Friday, November 20, 2009

The Trickle Down Bailout, Foreclosures and Communities of Color

The chart at left shows the soaring delinquency rate for all mortgages in the US released yesterday by the Mortgage Bankers Association for Q3 of 2009. Delinquencies stand at a record high 9.64%. Foreclosures and delinquencies combined are now at a record high of 14.41 percent. These records go back to 1972.

“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent,” said Jay Brinkmann, MBA’s Chief Economist.

“Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures. 33 percent of foreclosures started in the third quarter were on prime fixed-rate loans and those loans were 44 percent of the quarterly increase in foreclosures. The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure."

The situation is more dire in communities of color:
"Blacks and Latinos suffer in comparison to whites both in unemployment rates and having loans with higher interest rates. The nationwide unemployment rate is 10.2 percent. For blacks, it's 15.7 percent and for Latinos, 13.1 percent. As far as high-cost mortgages are concerned, blacks and Latinos were anywhere from two to nine times as likely as whites to have those kinds of loans."

Communities of color are now facing a historic destruction of household wealth: "If nothing is done then the foreclosures will continue disproportionately hitting blacks and Latinos," said UCLA professor Raul Hinojosa the author a study entitled The Continuing Home Foreclosure Tsunami. He also stated that continued foreclosures could destroy billions of dollars in housing wealth in communities of color. "Not only are you wiping out this generation of black and Latino families, but those neighborhoods go into serious decline."

Those following this blog are well-acquainted with my pessimistic outlook. I previously blogged about runaway debt and runaway unemployment. I have also decried the trickle down bailouts which have added to bank capital cushions but done little to help the economy at massive cost to the taxpayer. Right now the banks are hoarding over $1 trillion at the Fed while simultaneously starving the economy of capital.

We were not compelled by some iron rule of economics to give all our money to the banks to hoard so that they may be kept afloat while the middle class is vaporized by a mountain of debt, a collapsing economy, and no help in sight. I argued very early on in the bailout story that there were alternatives. In fact, I tried to persuade the Democrats to do an alternative bailout rather than stuffing money into the pockets of financial elites. After the election, I urged a Keynesian stimulus that would create jobs and I argued that the insolvency sponges at the center of our economy would suck up capital and hoard wealth.

What we are now seeing is the utter failure of the trickle down bailouts. I fear we are on the verge of runaway foreclosures.


  1. Professor Ramirez:

    what alternatives were available to Congress rather than to buoy Wall Street and its banks? What can be done now to buoy the middle class and minority homeowners?

  2. This comment has been removed by the author.

  3. A year ago I posted a blog on that point. I stick by it today. Click on the last link on today's blog.

  4. Building enough wealth to purchase and keep property has taken generations for some minorities. To lose your property and began renting again must be devastating for anybody, black, latino, or white. It strips the family of wealth and moves them to a lower socioeconomic status. Forclosures dont just effect the family but the community as a whole.