August 18, 2010
Latinos and blacks in California have experienced significantly higher foreclosure rates than non-Hispanic borrowers in the state, according to research released by the Center for Responsible Lending (CRL).
As a result, these communities represent more than half of all foreclosures, with 48 percent of foreclosures on Latinos and eight percent on African blacks. These borrowers were more likely to receive higher-cost subprime mortgages with loan terms that typically increased the risk of default, compared with safer loans made to similarly situated non-Hispanic white borrowers.
The report, Dreams Deferred: Impacts and Characteristics of the California Foreclosure Crisis, analyzed more than 600,000 foreclosures in the state and also found that over three-quarters of all California foreclosures were on relatively modest properties, not "McMansions" as often believed.
Additionally, while major cities like Los Angeles and Sacramento have suffered the greatest number of foreclosures, communities in the Central Valley and Inland Empire have been severely harmed by high concentrations of foreclosures.
"Whether we are from Los Angeles or Modesto, all Californians are severely impacted by the foreclosure crisis," said Paul Leonard, director of CRL's California office. "We need solutions now that ease the pain everywhere."
The research is the first to rigorously examine the geographic and demographic dimensions of California foreclosures as well as characteristics of foreclosed properties. The key findings are:
Latino and black borrowers in California have experienced foreclosure rates 2.3 and 1.9 times that of non-Hispanic white borrowers. Given the high foreclosure rates for loans made in recent years and the large number of loans to Latinos in those years, almost half of all California foreclosures have been of Latino borrowers.
The concentration and volume of California foreclosures differ dramatically by region. The Central Valley and Inland Empire have the highest concentrations of foreclosures, while the volume of foreclosures is highest in major cities, such as Los Angeles.
Contrary to some claims, most foreclosures have not been on sprawling "McMansions" but rather on modest properties that were typically valued significantly below area median values at origination.
"NCLR has sounded the alarm for the last two years about the devastating impact foreclosures have had on communities of color, but this report reveals a shocking level of concentration among Latino homeowners in California," said Janet Murguia, President and CEO of the National Council of La Raza. "Dishonest brokers peddled their high-cost loans, steered our families into risky products designed to fail and now Latinos and all of California are paying the price."
Fixing the problem
The report also outlines policy recommendations to reduce what are seen as unnecessary foreclosures:
Require servicers to complete the review of loan modification applications before beginning the foreclosure process. This is the central feature of California bill SB 1275 which will be considered by the full California Assembly this week before being sent to the governor.
Incorporate principal reduction into loan modification programs, especially where housing prices have contributed to a lack of affordability.
Lift the ban on judicial modification of principal residence mortgages by bankruptcy judges.
Expand funding and capacity of housing counseling agencies and legal aid providers.