The NYTimes published a very interesting article this weekend documenting how minorities have been disporportionately affected by foreclosures in NY.  The article points to systematic abuses within the system that appear to be partly responsible for the split along racial lines, and can hopefully be prevented in the future.

85% of the worst hit neighborhoods in the New York Metropolitan Area are predominantly black or hispanic.  These neighborhoods are areas where the foreclosure rate is at least double the regional average.  However, perhaps more surprising and troubling is that the crisis is affecting the African American middle class more than the lower classes. Black households making over $68,000 a year annually are more than five times as likely to hold a subprime mortgage than whites of similar or even lower incomes.  These mortgages are the ones most affected when the housing bubble burst.

Furthermore, the African American lending universe is generally constituted of about a dozen banks and lenders, constituting half the loans given to black middle income borrowers in 2005 and 2006.  The terms of these loans were generally less favorable and more risky, with costs that can vary by thousands of dollars depending on the variability of the interest rate. Furthermore, 33% of the subprime loans given out to borrowers in 2007 went to borrowers with credit scores that should have been high enough to qualify them for a conventional loan. There is normally a three percent interest rate difference between subprime and conventional loans, which can add up to a difference of tens of thousands of dollars for the consumer.  The NYTimes points to a $272,000 difference in the interest on a $350,000 loan.  They also mention well-off African Americans with nine to eleven percent annual interest rates on their mortgages, rates that are surprisingly high for the group. 

Now in NY, whole neighborhoods are under assault. Fears of disinvestment are climbing, as homes once owned are becoming rental properties and vacancies increase.

What strikes me so strongly about this story is that it seems like a strong case of discrimination.  While part of the problem stems from members of the African American community not trusting traditional banks in the wake of decades of discrimination,  pushing them to subprime lenders, part of the problem is that it appears that these populations were particularly targeted with unfavorable terms and loans.  Now, we are seeing the consequences and these are the neighborhoods that will be most affected. There is a direct correlation between the increase in the number of foreclosures and an increase in violent crime, making the situation only more dire.

These lenders need to be held responsible, hopefully many of these borrowers will be able to get their mortgages refinanced, and hopefully the city and the country will take steps to ensure that this kind of racial discrimination in the loan market does not continue.