Douglas S. Massey: Segregation: The Invisible Elephant in the Foreclosure Debate

The foreclosure mess just will not go away. Neither will incomplete if not misleading explanations for the crisis, or partial if not ineffective policy proposals. More than 10 million families will lose their homes to foreclosure before the housing market “clears” according to Credit Suisse. Meanwhile, as with the subprime and predatory lending bubbles that led directly to the present crisis, fingers are pointed in several directions as all parties to the debate try to shift blame to their favorite individual and institutional targets. Lost in this discussion is how continuing racial segregation has fueled these developments.

The guilty parties in the foreclosure crisis are many: greedy homeowners, unscrupulous investors, lax underwriters, asleep-at-the-wheel regulators, sloppy mortgage servicers, and more. No doubt all share in the blame. But all these actors played their roles in a context of ongoing racial segregation that greatly facilitated the fraud, deceit, and exploitation that occurred at each stage of the lending process. Research by a variety of organizations ranging from the Federal Reserve to the Center for Community Change reveals that subprime loans were concentrated in, and specifically targeted to, low-income, minority neighborhoods. As a result, foreclosures have fallen heaviest on the most disadvantaged segments of society.

To illustrate, when subprime lending peaked in 2006, just 18% of white borrowers received subprime loans compared to 54% of African Americans. An unfortunate irony, as the Wall Street Journal reported in 2007, is that over 60% of subprime borrowers had credit scores that qualified them for prime loans, underscoring the discriminatory nature of the marketing. Moreover, as reported by the Mortgage Bankers Association, subprime loans are approximately three times more likely to enter into default than conventional loans. As a result, between 2007 and 2009 approximately 8% of homes owned by black or Hispanic families went into foreclosure compared to 4.5% for whites. According a study by the Center for Responsible Lending, these disparities persisted even after taking household incomes into account.

Discriminatory lending patterns do not happen by chance. As the National Community Reinvestment Coalition has reported, in recent years racial minorities and minority communities were deliberately targeted by predatory lenders for subprime lending. The more segregated a metropolitan area is, of course, the easier it is to find exploitable clients. Segregation creates natural pockets of financially unsophisticated, historically underserved, poor minority homeowners who are ripe for exploitation.

It is no surprise to learn, therefore, that a recent study published in the American Sociological Review found that the level of black-white segregation was the single strongest predictor of the number and rate of foreclosures across U.S. metropolitan areas — more powerful than the overall level of subprime lending, the degree of overbuilding, the extent of home price inflation, the relative creditworthiness of borrowers, the degree of coverage under the Community Reinvestment Act, or the extent of local government regulation.

More than forty years after the passage of the Fair Housing Act, two thirds of all black urbanites continue to live under conditions of high segregation and nearly half live in metropolitan areas where the degree of racial isolation is so intense it conforms to the criteria for hypersegregation. If we had somehow been able to eliminate segregation between blacks and whites in the years since 1968, the average metropolitan area would have experienced a foreclosure rate 80% lower than that actually observed during 2006-2008. Segregation is the reason for the unusual severity of the foreclosure crisis in the United States.

Given the powerful role played by racial segregation causing the current crisis, policy proposals to enact a national moratorium on foreclosures, modify the terms of outstanding loans, make bankruptcy restructuring easier, or undertake other financial reforms largely miss the point. Although such steps might provide short-term relief for some homeowners, speculative housing bubbles will likely recur along racially unequal lines as long as hypersegregation persists as a basic feature of metropolitan America. It is long past time to address the nation’s segregated living patterns directly, and several policy initiatives to do so are now on the table.

The Housing Fairness Act (HR 476) would substantially increase the funding of fair housing organizations for nationwide paired testing (where matched pairs of white and non-white auditors approach housing providers to determine if they are treated equally). Such testing would yield much stronger enforcement of fair housing laws.

The Community Reinvestment Modernization Act (HR 1749) would extend the Community Reinvestment Act (a federal ban on redlining) to virtually all mortgage lenders and explicitly require them to be responsive to the credit needs of minority communities. Currently the CRA only applies to depository institutions (which today originate less than half of all mortgage loans). Moreover, the law currently focuses on service to low-income communities without a specific racial or ethnic mandate. Extending the CRA to all mortgage lending would help curb the predatory lending that drove much of the current crisis.

Finally, the U.S. Department of Housing and Urban Development has announced plans to issue a regulation to “affirmatively further fair housing” clarifying the statutory obligation that all recipients of federal housing and community development funds have to use those dollars in a manner that identifies and eliminates discriminatory barriers to equal housing opportunity. The agency should do so sooner rather than later.

Changing the behavior of financial institutions, regulators, and consumers is an important policy objective. Unless the segregated context in which they operate is also altered, however, speculative financial bubbles will persist and their uneven effects will continue to fall on vulnerable communities of color who have long paid the high costs of hypersegregation in the United States, America’s own brand of Apartheid.

Douglas S. Massey is the Henry G. Bryant Professor of Sociology and Public Affairs at Princeton University. Gregory D. Squires is Professor of Sociology and Public Policy and Public Administration at George Washington University.

From The Huffington Post


  1. Foreclosure frauds, Foxes, hidden Elephants in Plain Sight, Havoc

    Whether or not foreclosures are halted, not much will be accomplished until authorities take action against the elephant in the room –hiding in plain sight: FORECLOSURE LAWYERS.

    Lawyers (debt collection attorneys, foreclosure mills) for mortgage lenders should be held accountable for foreclosure illegalities and for concealing malpractice against their lender-clients –as well as for committing Unfair Debt Collection Practices, extortion, and fraud against property owners; and deceiving Investors!

    Often foreclosure delays are because of lawyers, but they keep that fact from clients. Lenders –who are not required to know laws, are sometimes unaware that lawyers’ mistakes, errors, and frauds provide reasons, defenses, and basis for owners to attempt negotiating mortgage contracts. As a fundamental matter, injurious acts by such lawyers render the lawyers, as well as their mortgage clients liable for justiciable damages.

    If improper or false pleadings are filed in court by mortgage lenders, it is almost always via lawyers acting on lenders’ behalf. It is he or she (lawyer) who would file bankruptcy “Lift Stay” motions that “lack standing,” “proof of claims” different from ‘lift stays’ “movers”; and record illegal property deeds. And, lawyers, not lenders would be the persons who failed to “effect service” or failed at any substantive Civil Procedure requirement. In those instances, homeowners should not be blamed for refusing to cooperate with taking of their homes via error and fraud; and those lawyers owe $$$$$$ to their clients for fatally botching foreclosure cases.

    But, there’s an abundance of lobbyists, speech makers, “insiders,” straw buyers, and others who apparently benefit from detracting attention away from the unmitigated fact that an intentional false court pleading is tantamount to judicial fraud!

    And despite any crafted statement about “quelling” the matter of fabricated foreclosures, it is impossible to “quell” aftermaths from deliberate fraud. It is moreover impossible, and ridiculous to discount actionable wrongs from attorney-orchestrated real estate swindles. It seems that the primary incentive for silencing defective foreclosures is concealing the actors.

    This scourge might not be so obvious, but glaring are recurrent illegal foreclosures, null property deed recordations, as well as foreclosure and bankruptcy proceedings via non-existent lenders’ names. Even worse, are horrific acts of tyranny inflicted upon people who oppose fraudulent conveyances. These are just samples of foreclosure improprieties which raise flags of lawfulness, and whether entitled lenders ever legally repossessed those properties.

    It is sometimes said that matters such as the foregoing are irrelevant to defaulted homeowners. Yet not enough people realize that there are property owners who have been injured for being interferences to white collar real estate vice.

    As such, glossing over matters of falsified foreclosure is definitely not useful when people have been egregiously wronged from foreclosure frauds. Not only are injured entitled to remedy, their information would equip authorities with more details and evidence critical for reducing crime and corruption. Also, substantive information (which would not be whitewashed, and whistleblowers receive protection) will supply a clearer picture of foreclosure fraud factors that are harmful to homeowners, banks, and investors. Additionally, city revenues across this country will increase because money being used in furtherance of foreclosure and mortgage fraud will return to city coffers. ** “Foreclosure Frauds, Wells Fargo-the Fox in Charge…” @