Segregation and Subprime Lending

1. Segregation and Subprime Lending Fair Housing 2010: A Time to Act 2010 National Fair Housing Policy Conference New Orleans, LA July 19-23 Gregory D. Squires

2. “I love Puerto Ricans and Negroes, as long as they don’t move next door” Phil Ochs – Love Me, I’m a Liberal, 1965

3. Individualistic explanations for high-priced (subprime) lending Overreaching homeowners Lax underwriters Greedy investors Asleep-at-the-wheel regulators Corrupt appraisal and rating agencies Exploitative mortgage bankers

4. Text without context is mere pretext – Rev. Jesse Jackson Structural context that fed subprime lending surging inequality uneven metropolitan development persistence of racial segregation

5. Primary Research Question Is the intensity of racial segregation at the metropolitan level related to the proportion of high-cost loans? Analysis draws from, Gregory D. Squires, Derek S. Hyra, and Robert N. Renner, “Segregation and the Subprime Lending Crisis,” paper presented at the 2009 Federal Reserve System Community Affairs Research Conference, April 16, 2009, Washington D.C

6. Why Segregation Might Matter • Isolation can lead to inexperience • Prime lenders may avoid perceived “high risk” areas creating market opportunity for high-cost lenders • There may be higher risk in segregated communities • Segregation might facilitate identification of low-income, minority markets

8. High Priced Loans by Borrower and Tract Income – U.S. and Milwaukee, 2006

9. Race and High Priced LoansU.S. and Milwaukee, 2006

10. Racial Composition of Neighborhood and High Priced LoansU.S. and Milwaukee, 2006

11. 5 Most and Least Segregated Metro Regions and % of High-Cost Loans Black Seg Index % High Cost Most Segregated Regions Detroit, MI 84 34 Milwaukee, WI 81 29 Chicago, IL 78 31 Cleveland, OH 77 28 Flint, MI 76 37 Average 79 32 Least Segregated Regions Coeur d:Alene, ID 16 24 Hinesville-Ft. Stewart, GA 18 39 Santa Fe, NM 21 17 Prescott, AZ 21 21 Bellingham, WA 22 16 Average 20 23

12. Percent of High-Cost Loans (Dependent) Percent in Poverty Percent Unemployed Percent Minority Black Segregation Hispanic Segregation Median Value for Owner-Occupied Units Percent Low Credit Score Percent with BA or higher Branch bank per 1,000 pop. % mortgage loans by independent mortgage companies Variables Tested

13. Significant (p<.05) Education Low Credit Score Percent Minority Black Segregation Hispanic Segregation (-) Median Home Value (-) % mortgages by independent mortage companies Predictors of Proportion of High- Cost Loans (Regression Models)

14. Conclusions The concentration of minorities is associated with the proportion of high-cost loans The association of black segregation with high-cost loans is stronger than Hispanic segregation Higher education and higher credit scores are important protective factors against high-cost loans

15. Limitations and Next Steps • Data Limitations • Lacking Direct Mechanism(s) • targeting high-priced products? • lack of opportunity for prime products? • less informed borrowers? • Within City Analysis

16. Some Next Steps • Failure of self-regulating markets • Need for strong, independent regulatory authority • Recognize explicitly racial dimensions of crisis • Effectively challenge prerogatives of private capital • Nurture advocacy and reform from the bottom up

17. Reducing Metropolitan-Level Segregation Housing Fairness Act of 2009 – HR 476 nationwide fair housing testing increase FHIP funding LIHTC – target to low-poverty areas Inclusionary Zoning Affirmatively furthering fair housing CDBG TARP Future federal investments in financial institutions – e.g. loans to AIG, access to Fed’s discount window etc.

18. Assuring Fair Access to Financial Services CRA Modernization Act of 2009 – H.R. 1749 apply CRA to non-depositories require service to minority as well as low- income communities cover all areas served, not just those with a branch office expand pricing information to all loans mandate HMDA-like data for insurers Consumer Financial Protection Bureau

19. Prohibiting Predatory Lending Mortgage Reform and Anti-Predatory Lending Act of 2009 – H.R. 1728 Duty of care – present appropriate loan products that borrower can repay and provide net tangible benefit Limits steering and compensation via YSP Assignee liability – mortgage securitizers can be required to compensate borrowers for costs of inappropriate loans No limits on state laws

20. Too Big to Fail? • Break up institutions that pose “systemic risk” • Reinstate Glass Steagall • Separate investment from commercial banking • Utilize traditional restructuring tools for failing institutions

21. Organizing and Advocacy Support and work with NCRC, NFHA, CRL, CCC, LCCG (Leadership Center for the Common Good) and other advocacy groups Engage churches, labor unions, editorial boards, and other institutional actors Communicate with elected officials, regulators, corporate executives

22. Lawrence B. Lindsay “There are two faces of community development: noisy protest and quiet accomplishment…One can act one way at age 20 another at age 40. It is called growing up…The protest banner can still be held reverently in our box of momentos, along with the love beads and peace signs.” Frederick Douglass “If there is no struggle, there is no progress. Those who profess to favor freedom and yet deprecate agitation Are men who want crops without plowing the ground. They want rain without thunder and lightening They want the ocean without the awful roar of its waters Power concedes nothing without a demand It never did, and it never will