More Chicagoland homeowners in communities of color are underwater
compared to predominantly white neighborhoods, a new report from the Woodstock Institute shows, and some housing advocates say they aren’t surprised.
Overall, nearly one in four residential properties in the Chicago metropolitan area has a negative amount of equity, meaning the homeowner owes more than the worth of the home, according to the report, “Struggling to Staying Afloat: Negative Equity in Communities of Color in the Chicago Six County Region.”
That comes out to be about $25 billion of negative equity in the Chicagoland region.
Almost half of the residential properties in communities of color are in financial trouble. In highly African American areas, for example, about 41 percent of borrowers are underwater. And in predominately Latino neighborhoods, more than 40 percent of homeowners owe more than their home’s worth.
In comparison, the report found about 17 percent of properties in mostly white neighborhoods are underwater.
“This housing foreclosure crisis is deteriorating the wealth of the African American and Latino communities,” said Elce Redmond, housing expert at the South Austin Community Coalition. “It’s been said, but needs to be reiterated on a constant basis. It’s turning our communities into ghost towns. There has to be some change.”
The Austin community on Chicago’s West Side has one of the highest foreclosure rates in the city, he said.
“People are losing their homes left and right because of the red tape and bureaucracy the banks have created,” Redmond added.
The report also showed that nearly a third of home loans in communities of color are at risk for default.
Once the loan-versus-home value ratio reaches 110 percent or greater, the borrower is more likely to default, according to the report.
About 30 percent of properties in both African American and Latino communities have a loan ratio exceeding 110 percent.
On the other hand, 10 percent of properties in white areas have loans more than 110 percent.
Bob Palmer, policy director at Housing Action Illinois, said the report’s findings aren’t unexpected.
“I would have been surprised if they found otherwise,” he said.
Before the housing bubble burst, Palmer said it seemed like there was more subprime lending going on in high poverty and high minority neighborhoods.
“So the fact that several years later those homeowners are disproportionately underwater makes sense,” he said.
The Woodstock Institute’s report identified solutions that could help bring more homes above water.
It recommends that banks and other servicers use principle reduction as a foreclosure prevention tool more broadly along with streamlining short sales, among other efforts.
“What the homeowner owes on the house would be dramatically reduced if the banks would accept reducing that principle,” said Redmond.
“People go under, because the principle is so high along with the mortgage.”
Redmond said he agrees with using more principle reductions, and it’s a measure he and other housing advocates have been calling on banks to use for a long time.
“(The banks) have really refused to do it at all,” he said. “They’ll have to eat many months of that principle, and they’ve been fighting against it tooth and nail.”
Palmer agrees that more principles should be reduced.
“It makes sense for all parties to acknowledge that.”
Lucy Mullany, senior policy associate for the Heartland Alliance and the coordinator of the Illinois Asset Building Group, said the report’s findings match up with what’s going on across the country.
“While the numbers from the Woodstock Institute report are shocking and need attention, it does highlight the expanding racial wealth gap we are seeing across the country, specifically in our state and region,” she said.
The Woodstock Institute used mortgage and home value data in various racial and ethnic areas in 2011 to compile the report.