For Minority Homeowners The Foreclosure Crisis Never Ended

 The cycle of crisis (Alex MacLean)

The cycle of crisis (Alex MacLean)

During Thursday night's Democratic Presidential Primary Town Hall hosted by MSNBC, a young Hispanic gentleman named Francisco Morales asked Hilary Clinton about how she would handle the foreclosure crisis still gripping many minority homeowners in Nevada.

For a lot of Americans, this question probably seemed rather retro given that it has been 8 years since the foreclosure crisis dominated national headlines.  Nevada, though, never got over the foreclosure crisis and still has twice as many foreclosures as the current national rate, with over 20% of homeowners underwater.  Though Secretary Clinton had clearly been briefed on the topic (Foreclosures: Nevada:: Opiods: New Hampshire - for those watching the early primary states closely) her response was revealing:

 Secretary Clinton's response to a question about foreclosures (msnbc) 

Secretary Clinton's response to a question about foreclosures (msnbc) 

It was revealing for two reasons that have little to do with the details of Secretary Clinton's response (which was fairly boiler plate).  

First, as far as I can tell, this has been the only instance where a question about foreclosures has been raised in any primary debate or town hall for both parties (whether in regards to racial implications or not).  That to me is mind blowing because 33 states have seen significant increases in foreclosures since last year.  Bank repossessions increased 66% in the third quarter of 2015 over the same period in 2014.  As I explained in a previous post, these numbers will likely continue to grow as the stop-gap measures taken by federal and state policymakers during the 2008 crash start to expire.  This is a already a major issue for many Americans and will affect more in the coming months and years - yet neither of the major parties have spoken about it.

To Secretary Clinton's credit, she has included a number of initiatives on affordable housing in her economic revitalization plan which to date has been the most detailed housing plan released by any candidate. (Perhaps she has some reasons to be more detailed than others).

But Secretary Clinton missed discussing the larger racial injustice hovering over housing, which brings me to the second reason that her answer was revealing - she has not questioned the baked-in assumptions about homeownership leading to the middle class nor did she acknowledge the historic policies of racial exclusion that have made that goal harder for minorities to achieve or sustain. (It's safe to assume most of the other candidates are in the same boat.)

Though her answer discussed some of the current discriminatory problems facing minority homeowners - access to credit, difficulty obtaining a mortgage, high principal and interest payments - she doesn't address the deeper historical and systemic issues that have impacted them more. (I don't expect a candidate to cover every detail in a Town Hall soundbite, so my criticism is based on this answer as well as her other publicly available comments or positions.)

The American Dream mentioned by Mr. Morales in his original question and restated in the conclusion of Secretary Clinton's answer is based on home ownership. Owning a home represents financial and physical security as well as a grounded place and stake in the community.  It has been a bedrock of American economic policy since the Housing Act of 1934 which created federally guaranteed, low interest mortgages. Much of the post-WWII boom that embodies the American Dream was fueled by the federal government subsidizing home ownership - whether directly through mortgage or tax policies or indirectly through the expansion of the highway system allowing for suburban development.

The sad truth is that the American Dream as policy in practice was explicitly designed to exclude minorities.  Through the legally sanctioned denial of home loans based on geographical location - redlining - government money was blocked from reaching majority African-American urban neighborhoods (unless it was for slum clearance) while preventing residents from leaving for the suburbs like their white counterparts.  This helped create our modern concept of the urban ghetto.

This practice finally stopped with the passage of the Fair Housing Act in 1968, which prevented anyone from discriminating a potential buyer or renter based on race. However, the home ownership rates by race ( 71% of whites, 46% of blacks, 48% of hispanics as of 2015, see below graph) have been shaped and solidified by this legacy. 

 (US Census)

(US Census)

Something funny happened in the years preceding the crash of 2008, though: minority home ownership started to go up rapidly (they reached a peak in 2004-2005) The cause is of course clear today.  The explosion of predatory lending centered on subprime loans had a profound impact on minority communities, who typically have most if not all of their wealth tied up into their homes. Because of this economic vulnerability, minority households were disproportionally affected by the foreclosure crisis (see below graph.)

 (Center for Responsible Lending)

(Center for Responsible Lending)

As Mr. Morales's question suggests, there are many minority households today that are still immensely vulnerable.  A tragic replay of the 2008 crisis isn't just hypothetical for many Americans in Nevada and elsewhere.

We have created a terrible legacy with our housing policy in this country.  On the one hand, minorities were ignored or blocked by government policy and private capital for most of the 20th century, and then in the last 20 years, in many cases, they were preyed upon by both directly or indirectly.  America must address this legacy if we want to break the cycle of segregation and racial inequality as we become more diverse but economically unequal.  

I don't believe we can responsibly move forward without questioning the assumption that home ownership is the best vehicle of wealth creation for individuals in this country.  Home ownership has undoubtedly been an entry point to the middle class for millions of Americans across all racial groups. However, It is impossible to deny that it has become a wobbly crutch on which economic security tentatively leans as other sources of wealth, such as wages and stock ownership stagnate or decline for many people. I have no doubt that we can continue to manipulate the housing market in new and financially attractive ways to keep encouraging home ownership (and its related economic-activities), but it won't lead to actual wealth creation and economic prosperity for Americans. 

In an election cycle that has been uniquely attuned to racial inequality, there should be more questions like Mr. Morale's and there should be more policy discussions that go beyond tinkering on the margins as Secretary Clinton's answer suggests.  The fact that Nevada has become such a contested state in the Democratic primary explains why the question was raised at all.  It could very likely get brushed into the background of the general election unless we experience another 2008-level type crash.  I hope that this issue can be addressed without there being a crisis to warrant the attention.