Black Households Hit Hard by Mortgage Crisis

A new report, "Foreclosed: State of the Dream 2008," shows that African-American households are being hit especially hard by the nation's subprime crisis. Dedrick Muhammad, of the Institute for Policy Studies and co-author of the report, explains the impact of the crisis and how it might be stopped.

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MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Today, important financial news: The nation's leading investment banks reeling from the subprime mortgage crisis are scrambling for cash. Merrill Lynch said today it will sell more than $6 billion in shares to overseas investors. The nation's largest bank by assets, Citigroup, is also raising money from investors and slashing dividends after posting its first quarterly loss in 16 years. The bank's mortgage portfolio lost $18 billion in value.

Now those are big numbers, but a new report released today says the biggest losers in all of this are people of color. Now yesterday, we talked about Baltimore's lawsuit against Wells Fargo, accusing the bank of predatory lending practices. In a few minutes, we'll hear from our Money Coach, Alvin Hall, on what this all means for the economy.

But first, a report released today called Foreclosed: State of the Dream 2008, details the full impact on people of color. The report, published by United for a Fair Economy and the Institute for Policy Studies, estimates the total loss of wealth for people of color may reach as much as $100 billion.

Dedrick Muhammad is a co-author of the report. He's a senior policy specialist at the Institute for Policy Studies here in Washington. He joins us here in the studio.

Dedrick, welcome. Thanks for speaking with us.

Mr. DEDRICK MUHAMMAD (Senior Policy Specialist, Institute for Policy Studies): Thanks for having me, Michel.

MARTIN: Dedrick, you say the total wealth loss for black families may be between $71 million and $122 million, for Latino families between $76 million and $129 million. How did you come up with those figures? And why are minorities disproportionately affected?

Mr. MUHAMMAD: Well, and first thing I want to point out is it was actually in the billions of dollars in which these African-Americans and Latinos are losing out, and we got the numbers from - there's a report by the Center for Responsible Lending called Losing Ground, and it took together kind of appreciation rates of housing price, how much people put into their homes, down payments and pulled together the numbers and estimated this is how much they expected people to lose due to a mass of foreclosures which has been happening due to the subprime crisis.

MARTIN: Why are minorities disproportionately affected?

Mr. MUHAMMAD: Minorities are disproportionately affected because of what we refer to as a racial wealth divide. African-Americans and Latinos are struggling like most Americans to try to develop the wealth of the middle class so they can firmly be a part of the middle class. And over 60 percent of most people's wealth comes from their home. So African-Americans and Latinos with much lower home ownership rates have really been struggling to become part of the home-owning middle class, and subprime lenders have taken advantage of that want and desire.

MARTIN: But the industry says that subprime mortgages have been an effective tool to get people into home ownership who otherwise would have been shut out, and it's true that the homeownership rate had been climbing over the last decade for minorities. So is it your view that subprimes are, by definition, predatory? Or is it your view that the practices apart from the product itself to sell these mortgages are predatory and abusive?

Mr. MUHAMMAD: I think, clearly, it's been the practices. There's nothing wrong with having a subprime situation, a subprime lending. But what is a problem is only 11 percent of subprime loans go to people who are first-time homebuyers. Most oftentimes, it's getting people to refinance, and you get these calls, these predatory calls, where they're talking people into refinancing for people who don't need refinancing, you know, or end up going to lose their homes instead of bringing any type of economic benefit to them. So - and one other point I like to bring up is that the majority of people who do subprime loans could actually get prime loans if they were only to have known that. But they're sold subprime, which means high cost loans instead of getting a much more regular loan from a bank.

MARTIN: You're saying based on credit risk, a lot of these people shouldn't even be in this situation.

Mr. MUHAMMAD: According to the Wall Street Journal, they did a study that over 55 percent of those who were sold subprime loans, who participated in subprime loans, actually could have received a regular prime loan, which means lower cost, lower interest rates, and maybe would've saved their home.

MARTIN: So what do you recommend, Dedrick? What is your thought? I mean, and I also need to point out that the report says that part of the issue is that more incomes are stagnating while housing costs are rising. So this is one reason that all the people were exposed to who were saying that the only way they can get into these housing situations is to have these kinds of sort of instruments. I think I want to point that out, but - so what do you recommend? What are some of the steps that your group would hope would be implemented to address this situation?

Mr. MUHAMMAD: Well, one thing, we as a society, we have to recommit to, yes, we are going to make homeownership possible for middle-class Americans and even upper-class African-Americans, Latino-Americans, and so we need to have more government programs that are focused on helping people become homeowners, not just private market forces that are really trying to make wealth off of people's desire to be homeowners.

MARTIN: Ten seconds, Dedrick, I'm sorry for that. But what do you say to those who argue it's individuals' responsibility to be physically responsible in entering these kinds of financial arrangements?

Mr. MUHAMMAD: I say it's also the responsibility of the government to regulate these industries, and they've really failed in their responsibility of that.

MARTIN: Dedrick Muhammad is a senior policy adviser at the Institute for Policy Studies in Washington, D.C. You can download the full report, State of the Dream 2008, by following the link from our Web site: npr.org/tellmemore.

Dedrick, thanks so much for coming in.

Mr. MUHAMMAD: Thanks again for having me.

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