In a study that has implications not only for California but the nation as well, Vanesa Estrada Correa, assistant professor of sociology, found that foreclosures have disproportionately affected low-income and minority communities. Estrada Correa analyzed more than 30 years of homeownership and foreclosure data, mortgage-lending practices and government policies aimed at increasing homeownership rates and decreasing the racial gap in homeownership.

In “The Housing Downturn and Racial Inequality,” which ran in the Oct. 15 issue of Policy Matters, Estrada Correa found that policies and programs aimed at decreasing the racial gap in homeownership also left minority homeowners more vulnerable to foreclosure. The report is available online at www.policymatters.ucr.edu.

Subprime loans were not only disproportionately given to minority applicants, but also were concentrated in minority neighborhoods, she said. Subprime loans, designed for homebuyers who could not qualify for conventional mortgages, carry a higher rate of interest to compensate for greater credit risk. The result, she found, is that Latino and African American neighborhoods are experiencing higher levels of instability from housing turnover and vacancies.

Of the 20 metropolitan areas with the highest rates of foreclosure in the nation, 12 are in California. The top four are in California: Merced, Stockton, Modesto, and Riverside-San Bernardino-Ontario.

“Our society has long considered homeownership to be a public good with its benefits extending beyond individual homeowners to neighborhoods more broadly,” Estrada Correa wrote. A higher rate of homeownership in neighborhoods has traditionally been associated with access to better schools, jobs and public services, as well as stable property tax bases and clean and safer neighborhoods, she said.

Estrada Correa’s analysis of Riverside County data illustrates the depth of the problem. She found:

• In 2007, more than 30 percent of mortgages to Latino and African homebuyers in Riverside and San Bernardino counties were subprime loans while fewer than 15 percent of white homebuyers had subprime loans.
• In 2008, Riverside County residents spent an average of 28.5 percent of their income on mortgages; the national average was 20 percent. In 2009, the percentage in Riverside County rose to 31.6.
• After controlling for income and other factors, Riverside County residents experiencing the greatest strain in housing costs (defined as spending more than 30 percent of income on a mortgage) are: Latinos (63 percent), Asian Americans (54 percent), African Americans (53 percent) and whites (41 percent). This illustrates how minority families may be especially vulnerable to homeownership loss as home values fall and unemployment rises in the region.