Minorities and Foreclosures

Increasing minority homeownership has been a national policy of both Republican and Democratic Administrations for decades, and for good reason.  Traditionally, homeownership has been the path most families have taken to establish financial security.  Moreover, homeownership has long been associated with such positive factors as safer neighborhoods and better neighborhood schools.


As my colleague David Lereah points out in The Housing Downturn and Homeownership, times have changed for homeownership.  It is in decline for the first time in m and it is in decline for the first time in many years.


The goal of government efforts to boost minority homeownership seemed quite reasonable-to achieve parity with white homeownership rates.  Progress was made but white and minority rates were always at least 20 points apart.  In terms of numbers, today 24 percent of the nation’s homeowners are racial or ethnic minorities, with African American homeowners accounting for 9 percent, and Asian/Pacific Islanders accounting for 4 percent.


However, as David pointed out, the pendulum now is swinging back, not just for all American households but especially for minorities.


While under-represented in homeownership generally, minorities, are significantly over-represented among those at risk of losing their homes to foreclosures.


Neighborworks America last week announced that of the more than 363,000 homeowners who received foreclosure prevention counseling through March 31, 2009, 21 percent were Hispanic homeowners, nearly twice their representation of total homeowners.  In all, 53 percent of the clients of the congressionally authorized National Foreclosure Mitigation Counseling (NFMC) program were minority homeowners, or more than twice the overall percentage of minority homeowners.

According to the NeighborWorks America report, Hispanic clients who sought foreclosure prevention counseling were the only group of homeowners more likely to hold adjustable rate mortgages (ARMs) than fixed rate mortgages.  Forty-seven percent (47 percent) of Hispanic NFMC clients held ARMs, and 41 percent held fixed rate mortgages.  Nationwide, only 18 percent of outstanding mortgages are ARMs.  All other NFMC clients were more likely to hold fixed rate mortgages than ARMs.  Fifty-one percent (51 percent) of African American clients held fixed rate mortgages, and 38 percent held ARMs.  Like African American NFMC clients, White NFMC clients were more likely to hold fixed rate mortgages (59 percent) than ARMs (31 percent).

“During the housing boom, many Hispanic homeowners were steered into high-cost loans by unscrupulous lenders in order to gain a foothold into the housing market.  Now that the boom has gone bust, the foreclosure crisis is disproportionately affecting Hispanic homeowners who are more likely to have high cost, exotic loans like adjustable rate mortgages and interest-only loans,” said Ken Wade, CEO of NeighborWorks America.

It’s too soon to tell how successful NeighborWorks’ highly regarded mitigation program will be.  As the Making Home Affordable program gears up, hopefully it will play a significant role in helping minority homeowners with ARMs to save their homes.

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