No Adult Supervision

Our current financial crisis reeks with the smell of hypocrisy. We have traded the rights of people for the rights of profits, and continue to watch the house of our economy crumble, due to its rotten foundation of deregulation. As foreclosures continue to reach an all-time high and more than $290 million of housing wealth is lost in the next year; housing values are likely to fall another 15% during this period. As jobs become scarce and incomes stagnate or decrease, our economy is likely to falter under a multi-pronged attack, exacerbated by deregulation, historic debt and corporate mergers. As per usual, people of color and the poor are being disproportionately affected by this crisis, virtually wiping away the financial gains made in the years since the Civil Rights Movement.

But in the midst of all of this misfortune heaped on people of color, others are capitalizing on the crisis. For some, this economic debacle, with its low interest rates and sharply declining housing prices, is not a crisis but an opportunity. It’s a buyers market where one person’s foreclosure disaster is another’s gold mine. Across the country, while people of color and other victims of the subprime crisis are being kicked out of their homes others are getting a steal. With property prices dropping to 20%-50% of their value and selling for even less than their pre-housing-bubble value, investors with the extra money and expertise to take advantage of the crisis (most of whom are White) are buying up foreclosed properties. Since the Black and Latino middle-class families who live in majority-minority neighborhoods have been especially hard-hit by the subprime lending crisis, the transfer of homes previously owned by people of color to White investors is speeding up gentrification rates to a degree that would have been impossible in the past.

Surprisingly, this expulsion of communities of color from newly-high-value real estate is perfectly legal. Some lenders are even refusing to let foreclosed homeowners buy back their properties. Disturbingly, only 28 states have a legal process for foreclosures, despite the fact that such a process is extended as a consumer right in almost every other commercial purchase. This means that people do not have the right, in close to half of the states in this country, to go to court and challenge a foreclosure that was the result of predatory lending practices. Moreover, the current policies that are being enacted on a federal level (with some minor adjustments at the state and local levels) are giving incentives to any purchase of foreclosed homes. So not only are investors able to purchase at extremely reduced rates, but programs are being developed to benefit investors that may include fixed low-interest rates, extra tax deductions and financial counseling. Those are exactly the kinds of supports that were needed by the homebuyers who were instead given subprime loans, but the people whose lives were ruined by foreclosure get no relief and no benefits from these measures.

Just as troubling as the way the crisis is playing out on the ground, is the way the mainstream discourse is focused on blaming the victim. Families are being criticized for taking out loans that they, according to conservative critics, could not pay. No blame, however, attaches to the sophisticated lenders who made the subprime loans in the first place. The lenders are the ones who bent the rules for profit making purposes, and designed loans with such steep penalties that it would be nearly impossible for families to repay. And let’s not forget that subprime loans were peddled specifically to people of color.

Federal policies that would protect homeowners and renters by keeping them in their homes are being delayed, watered down or rejected altogether by Congress. Policies such as foreclosure moratoriums, federal loan re-financing funds, due process in court, affordability requirements and renters’ protection are few and far between on state and local levels.  Yet data has overwhelmingly shown that maintaining homeowners and renters in a stable living situation during this crisis richly serves the interest of the bank or lender and the economy in general, as well as the people and families impacted by foreclosure.

There are eerie parallels in today’s situation to times in the fairly recent past, when the country was also not vigilant about protecting our most economically vulnerable. During the late 1940's, the passage of the GI Bill and its implementation by the FHA (Federal Housing Authority) changed the entire nature of home ownership and the mortgage process. The government’s assistance via these kinds of programs led to the greatest expansion of the middle class in history. But Blacks only received 1.7% of all the government-subsidized loans made from 1947-1963. This hugely increased the already-problematic racial wealth divide. In the 1960s, as a response to increased housing segregation that was inextricably part of the discriminatory implementation of the GI Bill, we saw the passage of strict anti-discrimination laws and regulations that helped establish today’s burgeoning middle class of color.  

However, the worst discriminatory practices from that era are evident in today’s crisis. During the implementation of the FHA loans, neighborhoods that would have a high population of people of color were marked as red; a designation that meant that loans should not be provided to people moving to (or from) that area. This later became know as redlining. Lenders considered these neighborhoods to be the “worst” value and therefore unworthy of homeownership loans. The same thing is happening today in neighborhoods with a large percentage of foreclosures; other housing is instantly devalued, even if the remaining homeowners never received subprime loans. Also during the days of the FHA loans, people of color were systematically removed from neighborhoods to protect home values for whites. As we look at the creation and implementation of policy solutions to the subprime crisis we are seeing a similar dynamic. Housing and real estate in middle-class neighborhoods of color are being sold to investors, often whites with what the loan industry defines as good credit, at discounted amounts.

History famously has 20/20 vision. We are now able to look back at the implementation of the GI Bill and recognize that it was incredibly discriminatory and a major cause of the racially divided economic inequality we see today. That understanding helped us shape and implement some of the greatest policies of the Civil Rights Movement, allowing us to build the largest middle class of color in history. 

In today’s subprime mortgage crisis, we can look to the past for potential solutions as well as the root of many of today’s problems.  It is simply a question of where we put the focus.

As we look to move forward to end this crisis, let us remember that the lack of supervision led us down the path of inequality, and that de-regulation disproportionally hurts people of color. As Martin Luther King, Jr. put so eloquently “if we are to be a first-class nation, we cannot have second-class citizens.” Let us return to the values of fairness and equality that this country was founded on, a country that believes in a country and “government of the people, by the people, for the people.”

Amaad Rivera is a contributing blogger to the Movement Vision Lab, the director of the Racial Wealth Divide Program at United for a Fair Economy (UFE) and author of “State of the Dream 2008: Foreclosed.” Amaad’s primary roles at UFE are developing and analyzing public policy that deals with race and the economy, conducting workshops and presentations, writing for and speaking to the media, curriculum development, and developing and overseeing demonstration projects throughout the country.