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Sep 11, 2008 Mortgage Madness

By Alessandra Harris

The search for affordable housing and the dream of home ownership, coupled with the desire to move to areas with larger Black populations has propelled many Bay Area residents to leave the area.

Although the subprime mortgage fiasco is bringing to light the housing situation around the nation, Bay Area residents have had a crisis finding affordable housing for years. While San Jose, San Francisco and East Bay areas lead the nation in wages, when cost of living are factored into the equation, the salary paid in those areas actually falls below the national income average.

According to the May 24, 2004 Los Angeles Times article, “In a Reverse Migration, Blacks Head to New South,” top out-of-State destinations have been Southern cities like Atlanta, Dallas and Charlotte.

Within Northern California, many residents moved to neighboring counties. Overall, the migration of African Americans leaving the Bay Area over the past 25 years has left a huge cultural and political void in historically Black areas in Oakland, San Francisco and Los Angeles.

U.S. Census figures show that between 1990 and 2000, the black population in the San Francisco-Oakland-San Jose area dropped by 13,191.

According to the April 9, 2007 San Francisco Chronicle article, “S.F. moves to stem African American exodus” by Leslie Fulbright, Oakland’s Black population went to 35.7% from 46.9% in 2000. San Francisco’s Black population dropped to 6.5% in 2005. In 1970 the black population was 13.4% of the city’s population.

Simultaneously, neighboring cities saw huge increases in their Black populations, According to Fulbright’s article, “Vallejo’s Black population has doubled since 1980 to 26.8 percent. In Pittsburg, the number of African Americans jumped to 19 percent in 2005. Suisun City is 19.3 percent Black, and San Leandro’s Black population went from 1 percent in 1980 to 12.2 percent in 2005 as the small East Bay city grew 21.3 percent overall.”

A clear draw was housing prices.

Kenneth Harris, owner of Century 21 Alpha Pacific in East Palo Alto remembers when Blacks were leaving the Bay Area in droves headed for Stockton, Antioch, and Pittsburgh where “brand new, sparkling clean, modern homes were available.” And those homes were a lot cheaper.

In a March 7, 2008 article titled, “City of a thousand foreclosures,” Scott Johnson points out that in 2000, the median home price in San Francisco was $566,000 compared to only $133,000 in San Joaquin County where Stockton is located.

Johnson states, “According to Stockton’s main newspaper, The Record, ‘By 2001, Stockton real-estate agents reported that eight out of 10 home buyers were coming from the Bay Area.”

Unfortunately former Bay Area residents were lured into many of those homes with loans that have turned out to be explosive.

Though Harris can remember previous housing crises, like the savings and loan debacle from the late 1970s through the early 1980s, he has never seen the real estate market in such bad shape: unprecedented number of foreclosures, plummeting housing prices and bank closures.

When Harris first started in the real estate business in 1975, buying a home took time, plenty of documentation of income, tax returns, and reasonable credit; qualifications that many African Americans could not readily meet.

With deregulation of the industry during the Reagan years, that began to change. Subprime loans emerged in the 1980s, though they initially made up a only a fraction of overall loans. That all changed with the stock market boom at the turn of the century.

According to the Kai White article, “The Subprime Swindle,” published in The Nation’s July 14, 2008 edition, money was pouring into the stock market. Investment banks bundled pools of mortgages then sold them as securities, and lenders increased lending volume to supply the demand from banks for mortgages. Once the pool of eligible borrowers was depleted, lenders set their sights elsewhere–often landing on communities of color.

To attract more borrowers, lenders began offering subprime loans, which often allowed 100 percent financing, initially low adjustable interest rates, without requiring the proof that one could pay the loan back.

White’s article states, “By 2004, subprime loans were 20 percent of home loans—and half of all home purchase and refinance borrowers had one in 2006.”

Findings by the advocacy group ACORN are that African Americans received twice the amount of subprime refinance loans compared to their white counterparts, regardless of credit standing or income level. Once the housing bubble began to bust and interest rates began to climb, foreclosure notices began showing up everywhere.

Because African Americans were given a disproportionate number of subprime loans, many of the same neighborhoods that African American’s were flocking to are now hardest hit by the housing fallout.

According to Wright, “Nearly 18,000 homes faced foreclosure in the Atlanta area during the first quarter of 2008, an almost 40 percent jump from the first quarter of 2007.”

For several months in 2007, Stockton led the nation in foreclosures with 1 out of every 27 homes in foreclosure.

Lenders like Country wide, Indy Mac, Fannie May and Freddie Mac are only a few big named organizations that have either collapsed or are in serious trouble as a result of the mortgage mess.

And, even though the situation is bleak for the entire nation, African Americans facing foreclosure are in jeopardy of losing the only wealth they have.  Wright states, “For black America, the ‘mortgage meltdown’ looks less like a market hiccup than a massive strip mining of hard-won wealth, a devastating loss that will betray the promise of class mobility for tens of thousands of black families.”

As with any tragedy, there is some hope. According to Harris, the real estate market is rebounding because of short sales and foreclosures.  Though it is harder to be approved a loan, qualified borrowers can now find houses at a fraction of the cost for which they were selling during the housing boom. Home ownership in the Bay Area is now a possibility that many thought they could never afford.

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