Racist Practices, Racial Segregation: Impact on the Subprime Housing Disaster

The Economic Policy Institute just put out a major report, Segregation and the Subprime Lending Crisis, linking whites’ racial-segregation practices and the subprime mortgate crisis. The lead author is one of our major housing researchers and activists, squiresGreg Squires. (The other authors are Derek S . Hyra and Robert N . Renner.)
The well-documented report begins this way:

While there has been widespread recognition that racial minorities are among the hardest hit by the subprime mortgage crisis, racial residential segregation has not been considered a factor behind the crisis in minority communities. Blame is being directed at ill-informed consumers, lax underwriting by loan originators, the failure of regulatory agencies, predatory lending practices, greedy investors, misguided appraisers and credit rating agencies, job loss in economically distressed regions, and a range of other institutional and individual factors.

The report then accents how the debate on the subprime crisis mostly ignores the centuries-old reality of residential segregation:

. . . apart from the mere percent of African Americans or Hispanics living in a metropolitan area, the more racially segregated these groups are in a metropolitan area, the more subprime loans that area is likely to have. Racial segregation is a signifcant predictor of the share of subprime loans, even after controlling for the percent of minorities, credit score, median home value, poverty, and education. Black segregation has a stronger effect than Hispanic segregation. These findings reveal that segregation explains, in part, the high rates of subprime lending in America’s most segregated metropolitan areas. Major findings include: A 10% increase in black segregation, on average, is associated with a 1.4% increase in high-cost lending. In a highly segregated black area, the percent increase in high-cost loans is 7%; in a highly segregated Hispanic metropolitan area the increase is 4.2%. Metropolitan areas with higher education levels have a lower proportion of high-cost loans.

Numerous research studies have shown that over the centuries, including recent decades, housing segregation is heavily shaped by the discriminatory practices of white homeowners, real estate operatives, and banking officials. We also have much evidence that the fair housing laws in this country have mostly been unenforced, in the past and in the present. Millions of cases of housing discrimination targeting Americans of color are perpetrated each year, mostly by whites.

In this substantial report there is much important information on the linkages between housing segregation and the subprime crisis, with solid statistical analyses showing these linkages. In my view the report’s main weakness comes in its analytical framework, with no mention of racism or systemic racism in the report. Once again too, the role of white real estate actors in all this is only implied, not explicitly stated. Like most such reports white actors are not named as white, including when these actors are in the subject position in key sentences about housing segregation. I have thought of doing a research paper or book examining our now extensive research writings on racial discrimination titled something like, “why are whites are only implied.”

Under Reported

We’re adding a regular feature here called “Under Reported” where readers can note an area of research that is under reported and needs attention. This page will be permanently linked to the main page of the blog, and you can add a comment whenever you like. Thanks to Dr. Terence Fitzgerald for this suggestion!