks for every 10,000 mortgages originated between from 2005 to 2008. During the same period, banks foreclosed on 452 homes owned by whites for every 10,000 mortgages originated.

“The disparity in the foreclosure rate estimates between African Americans and whites is not simply the result of differences in income,” the report states. “For example, though African-American borrowers received 25.8% of all loans to low-income borrowers, we estimate they were affected by 32.9% of estimated foreclosures. We have found borrowers of color to be more likely to receive higher-rate subprime loans even after controlling for income.”

The study noted mortgage brokers and banks not only targeted African-American consumers for higher–interest rate subprime mortgages, but within the subprime market blacks were more likely to receive the most-expensive loans and were more likely to receive subprime terms associated with increased default risk, such as prepayment penalties.

The Center for Responsible Lending researchers estimate 494,930 black homeowners face foreclosure and when combined with estimated completed foreclosures, the total number of African Americans who have lost or are in imminent danger of losing their homes is expected to reach 734,950.

The foreclosure crisis in the black community has caused collateral damage in the form of depreciated home values, increased crime and blight, the study found.“We calculate that the spillover wealth lost to African-American communities between 2009 and 2012 as a result of depreciated property values alone will be $193 billion,” the report says.

The Center for Responsible Lending’s report also challenged rumors, gossip and news reports about the subprime market. "The subprime market was predominately to refinance, not a purchase market,” the study found. “From 2004-2008, 58.5% of subprime loans were refinance or home improvement loans. Often borrowers were not even looking for a mortgage. Rather, lenders or brokers aggressively marketed their products and lured homeowners through deceptive initial teaser rates and relatively small amounts of money generated from cash-out refinances, all the while stripping equity through high fees and making it all but impossible for the borrower to stay in the home without refinancing again."