Black Homeownership Dying Where Obama Revitalized (Sep 2013)

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Source: Bloomberg – Black Homeownership Dying Where Obama Revitalized

Notable excerpts:

Helene Pearson’s belief in homeownership was shattered in Roseland, the mostly black Chicago neighborhood where President Barack Obama got his start as a community organizer.

Pearson, who bought her two-bedroom, red-brick bungalow on South Calumet Avenue in Roseland for $160,000 in 2006 with a high-interest loan, put it on the market a year ago for $55,000 and didn’t attract a single offer. Her bank has agreed to take it back.

“I was so excited to buy my first house right down the street from my mother but they got me good,” said Pearson, a 35-year-old guidance counselor and mother of two girls. “This scarred me so badly that I never want to buy again.

For most Americans, the real estate crash is finally behind them and personal wealth is back where it was in the boom. For blacks in the U.S., 18 years of economic progress has vanished, with a rebound in housing slipping further out of reach and the unemployment rate almost twice that of whites. The homeownership rate for blacks fell from 50 percent during the housing bubble to 43 percent in the second quarter, the lowest since 1995. The rate for whites stopped falling two years ago, settling at about 73 percent, only 3 percentage points below the 2004 peak, according to the Census Bureau.

In Roseland, among the hardest hit neighborhoods in the country during the housing bust, many of the causes of the crash and obstacles to rebuilding black homeownership are found, according to Spencer Cowan, vice president of research at Woodstock Institute, a Chicago-based nonprofit group that researches fair lending, foreclosures and wealth creation.

Almost 40 percent of borrowers there took out high-cost loans in 2005 and 2006 as mortgage lenders backed by Wall Street targeted minority home buyers across the country for loans that required lower credit scores, reduced down payments, or featured interest rates that would start low and rise over time, contributing to an unsustainable bubble that popped when defaults rose and they cut off lending.

Now, almost one in 10 Roseland properties is vacant and the area’s homeownership rate fell to 57 percent in 2010 from 64 percent in 2000, according to the Woodstock Institute. The median home price meanwhile has dropped to $28,000 in the second quarter from $119,000 in 2005, according to Midwest Real Estate Data LLC.

The remaining homeowners, many of them elderly, live surrounded by vacant, boarded-up houses and gang violence that has led to 16 murders this year as of Aug. 30, which is a 30 percent drop from the same period in 2012.

Ernest Washington Jr., 63, bought his South Forest Avenue home for $25,000 in 1974 and had paid the mortgage down to $13,000. Now, after refinancing the house multiple times to finish the basement and make other improvements to the property, he owes $150,000 — about $20,000 more than it’s worth. His mortgage rate is 8.5 percent.

“Being that this was a stable community, what they did was put people in the area further into debt,” Washington said.

The housing boom of the last decade, spurred on by the successive Clinton and Bush administrations that unleashed ambitious programs to widen buying, also brought about a practice known as “reverse redlining” or steering residents of minority neighborhoods into high-cost mortgages, which led to a flood of foreclosures when the market crashed. Many of the minority borrowers who were given subprime loans would have qualified for prime loans with better terms, according to the U.S. Justice Department.

Borrowers like Washington Jr., who had nearly paid off their traditional mortgages, instead got caught up in the craze of easy lending, refinancing into loans that were twice the original balance to pay college tuition for a child, fix their home or catch up with bills, Love said.

“It’s going to take a generation to get back to the point where homeownership can build wealth in this community,” Love said.

Initiatives to help people avoid foreclosure came too late for many borrowers who got their loans at the height of the boom. One in 10 black borrowers has already lost their home to foreclosure in the worst housing crash since the Great Depression, double the rate for whites, according to a 2012 Center for Responsible Lending report.

Credit already is loosening for the wealthiest Americans. While applications for jumbo mortgages of at least $729,000 increased 59 percent in the first four months from a year earlier, loans of less than $150,000 fell by 2.1 percent, according to the Mortgage Bankers Association.

The median wealth of white households was 20 times that of blacks and 18 times the Hispanic rate, a record gap in data going back three decades that is twice the pre-recession size, according to a 2011 Pew study.

“African Americans are starting way behind into this recovery,” Cowan said. “Because African American buyers were last into the market and bought at the most inflated prices, when the market deteriorated, they were the ones who lost the most.”

As prices recover, cheap properties are in short supply because they’re being purchased by flippers, private equity firms such as Blackstone Group LP (BX), and other cash buyers.

“I get beat out even before I get a chance to make an offer,” Tillman said. “All the investors do is they come in fix the houses and flip them up and crank the prices above what anybody can afford.”

The difficulty in Roseland is finding buyers willing to invest in the community of 45,000 people.

Pearson sees her home as a liability and will be happy when the bank takes it. She’s locked into a mortgage with a more than 8 percent rate and it’s a struggle to keep up with the payments. And her house, which sits on the same block as about five abandoned homes, has been broken into four times, she said.

“It’s sad because Roseland is where I was born and raised and I wanted to keep the tradition of homeownership going,” said Pearson, whose parents became homeowners two years before she was born. “It’s a great community. But I just can’t do it.”

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