By Doug Miller

Lending institutions in California have foreclosed on African-American and Latino homeowners nearly twice as much as white property owners, according to a new study by the Center for Responsible Lending (CRL), indicating that banks likely targeted those ethnic groups to receive more expensive and financially toxic subprime mortgages mortgages during the decade of the housing boom.

The recently released report, Dreams Deferred: Impacts and Characteristics of the California Foreclosure Crisis, found that more than half of all foreclosures in the state involved blacks and Hispanics. “These borrowers,” states the first-of-its-kind study, “were more likely to receive higher-cost subprime mortgages with loan terms that typically increased the risk of default, compared with safer loans made to similarly situated non-Hispanic white borrowers.”

One of the key findings of the research document, which analyzed the leaden facts behind more than 600,000 foreclosures in the Golden State, was that Latino and African-American borrowers experienced respective foreclosure rates that were 2.3 and 1.9 times greater than those experienced by non-Hispanic white borrowers. Most of the foreclosures addressed in the study involved mortgages that originated between 2004 and 2007.

Concentration vs. Volume

Additionally, the study found that the highest concentrations of foreclosures occurred in the agricultural and exurban Central Valley and Inland Empire regions of the state, while the highest volume of foreclosures were handed out in major cities such as Los Angeles. The report defined concentration as the number of foreclosures as a proportion of all housing units.

The study also discovered that, contrary to popular perception, most foreclosures involved not stereotypical “McMansions,” but modest properties that most often were valued significantly below median values at origination. In California, nearly one in eight homes – approximately 702,000 – are in foreclosure.

Blunt in its assessment of lenders’ underlying strategy, the study states outright that “borrowers of color… were targeted by subprime lenders and steered into the most abusive products.” Citing analyses of Home Mortgage Disclosure Act data, it points out that African-American and Latino families “disproportionately received the most expensive and dangerous types of loans during the heyday of the subprime market.”

The report also notes that higher-rate conventional mortgages were disproportionately distributed to borrowers of color between 2004 and 2008. In 2006, for example, “among consumers who received conventional mortgages for single-family homes, roughly half of African-American (53.7percent) and Hispanic borrowers (46.5 percent) received a higher-rate mortgage compared to about one-fifth of non-Hispanic white borrowers (17.7 percent).”

Commenting on the CRL findings, Janet Murguía, president and CEO of the National Council of La Raza, an Hispanic civil rights and advocacy group, said “This report reveals a shocking level of concentration among Latino homeowners in California. Dishonest brokers peddled their high-cost loans, steered our families into risky products designed to fail, and now Latinos and all of California are paying the price.”

Doug Miller is a writer living in Westchester County, New York