The Long Tentacles Of Foreclosures

August 8th, 2008

The long tentacles of foreclosures reached out from the low income and minority circle to embrace the upper echelons of society including Whites who took out as many such loans as any other group.

Compliance Technologies that is a consultancy firm dealing with lending industry, scrutinized about 1.9 million sub-prime loans that started in 2006. That year witnessed the height of sub-prime activity. According to its findings approximately 56% of the sub-prime loans went to non-Hispanic Whites. The borrowers were affluent with an annual income much higher than those of their neighbours. They took 39% of the loans that ended up in the tragedy of foreclosures. It was a surprising conclusion commented Maurice Jourdain-Earl of Compliance Technologies.

Nevertheless the non-Hispanic Whites and the Afro-Americans took the lion’s share of the loans. In 2006 the Whites made up 71% of the borrowers and of these 56% contracted sub-prime loans in that year. The Blacks took 10% of the total loans but took 19% of the sub-prime category. The Hispanics took 14% of the loans but they took 20% of the sub-prime loans.

A hot debate rages about the reason for these discrepancies. Some of the lenders argued that the minorities were less credit worthy than their White counterparts. Those advocating for the minorities accused the lenders and their henchmen of targeting the people on racial basis. Jourdain-Earl did not comment on this issue. A minority owns his company.

Specialists are at a loss as to how all the demographic groups kept pace with the sub-prime loans that ended in foreclosures. Lenders have all the facts and figures but they are reluctant to come out in the open with these. There is no doubt that the sub-prime loan rates were higher by three points than the prime loans and these were peddled to the non-white weaker sections. With such concentrations it is inevitable that these pockets will fare worse than the predominantly White neighbourhoods.

As yet the results are a mixture. Minority areas like Nassau County have seen foreclosures skyrocket although other similar places like Harlem has remained fairly steady. According to RealtyTrac during the first six months of this year foreclosure postings are only slightly higher than what it was in the previous year. Debbie Gruenstein Bocean of Centre for Responsible Lending said, “The sub-prime crisis is not limited to the poor and non-white.” But she added that it is going to be tougher for them to manage when foreclosures strike.