The foreclosure crisis has had a long and destructive run Ã¢â‚¬" five years and counting, with millions put out of their homes. According to the Center for Responsible Lending (CRL), we're not even halfway through the devastation.
The organization's analysis of 27 million mortgage loans originated over a five-year period found that 6.4 percent of mortgages made between 2004 and 2008 have ended in foreclosure, and an additional 8.3 percent are at immediate, serious risk.
The study also offers up evidence that foreclosure patterns are strongly linked with patterns of risky lending. According to CRL, foreclosure rates are consistently worse for borrowers who received high-risk loan products that were aggressively marketed before the housing crash, such as loans with prepayment penalties, hybrid adjustable-rate mortgages (ARMs), and option ARMs.
Looking at the demographics of foreclosure casualties, CRL found that the majority of people affected by foreclosures
have been white families. However, borrowers of color are more than twice as likely to lose their home, the organization says.
According to CRL, these higher rates reflect the fact that African Americans and Latinos were consistently more likely to receive high-risk loan products, even after accounting for income and credit status.
African Americans and Latinos were much more likely to receive subprime loans with high interest rates and loans with features that are associated with higher foreclosures, CRL explained. The nonprofit group found that these disparities were evident even when comparing borrowers within the same credit score ranges, with the gap especially pronounced for borrowers with higher credit scores.
""Our study provides further support for the key role played by loan products in driving foreclosures,"" CRL said. ""Specific populations that received higher-risk products-regardless of income and credit status-were more likely to lose their homes.""
While some blame the subprime disaster on policies designed to expand access to mortgage credit, CRL says the facts undercut these claims.
Instead, the group argues that dangerous products, aggressive marketing, and poor loan underwriting were major drivers of foreclosures in the subprime market. CRL credits the Dodd-Frank Act as the first vital step taken to strengthen mortgage protections by restricting the use of risky products and requiring lenders to consider each borrower's ability to repay a loan.
""These new rules will certainly have a positive effect on the success of future mortgages,"" CRL said.