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Reclaiming Civil Rights: Reflections of 40
Years of Fair Housing
FAIR HOUSING, FORECLOSURE
PROBLEMS, & THE GLOBAL FINANCIAL
CRISIS
NANDINEE K. KUTTY, PH.D.
Independent Consultant
Western New England College School of Law,
November 14, 2008
Nandinee K. Kutty©2008
HOLC’s 1936 Map of Philadelphia
Red areas—”Hazardous”
FHA Underwriting Criteria
FHA Underwriting Manual, 1939
LBJ signing the Fair Housing Act in 1968. This legislation
was ready after a more than 20-year delay.
• Although FaHA was passed in 1968 (at the end
of the LBJ Administration), its implementation
was left to the next Administration—Nixon
was elected President in 1968.
• Nixon’s HUD Secretary, George Romney, was
committed to housing integration and wanted
to bring about integrated suburbs. But there
were conflicts between him and President
Nixon who was opposed to this. Romney
resigned in 1972.
Residential segregation persisted.
George Romney, the HUD Secretary in the Nixon
Administration, testifying before Congress in 1970
said:
The FHA “generally withheld insurance from
existing housing in central city areas” because
it was believed that neighborhoods “occupied
largely by minority groups had an unfavorable
economic future” ….. The policy of redlining
stemmed from “an unwritten but wellunderstood agreement between financial
institutions and the FHA.”
• Jimmy Carter in 1976: ”I see nothing wrong
with ethnic purity [of neighborhoods] being
maintained. I would not force racial
integration of a neighborhood by government
action.”—in April during the primary elections
running against George Wallace
• “intrusion of alien groups”—Jimmy Carter
• The Housing Market Practices Survey (HMPS)
1977—first national housing audit survey—
revealed continuing discrimination.
Fair Housing Amendments Act
(FaHAA) 1988
-Had stronger enforcement powers
-Gave enormous enforcement powers to HUD,
including the authority to initiate
discrimination cases even when an individual
complaint was not involved
• 40 years after the 1968 Fair Housing Act,
more than 4 million fair housing violations
occur each year in the U.S.
SEGREGATION AND PREDATORY
SUBPRIME LENDING
• It was residential segregation that
made redlining possible.
• It is residential segregation that has
made reverse redlining possible.
Predatory Subprime Lending Was
Piloted in Minority Communities
Predatory mortgage lending practices were
developed and honed by subprime lenders in
minority communities.
Also targeted at the elderly and womenheaded households.
Common Abusive Features
– Prepayment penalties
– Non-disclosure of terms
– Up-front payment of mortgage insurance
– Including closing costs and insurance premium in
the value of the loan
– Balloon payments
– Hidden costs and fees
– Exorbitant interest rates
– Mortgage servicing abuses
– Over –appraisals
Subprime Lending in the 1990s
• In the 1990s (and earlier),
African Americans and Latinos,
and their neighborhoods, were
targeted for abusive lending
practices in the subprime
market.
• Lenders were given free rein
Spread of Abusive Lending
Practices
• In the 2000s, these practices spread to other
borrowers, and even to some prime
borrowers.
• Soaring housing prices, undoubtedly, fueled
greed on the part of lenders and
homeowners. And lending without regard to
basic financial principles became widespread,
leading to the current foreclosure crisis.
Annual New Subprime Loans Made
Increased Nearly Four-Times from
2001-2005
2001 $160 billion
2005 More than $600 billion
2006 More than $600 billion
(Source: Inside Mortgage Finance)
At least 2,700 foreclosures a day in Q3 2008
Ohio
There are now more than 4 million homeowners that are at
least one-month delinquent or in foreclosure.
Spatially Concentrated Foreclosures
Foreclosure Costs to Communities
To neighboring property values, neighborhoods, and
municipalities. Negative effects on health and education.
“a single garment of destiny”
Some Myths
• Foreclosure problems caused by the
Community Reinvestment Act (CRA), 1977
• Subprime lending was a great innovation—
resulted in higher homeownership—increased
minority homeownership rates.
• Affordable housing goals of Fannie Mae and
Freddie Mac are responsible for the crisis.
Each myth hints at holding lending to minorities in
suspicion.
“… the whole Jericho Road must be transformed so
that men and women will not be constantly beaten
and robbed as they make their journey on life’s
highway.”
FAIR HOUSING, FORECLOSURE
PROBLEMS, & THE GLOBAL FINANCIAL
CRISIS
NANDINEE K. KUTTY, PH.D.
Independent Consultant
Please direct comments,
questions to
[email protected]