Foreclosures Fall but Many Communities of Color are Still at Risk

7.31.2102 | As the news reports today, housing sales are up, and even better news for struggling neighborhoods, foreclosures are down 24% in June compared to last June, according to CoreLogic. That’s good news for sure, but good news is always relative. While down, foreclosures still affected 60,000 families last month. And 1.4 million homes were in the nation’s foreclosure inventory, down from 1.5 million in 2011 at this time.

It might be a temporary stall, however. As CoreLogic economist Mark Fleming noted,
“Over the last two months real-estate owned (REO) sales declined while completed foreclosures leveled out. So we could see foreclosure inventory rising going forward.”

Phoenix, an epicenter of the foreclosure crisis, is seeing foreclosure sales at their lowest since 2008.

Foreclosures are not evenly distributed across or even within U.S. metro areas. More often, they are concentrated in already-vulnerable communities. As a recent report on Chicago by the Woodstock Institute, “Struggling to Stay Afloat” [pdf] notes,

“The foreclosure crisis has disproportionately burdened the Chicago region’s communities of color and low-wealth communities. For example, as of the end of 2008, 64 percent of Chicago’s vacant, lender-owned properties were concentrated in highly African American communities and those properties remained on the market 25 percent longer and lost more value than did similar properties in other communities. In addition, there is an extreme concentration in Chicago’s African American communities of abandoned properties in the process of foreclosure.”

A key risk factor of foreclosures is “negative equity,” and signs there are not encouraging. Negative equity is jargon of the banking / economics industry meaning the home is worth less than the mortgage.  Families with a loan-to-value (LTV) ratio exceeding 110 percent (that is, owing 10 percent more than the value of the property) are more likely to default on their loans, and the risk increases with the depth underwater, according to the GAO.

As Woodstock reports, underwater homeowners are more likely to live in predominantly black or Latino neighborhoods. In the Chicago metro six-county region, 25% of mortgages are underwater. In communities of color in the metro area, 40% are. The latter rate is slightly more than twice the rate of underwater loans in predominately white communities. The risk of default is high for many of these communities. In black and Latino communities, 30% of the underwater loans have LTVs greater than 110.

Therefore, while the recent housing news offers a glimmer of hope, we’re not out of the woods yet.

Comments are closed.