The Roots Of Record Foreclosures

RealtyTrac is showing a 14 percent rise in first time default notices between July and September. It's the first jump after five consecutive quarterly declines, suggesting that banks are gradually addressing their backlog of foreclosed homes. Michel Martin discusses the causes and impact of the mortgage crisis with industry observer and history professor Beryl Satter.

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MICHEL MARTIN, HOST:

I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, we are going to continue our series on aging and the end of life with a conversation about the challenges adult children face as caregivers for aging parents. We'll also get tips for preparing financially for our final years. That's in just a few minutes. But first, we want to talk about another financial matter that has proved catastrophic for millions of American families - the ongoing foreclosure crisis. There's disturbing news for struggling homeowners as banks are getting more aggressive about problem loans.

The latest data from RealtyTrac show a 14 percent rise in first-time default notices between July and September. That marks the first spike in that number in more than a year. And as the housing picture remains cloudy, Americans seem to be letting go of that part of the American dream. Home ownership is now at it lowest rate since the Great Depression, and the gap in home ownership between blacks and whites is at its widest since 1960. We wanted to dig deeper into the historic causes of the foreclosure crisis and the disparate impact on people of color.

We wanted to dig deeper into the historic causes of the foreclosure crisis and the disparate impact on people of color. So we've called upon Beryl Satter. She is the author of the acclaimed memoir, "Family Properties, Race, Real Estate, and the Exploitation of Black Urban America." She's also a professor of history at Rutgers University. She's with us now. Welcome. Thank you so much for joining us.

BERYL SATTER: Thank you for having me.

MARTIN: I certainly want to get into the history because, of course, you are a historian. But I wanted to get your take first on what's driving the housing crisis now. I'd like to ask you about all groupsb and then I want you to hone in on how race plays a role in this.

SATTER: Well, the reason things are accelerating in the wrong direction right now is probably because of the nature of the loans that were made at the height of the subprime lending boom. We had adjustable rate mortgages, which started with low interest rates and then after several years went higher. And all those are kicking in. So that one issue. People are suddenly having to pay higher rates, and they can't possibly refinance at this point because their homes are worth less.

And to that a crisis, a broader economic crisis where jobs are scarce and pay is stagnant, and people can't afford to pay for their houses right now. So this is not at all surprising, that things have gotten worse in the last six to 12 months.

MARTIN: So, you know, there's a saying that when America gets a cold, African-Americans get pneumonia.

SATTER: Mm-hmm.

MARTIN: Is this a situation where the same factors that affect everybody are affecting African-Americans more so?

SATTER: They are definitely affecting African-Americans more so. African-Americans were over twice as likely to be given subprime loans at the height of the subprime lending boom. This is taking into account income, and so this is not because they had less income. But blacks at the same income level as whites were twice as likely to get - to be given subprime loans. So they were more targeted for those loans. Black communities were intentionally blanketed with solicitation to refinance if they did have homes, or to get subprime loans if they wanted to buy a first home.

So they were much more deeply pulled into the scams that typified subprime lending, and they've suffered disproportionately as a result.

MARTIN: You know, there's been this ongoing debate about who - or which entities are most responsible for the ongoing mortgage crisis, whether it's the private sector or whether it's government entities or government-sponsored entities. So I guess this is a good time, I think, to go back into the history...

SATTER: Mm-hmm.

MARTIN: ...since you've written extensively about how the federal government used race - if I can use this term - as a way and essentially, pick winners and losers in the housing market.

SATTER: Right.

MARTIN: How did that work?

SATTER: It began - one way to go even further back - to the furthest back I think you can go, in terms of government policy hurting African-Americans disproportionately - is after slavery with sharecropping, where African-Americans, when newly free, were not able to get any kind of loans to become farmers and hence, had to go into debt peonage just to work the land again, getting inequitable treatment from their former owners. Going ahead to when blacks moved north with the first great migration in the '20s, it was in the 1930s that the federal government stepped into make this even worse by - through the policies of the Federal Housing Administration.

What the FHA did in the 19 - this was a program that was created in 1934 to address the housing crisis of the Great Depression, to address the complete collapse of the housing construction industry. The FHA tried to encourage people to buy homes by insuring mortgages so that banks would be willing to loan. And then people would be able to buy, and builders would be able to build.

However, they built into that program racial disparities. The belief of the appraisers connected with the FHA was that African-Americans were, by definition, less credit-worthy. They had a variety of justifications for this. Essentially, they would not guarantee loans to blacks who wanted to move to white neighborhoods. The justification for that was that if a black person moves to a white neighborhood, they devalue that neighborhood. Therefore, the homes will be less - worth less and therefore, we don't want to guarantee the loan.

MARTIN: So the FHA's appraisal policies meant that blacks were excluded, by definition, for most mortgage loans?

SATTER: Yes, right.

MARTIN: So the presence of a single black family...

SATTER: Mm-hmm.

MARTIN: ...led to what people would call redlining, which is that nobody in that area could get a mortgage loan.

SATTER: Exactly.

MARTIN: Is that right?

SATTER: Yeah, that is shocking but true. Because if black people moved into a previously white neighborhood - somehow, they paid in cash or they got a predatory loan to do so, and they managed to do it - then that whole neighborhood would be written off as being worth less.

MARTIN: That's - it's shocking to people to hear that, I think.

SATTER: Mm-hmm.

MARTIN: But you're saying that this was actually federal policy until when?

SATTER: Until 1968.

MARTIN: Until 1968. So not when dinosaurs walked the earth but actually...

SATTER: Right.

MARTIN: ...relatively recent history.

SATTER: Right.

MARTIN: If you're just joining us, this is TELL ME MORE from NPR News. We're talking about the root causes of the mortgage crisis. We're also talking about the historic role that race has played in housing policy. Our guest is Beryl Satter, the author of "Family Properties, Race, Real Estate, and the Exploitation of Black Urban America." Now obviously, those policies are no more.

SATTER: Mm-hmm.

MARTIN: But there's now an ongoing debate about the role the government continues to play, or did play, in enabling or accelerating the financial crisis. And the particular narrative now is the argument that the...

SATTER: Mm-hmm.

MARTIN: ...heart of the mortgage crisis was the push to expand home ownership for people of color even when they weren't financially prepared for that responsibility.

SATTER: Right.

MARTIN: So I'd like to ask, based on your knowledge of the history if that - if you think that that is accurate?

SATTER: I do not think that is accurate. The loan - all right - after 1968, loans were made to African-Americans to purchase properties - but not fair loans. We went from pushing black people out of the loan business altogether to bringing them in at exploitative terms. Loans were made because they were profitable to the lenders. They were not made for the benefit of the borrowers. If they had been made for the benefit of the borrowers, they would have been based on the borrowers' ability to pay, but they weren't based on that.

The point of the loans was to get people enmeshed in the highest possible interest rate, and the biggest possible debt, because that debt could then be sold to Wall Street investors who paid more the higher the debt and the higher the interest rate. So African-Americans were targeted specifically for this, in part because of a long history of exclusion from fair market practices. They were more vulnerable, and more targeted, but the idea that this was all - I mean, the reason people think that is because the lenders who were making those loans said that. They used that to justify their predatory practices but their aim was, obviously, not to expand home ownership.

MARTIN: Now, as we mentioned, your book is also a family story. Your father was a lawyer in Chicago who spent much of his life fighting these issues that, in fact, he at some point took up the cause of a family that had been subjected to one of these predatory loans and was evicted unfairly. He then became a landlord himself, and was one of the few white landlords who would rent to African-Americans.

And obviously, things are different now than they were then. But I'm interested in what you believe is most important to address now. What do you see as the problems in government housing policy, or the misconduct of private lenders? What do you think is the most important thing to address now so that this doesn't happen again - or that this cycle of discrimination, which leads to these - kind of accelerated, you know, economic catastrophe is broken at some point?

SATTER: For minority communities it's very important to create enforceable laws that make people pay penalties for giving discriminatory loans. That is, for giving people of – we should have some kind of enforceable loan so that people get loans based on their credit-worthiness, not on their race or the way they live. We've never had that; we still don't have it. At a broader level, there are numerous unsavory practices that went into - that were common in African-American and minority communities from the 1930s onward, and that had spread into mainstream white communities from the 1990s onward. And these are things like collusion between appraisers and lenders, lack of adequate legal protection for borrowers; anything that makes it so profitable to create a loan that people cannot pay. There is - we haven't done - the loan fee - the Dodd-Frank Bill doesn't yet include penalties for loans that are inflated and clearly unpayable, though very profitable.

So I think we need to regulate the lenders so that they can't exploit people by catching them up in high-interest, high-cost, predatory loans. It's actually not very complicated, but there's going to be a big battle against it because these loans are extraordinarily profitable.

MARTIN: Mm-hmm. All right. Well, to be continued. Beryl Satter is the author of "Family Properties: Race, Real Estate, and the Exploitation of Black Urban America." She's also a professor of history at Rutgers University. She was kind enough to join us from our bureau in New York. Beryl Satter, thank you so much for joining us. Professor Satter, I should say. Thank you so much for joining us.

SATTER: Thank you.

(SOUNDBITE OF MUSIC)

MARTIN: Coming up, we're continuing our week-long series looking at aging and the end of life. One of the biggest challenges to aging with dignity is the cost.

MARILYN GEEWAX, BYLINE: They might think a lot about how much money they will have to live in retirement, but they give really no thought to how they're going to die in retirement. I mean, sooner or later, your retirement will end.

MARTIN: We'll hear about financial planning for old age, and some of the hidden expenses you might not have thought about. That's just ahead, on TELL ME MORE from NPR News. I'm Michel Martin.

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