By Stephanie Llanes, Research Assistant to Haas Institute Director john a. powell
When I close my eyes and think about the happiest, most peace-filled place, I envision my parents’ home in Georgia. Every spring, birds would build nests on our porch. I would spend hours watching them hatch and play. During the summer my dad loved to make Puerto Rican barbecue while telling us about his younger years. In our home my sister and I held weekly piano concerts for our two biggest, most supportive fans. In our home, Christmas morning was the best. Our entire family would come over, transforming our small living room into a magical space where time was nonexistent. But like many families, we were not immune to the devastating forces of the housing crisis.
The recession greatly affected many families and communities in our country. However, it did not affect all families at the same rates. For example, neighborhoods populated with mostly Black and Latino families saw the greatest devastation of their equity and home value, and were significantly more vulnerable to foreclosure.
According to the Underwater America Report by the Haas Institute for a Fair and Inclusive Society at UC Berkeley, not only did the housing crisis affect families differently but the housing recovery is also bypassing many communities. The report analyzes negative equity and foreclosure data together with race and income data at the zip code, city, and metropolitan area level. The report demonstrates that despite the rising prices of homes in many parts of the country, nearly 10 million households still owe more on their mortgages than their homes are worth. Haas Institute Director john a. powell states that the report is important because “it reveals that a large part of the country is not only not recovering, it is largely being ignored. These are disproportionately black and Latino communities.”
In 14 out of the 100 hardest hit cities, Latinos and Blacks were 75% of the population. In 71 of the 100 hardest-hit cities, Blacks and Latinos account for at least 40% of the population. The findings of racial inequality are not random, but instead the direct result of discriminatory lending practices. Many Black and Latino homeowners living in these “hot spots” were targeted and preyed upon by abusive and fraudulent banks and mortgage brokers. Low-income and middle-class minority borrowers living in predominately Black and Latino neighborhoods were steered towards predatory and subprime loans.
Three cities in the state of Washington were identified in the top 100 cities with the highest incidence of negative equity. Tacoma was ranked the 45th with 31% of homes underwater, Kent was ranked 61 with 29% of homes underwater, and Everett was ranked 73 with 27% of homes underwater. In Seattle, only 11% of homeowners are were still underwater in 2013. However, in the hard-hit ZIP codes the number of homeowners still underwater on their mortgages was as high as 29%. Over 3,100 foreclosures occurred in Seattle in 2013 alone. While the number of Black and Latino residents in Seattle is only 15%, they are disproportionately more likely to be underwater on their mortgages. Seattle homeowners living in lower-income neighborhoods are also more likely to be underwater.
It is important to recognize these distinctions and address them because our environment has a profound impact on life outcomes. Opportunity decreases and poverty increases in communities with underwater and foreclosing homes. This has real effects. Researchers have repeatedly shown that high poverty areas are significantly more likely to have underperforming schools, deficient employment, and public health risks. Neighborhoods and systematic disadvantages are interactive. Where families live determines their access to higher education, public transportation, jobs, etc. It also determines the parks, libraries, pools, and other facilities to which children have access. powell explains that we are all situated within “opportunity structures,” which interact in ways that produced racialized outcomes for different groups.
While home values are rising for some in Washington, the crisis for hard-hit neighborhoods and families is not over. Market forces alone will not help all families recover. Instead, they will leave marginalized communities behind. The Haas Institute report provides some solutions to ensure that all homeowners are able to recover:
1. Loan holders – banks, government sponsored enterprises (i.e., Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency, FHFA), and investors – should reduce the principal on underwater mortgages to current market values.
2. If loan holders are unwilling or unable to reduce the principal on underwater mortgages to current market values, they should allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.
3. Local municipalities should use all options at their disposal to facilitate the goal of resetting mortgages to current market values, including the use of “reverse eminent domain” (the program proposed in Richmond, California and elsewhere) to acquire mortgages in order to restructure them with fair and affordable terms.
4. Banks, government sponsored enterprises like Fannie Mae and Freddie Mac, and investors that own vacant homes that have already been foreclosed upon should sell them to publicly-owned or nonprofit entities that can convert them to affordable housing units for residents of the community instead of selling them to speculators.
5. Local municipalities should use all options at their disposal to facilitate the goal of turning vacant, foreclosed homes into affordable housing. This includes the use of “reverse eminent domain” to acquire properties in order to convert them to affordable housing units for residents of the community and to prevent them from being purchased by speculators.
My parents’ home was in one of the hard-hit cities identified in the report. While they tried everything they could to save our home during the economic downturn, the bank foreclosed on it on November 17, 2013. Wells Fargo, the bank that owned my parents mortgage and the nation's largest home loan originator, paid $175 million to settle charges in July 2012, for steering about 4,000 minorities into more expensive sub-prime loans even though they qualified for better terms.
Had intentional and deliberate measures been taken by banks and/or the government to remedy the predatory lending that destroyed our neighborhood’s equity, our home may have been saved. The memories of those backyard barbecues with my dad as well as my family singing “Bomba y Plena” on Christmas would not be merely memories. The national ACLU has begun to tackle this issue. They have filed a Freedom of Information Act request and sued the FHFA to expose the efforts of large bank lobbyists to stop local anti-foreclosure initiatives. The state of Washington has been and continues to be a model state in a number of civil rights and social justice issues – leading the way for other states to follow. I hope it will take this issue seriously given the gravity of the situation and start taking action steps to make sure that all members of the Washington community survive the aftermath of the housing crisis.
Stephanie Llanes is a JD candidate at the UC Berkeley Boalt School of Law. Her work for the Haas Institute focuses on poverty, structural racism, implicit bias, and housing. She is currently a legal intern at the American Civil Liberties Union of Washington, where she works on voting rights, abolition of the death penalty, and Muslim prisoner rights.