Among the 10.9 million homes that went into foreclosure between 2007 and 2011, more than half of the “spillover” cost to nearby homes have led to a $1 trillion loss in home equity for African-American and Latino families., according to a new report by the Center for Responsible Lending titled, “Collateral Damage: The Spillover Costs of Foreclosures.”
The report said, “Families impacted in minority neighborhoods have lost or will lose on average, $37,084 or 13 percent of their home value.” By comparison, the overall average American homeowner affected by nearby foreclosures will lose only 7 percent of their home value, or $21,077.
The most recently-available census data shows that African-Americans and Latinos comprise less than 30 percent of the nation’s population. Yet together, neighborhoods of color shoulder more than half of the $1.95 trillion in the drain on neighboring property values as a result of foreclosures.
“CRL’s report is troubling evidence of how much the economic cost of foreclosures are spilling over into communities all over America,” said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights. “Communities of color – which have been targeted for years by predatory lenders, and abused for years by mortgage servicers – have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach.”
Compounding the problem, communities of color still suffer from stark wealth gaps when compared to Whites. Earlier this year, the U.S. Census Bureau found that African-Americans, Latinos and Asian-Americans together lost nearly 60 percent of median household net worth from 2005-2010. Over that same period, median net worth for White families dropped by 23 percent, about a third of the loss rate for people of color. With fewer investment portfolios and lower earnings, the hope to build wealth for communities of color often rests with the value of their home investment.
As troubling as the report’s findings are, the report also acknowledges that it does not cover all the negative impacts of foreclosures. In addition to reducing nearby property values, foreclosures also result in myriad other costs such as lost revenues to local governments, neighborhood blight, and increased crime.
“Families who lose a home cannot tap home equity to start a new business, pay for higher education or secure their retirement. Loss of a home also removes a financial cushion against unexpected financial hardships such as job loss, divorce or medical expenses, and eliminates the main vehicle for transferring wealth inter-generationally,” the report observed.
Janet Murguia, president and CEO of the national Council of LaRaza agrees: “The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest. We’re calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority.”