Worst may be yet to come in foreclosure crisis, study says

Introduction

Four years after the housing market collapse triggered a wave of defaults, the worst may be yet to come for homeowners, according to a new study.

Among mortgages made between 2004 and 2008, 2.7 million households ended up in foreclosure while 3.6 million more are at “immediate, serious risk” of default, according to the study, released by the Center for Responsible Lending Thursday.

Minorities are particularly at risk, according to the study. Although the majority of borrowers who have lost their homes or who are seriously delinquent are white, foreclosure rates for minority borrowers are twice as high.

Approximately one quarter of all black and Hispanic borrowers are in trouble compared with about 12 percent of white borrowers.

These disparities cannot be explained away by income. Ten percent of higher-income African-American borrowers and 15 percent of higher-income Hispanic borrowers have lost their homes to foreclosure, compared with 4.6 percent of higher-income white borrowers.

Minority borrowers were also much more likely to receive high-cost, subprime loans than other borrowers, even those with similarly good credit histories. For example, among borrowers with a credit score of more than 660, black and Hispanic borrowers received a high-interest-rate loan more than three times as often as white borrowers.

The study – “Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures” – concludes with a plea for stronger government measures to prevent foreclosures and to reform the lending market in ways that don’t close doors for low-income and minority borrowers.

To prevent a future crisis, “we must not create an environment where qualified borrowers are denied access to reasonably priced mortgages,” the study reads.

The analysis doesn’t include all troubled loans. Those outside the narrow four-year time frame are excluded, as are others that are in trouble but not in imminent risk of failure.

Other estimates have put the number of loans in foreclosure or more than 90 days delinquent at about five million.

The Center for Responsible Lending is a consumer-focused nonprofit advocacy group.