Study finds foreclosure crisis had significant racial dimensions

Although the rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-documented, the foreclosure crisis was also a highly racialized process, according to a study by two Woodrow Wilson School scholars published in the October 2010 issue of the American Sociological Review.

Woodrow Wilson School Ph.D. candidate Jacob Rugh and Woodrow Wilson School's Henry G. Bryant Professor of Sociology and Public Affairs, Douglas Massey, assessed segregation and the American foreclosure crisis. The authors argue that residential segregation created a unique niche of minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets.

The authors use data from the 100 largest U.S. metropolitan areas to test their argument. Findings show that black segregation, and to a lesser extent Hispanic segregation, are powerful predictors of the number and rate of foreclosures in the United States - even after removing the effects of a variety of other market conditions such as average creditworthiness, the degree of zoning regulation, coverage under the Community Reinvestment Act, and the overall rate of subprime lending.

"This study is critical to our understanding of the foreclosure crisis since it shows the important and independent role that racial segregation played in the housing bust," said Rugh.

A special provided strong evidence that the effect of black segregation on foreclosures is causal and not simply a correlation.

"While policy makers understand that the housing crisis affected minorities much more than others, they are quick to attribute this outcome to the personal failures of those losing their homes - poor credit and weaker economic position," noted Massey. "In fact, something more profound was taking place; institutional racism played a big part in this crisis."

The authors conclude that Hispanic and black was a key contributing cause of the foreclosure crisis. "This outcome was not simply a result of neutral market forces but was structured on the basis of race and ethnicity through the social fact of residential segregation," the authors note in the article.

"Ultimately, the racialization of America's foreclosure crisis occurred because of a systematic failure to enforce basic civil rights laws in the United States," the authors write in the article. "In addition to tighter regulation of lending, rating, and securitization practices, greater civil rights enforcement has an important role to play in cleaning up U.S. markets. It is in the nation's interest for federal authorities to take stronger and more energetic steps to rid U.S. real estate and lending markets of discrimination, not simply to promote a more integrated and just society but to avoid future catastrophic financial losses."

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Citation: Study finds foreclosure crisis had significant racial dimensions (2010, October 4) retrieved 20 September 2019 from
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Oct 09, 2010
Wow! That is some very strange conclusion ya'll came to; but are you impartial scholars or are a trying to present a thoroughly disingenuous argument.

I was in the mortgage business. What you are talking about are variable mortgages and products sold to more marginally qualified people. This was hardly meant to be discriminatory. Racial minorities in general have a much harder time making a living if they have less educational skills.

But this does not hold true to educated minorities, in fact,preliminary data suggests that it is whites who are discriminated against.The data is not statewide or regional, it is international.

Alternatively, racial minorities get all kinds of preferential treatment on the corporate and university level. For instance, please describe your complexion? I bet it is black.

A nation which allows itself this type of Princeton propagand will soon be under the yoke of foreign domination. What will you say then? They all have light skin.

Oct 09, 2010
Hmmmm... I guess it is politically correct to start with the housing crisis instead of hitting the problem at the core... That minority children in this country are born into bad neighborhoods and even worse schools, schools where teachers are punished for the lack of students caring... Start there and change that statistic and perhaps subprime mortgages would be even across all racial bounds.

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