On the morning of September 23 in the Rayburn House Office Building, Treasury Secretary Timothy Geithner appeared before the Financial Services Committee to discuss the administration’s plans for preventing the next economic meltdown. Just down the hallway, a panel of experts testified about how minority populations are coping with the current meltdown–the one that wasn’t prevented–and made clear that federal recovery initiatives are not sufficiently taking those populations into account.
“For most racial and ethnic minority groups, the Great Recession is, in reality, a Great Depression,” said Democratic Congressman Edolphus Towns of New York, chair of the House Committee on Oversight and Government Reform.
Towns pointed to an unemployment rate of 15 percent for African-Americans and 13 percent for Hispanics–well above the 9.7 percent national unemployment rate. A staggering 22 percent of American Indians living on reservations are unemployed. “The unemployment rate for African-American residents in New York City rose four times as fast as the jobless rate for Caucasians between the first quarter of 2008 and the first quarter of 2009,” said Towns.
Equally disturbing is the foreclosure crisis, which has worsened with rising unemployment and has disproportionately impacted minorities. Maryland’s secretary of housing and community development, Raymond Skinner, said that Baltimore and Prince George’s County–his state’s two majority minority jurisdictions–account for 26 percent of Maryland’s population but 42 percent of its foreclosures in the past eighteen months. In 2007 alone, Prince George County’s economic loss in property values, local property tax receipts, losses to lenders and administrative charges to homeowners was nearly $1 billion.
Once limited to the subprime market–where minorities who should have qualified for prime loans were targeted and steered toward higher-priced exotic subprimes–the foreclosure crisis has now expanded. Skinner explained, “Foreclosures are taking on a different face. As of the second quarter of 2009, the majority of the nation’s foreclosures are now on prime loans.”
“The crisis is now fueled by unemployment and loss of income,” said Dr. James Carr, chief operating officer of the National Community Reinvestment Coalition. “In 2009 nearly 60 percent of foreclosures are triggered by unemployment.”
The Obama administration’s effort to stem foreclosures simply isn’t getting the job done. Dr. Carr said that the loan modification program offers banks “plenty of carrots [but] no meaningful sticks to compel more responsible actions.” Lenders on average lose ten times as much money on a foreclosure than a loan modification–about $144,000 as opposed to a $14,000 tax write-off on a loan modification. Banks are choosing to foreclose and deduct the greater loss on their current tax bill rather than modifying the loan–which would have been advantageous in the long term for both the lender and the community. As a result, only 12 percent of eligible homeowners have received modifications through the administration’s voluntary Making Home Affordable program.