foreclosure on communities of color_2

7/30/2019 Foreclosure on Communities of Color_2

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Long Term Social Impacts andFinancial Costs of Foreclosureon Families and Communities

of Color:A Review of the Literature

W H I T E P A P E R

O C T O B E R 2 0 1 2


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TheAnnieE.CaseyFoundationisaprivatecharitableorganizationdedicatedtohelpingbuildbetter

futuresfordisadvantagedchildrenintheUnitedStates.Itwasestablishedin1948byJimCasey,oneof

thefoundersofUPS,andhissiblings,whonamedtheFoundationinhonoroftheirmother.Theprimary

missionoftheFoundationistofosterpublicpolicies,humanservicereforms,andcommunitysupports

thatmoreeffectivelymeettheneedsoftodaysvulnerablechildrenandfamilies.Inpursuitofthisgoal,

theFoundationmakesgrantsthathelpstates,cities,andneighborhoodsfashionmoreinnovative,cost

effectiveresponsestotheseneeds.Formoreinformation,visittheFoundationswebsiteat

www.aecf.org.

ThisresearchwasfundedbytheAnnieE.CaseyFoundation.Theauthorsthankthemfortheirsupport

butacknowledge

that

the

findings

and

conclusions

presented

in

this

report

are

those

of

the

authors

aloneanddonotnecessarilyreflecttheopinionsoftheFoundation.

Preparedby:

JamesH.Carr,HousingFinanceandBankingConsultant,McLean,VA

[email protected]

KatrinB.Anacker,AssistantProfessor,GeorgeMasonUniversity,Arlington,VA

[email protected]

2012NationalCommunityReinvestmentCoalition.Allrightsreserved.


3/49

NationalCommunityReinvestmentCoalitionhttp://www.ncrc.org202-628-8866 2

EXECUTIVESUMMARY

PreparedfortheAnnieE.CaseyFoundation

byJamesH.CarrandKatrinB.Anacker

Long-TermSocialImpactsandFinancialCostsofForeclosureonFamiliesandCommunitiesofColor:

AReviewoftheLiterature

ThisisthesecondpaperinaseriesofwhitepaperspreparedbytheNationalCommunityReinvestment

Coalition(NCRC)fortheAnnieE.CaseyFoundation.Thefirstpaper, TheForeclosureCrisisanditsImpact

onCommunitiesofColor:ResearchandSolutions1,authoredbyJamesH.Carr,KatrinB.Anacker,and

MichelleMulcahy,greatlybenefittedfrominputfromrepresentativesofmorethan40housing

advocacy,research,andcivilrightsorganizations.Inthefirstpaper,theauthorsdetailedtheearly

damagecausedbytheforeclosurecrisis,particularlyincommunitiesofcolor.Theauthorsalsoreviewed

theeffectivenessofcurrentforeclosuremitigationefforts,outlinedthemajorproposalstorevampthe

mortgagefinancesystem,andofferedsomeperspectivesonthelikelyimpactofthose

recommendationsoncommunitiesofcolor.Thissecondpaperwaspresentedtorepresentativesof

morethan40organizationsviaanationaltelephoneconference.Inthispaper,wereviewtheliterature

onthelong-termsocialimpactsandfinancialcostsofforeclosureonfamiliesandcommunitiesofcolor.

Below,weprovideanintroduction;discusstheimpactoftheforeclosurecrisisandtheGreatRecession

on(a)thewealthoffamiliesandcommunitiesofcolor,(b)thehomeownershiprateandhomevaluesof

familiesandcommunitiesofcolor,(c)smallbusinessfinancing,and(d)theprospectsforwealthbuilding

(includinghomeownership)forfamiliesandcommunitiesofcolor;andfollowitwithaconclusion.

Weshowthatmanynon-HispanicWhitesandAsiansdiversifytheiraccumulationofassetswhile

Blacks/AfricanAmericansandHispanics/Latinostendtopursueonlyafewpaths,typicallynotbychoice

butratherbyconstraint.WepointoutthatBlacks/AfricanAmericans,Hispanics/Latinos,andselect

Asiangroupsareatadisadvantagedpositionintermsofwealthandwealthbuildingastheyarealso

morevulnerabletoeconomicshocksduetotheconcentrationoftheirwealthinhomeownership.

Therefore,manyBlack/AfricanAmericans,Hispanics/Latinos,andselectAsiangroupshaveexperienced

acatastrophiclossofwealthasaresultoftheforeclosureandeconomiccrises.Weshowthatduringthe

GreatRecessioneconomicopportunitieserodedfasterforcommunitiesofcolorthanforWhitesand

thattheseopportunitieshavebeencomingbackmoreslowlyinthesecommunities.Despitethelower

proportionofhomeownersamongBlacks/AfricanAmericans,Hispanics/Latinos,andselectgroupsof

Asiansandthehigherproportionsofforeclosureandborrowersunderwater,homeownershipremains

animportantpriorityformanyAmericans.TheanticipatedreformoftheGovernmentSponsored

Enterprises(GSEs)andmortgagelendingwilldeterminetheextenttowhichpeopleofcolorwillhave

theopportunityto(re)buildwealththroughaffordablehomeownership.

1http://www.ncrc.org/images/stories/pdf/research/ncrc_foreclosurewhitepaper_2011.pdf


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Introduction

Overthepastfiveyearsorso,theUnitedStateshasfacedseveraleconomiccrisesthathaveandwill

continuetohavevasteffectsontheopportunities,well-being,andwealth-buildingpotentialofcurrent

andfuturegenerations.BasedonRealtyTracanalyses,betweenJanuary1,2007andDecember31,

2011,morethan11.2millionpropertiesreceivedaforeclosurenotice(Anacker,2012).TheOfficeofthe

ComptrolleroftheCurrencyandtheU.S.DepartmentoftheTreasuryestimate,basedonaportfoliothat

comprises60percentofallmortgagesoutstandingintheUnitedStates,thatasofDecember31,2011,

morethan1.56millionborrowerswereseriouslydelinquent(i.e.,morethan60dayslateormorethan

30dayslatewiththeirmortgagepaymentsincaseofbankruptcy)(OfficeoftheComptrollerofthe

CurrencyandU.S.DepartmentoftheTreasury,2012).Bocianetal.(2011)estimatethatsome

proportionoftheseseriousdelinquencieswilltranslateintoforeclosures,concludingthatthenationis

notevenhalfwaythroughtheforeclosurecrisis(p.3).Despitethefactthatthecrisiscontinues,the

overallnumberofforeclosuresbythefirstquarterofthisyearhasdecreasedwhilethenumberof

foreclosuresinthe26judicialforeclosurestates,amongthemIndiana,Connecticut,Massachusetts,

Florida,SouthCarolina,andPennsylvania,hasincreased.Also,first-timeforeclosurestarts(i.e.,either

defaultnoticesorscheduledforeclosureauctions)increasedsevenpercentfromFebruarytoMarch

2012inNevada,Utah,NewJersey,Maryland,andNorthCarolina(RealtyTrac,2012).

Thetotalequitylostbyfamilieswithrecentlyforeclosedpropertiesisestimatedatmorethan$7trillion

(Raskin,2012).Inaddition,anestimated$502billioninpropertyvaluehasbeenlostduetonearby

foreclosures(CenterforResponsibleLending,n.d.basedonCRL,CreditSuisse,MoodysEconomic.com,

MBA).Theeffectsoftheeconomiccrisishavebeenenormous,bothnationallyandglobally.Currentand

futuregenerationswillbeimpactedfordecadestocome.

WhiletheforeclosurecrisishashadvastconsequencesthroughouttheUnitedStates,ithashada

disproportionateimpactonpersonsofcolor.Bocianetal.(2010)estimatedthatamongrecent

borrowers,nearlyeightpercentofbothBlacks/AfricanAmericansandHispanics/Latinoshavebeen

foreclosedupon,comparedto4.5percentofnon-HispanicWhites,controllingfordifferencesinincomes

amongthegroups.Theseproportionsareespeciallystrikinggiventhedisproportionatelyhighshareof

mortgageoriginationsofnon-HispanicWhites.

Asofthefourthquarterof2011,thenon-HispanicWhite,Black/AfricanAmerican,andHispanic/Latino

homeownershipratesareat73.7,45.1andat46.6percent,respectively.Inthefourthquarterof2007,

whentherecessionwasofficiallydeclared,thehomeownershiprateswereat74.9,47.7,and48.5percent,respectively.Thus,theeconomiccriseshavecausedthegreatestpercentagepointlosses

amongBlacks/AfricanAmericansandHispanics/Latinos(U.S.BureauoftheCensus,2012).Eakesexpects

thatthehomeownershiprateforBlack/AfricanAmericanandHispanic/Latinofamilieswilldropeven

further,toarangeof40to42percentinthefuture(USARealtyGroup,2010).Areturntothislevelof

homeownershipwouldwipeoutover15yearsofgainsinhomeownershipratesforpeopleofcolor.


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TheImpactoftheForeclosureCrisisandtheGreatRecessionontheWealthofFamiliesand

CommunitiesofColor

Whilemanynon-HispanicWhitesandAsiansdiversifytheiraccumulationofassets,Blacks/African

AmericansandHispanics/Latinostendtopursueonlyafewpaths,typicallynotbychoicebutratherby

constraint(Conley,1999;Shapiro,2004).

Chang(2010)uses2004SurveyofConsumerFinances(SCF)datatoillustratethisdivergencebyrace,

ethnicity,gender,andmaritalstatus.Herfindingsillustratetheracialandethnicgapwithregardtothe

numberofroutesforwealthbuildingchosenbythedifferentracialandethnicgroups.Table1below

presentsinformationoncashaccounts,thetermchosenbyChang(2010),2byrace,ethnicity,gender,

andmaritalstatus.

Table1:RateofCashAccountsHeldandMedianValueofCashAccountsbyRace,Ethnicity,Gender,andMarital

Status

Race,Ethnicity,Gender,MaritalStatus ProportionwithCashAccounts MedianValueofCashAccounts(ifowned)

White3

Married/cohabitating 96% $7,000

Singlemale 92% $3,000

Singlefemale 93% $1,605

Black/AfricanAmerican




Asian



Singlefemale 86% $365

Hispanic/Latino



Singlefemale 68% $400

Source:Chang(2010)p.80slightlymodifiedbyauthors

Table1showsthatmarried/cohabitatingandsinglemaleAsiansandmarried/cohabitatingWhitesare

thehighestproportion(i.e.,97and96percent,respectively)ofpeopleholdingcashaccountsaswellas

thosewiththehighestmediancashaccountbalancesof$7,500,$5,000,and$7,000,respectively.The

tableabovealsoshowsthatsinglefemaleBlacks/AfricanAmericansandHispanic/Latinosarethelowest

proportionofpeopleholdingcashaccounts(i.e.,68percent),aswellasthosewiththelowestmedian

balancesof$1,000and$400,respectively.Havingaccesstoacashaccountoftentimespreventsthe

needtousetypicallyexpensivealternativebankingservices,especiallyintimesofemergency.

2AccordingtoChang(2010),cashaccountsincludemoneyheldinsavingsaccounts,checkingaccounts(includingmoneymarket

accounts),andcertificatesofdeposit(CDs).3Chang(2010)usesthelabelWhite.TheauthorsofthispaperdonotknowwhetherthislabelincludesHispanicsornot.


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Table2belowprovidesinformationonstockownership4byrace,ethnicity,gender,andmaritalstatus.

Table2:RateofStockOwnershipandMedianEquitybyRace,Ethnicity,Gender,andMaritalStatus

Race,Ethnicity,Gender,Marital

Status

ProportionStockOwners MedianValueofStockAccounts(ifowned)

White5

Married/cohabitating 67% $26,020Singlemale 51% $18,250






Asian


Singlemale 21% N/A

Singlefemale 28% N/A

Hispanic/Latino


Singlemale 21% N/ASinglefemale 10% N/A

Source:Chang(2010)p.85slightlymodifiedbyauthors

Table2aboveshowsthatmarried/cohabitatingWhitesandAsiansandsingleWhitemaleshavethe

highestproportionsofstockaccounts,with67,53,and51percent,respectively.Thistablealsoshows

thatsingleHispanic/LatinoandsingleBlack/AfricanAmericanfemaleshavethelowestproportionof

stockaccounts,with10and28percent,respectively.Married/cohabitatingAsianshavethehighest

medianvaluesofstockaccounts($47,600),followedbymarried/cohabitatingWhites($26,020)and

singlemaleWhites($18,250).Whilestocksarevolatileandpronetoriskintheshortrun,theyare

neverthelessconsideredasawealthbuildingtoolinthelongrun(ThalerandSunstein,2008).Table3belowshowsinformationoninvestmentrealestatewealth

6byrace,ethnicity,gender,and

maritalstatus.

Table3:RateofInvestmentRealEstateOwnershipandMedianValuebyRace,Ethnicity,Gender,andMarital

Status


Status

ProportionofInvestmentReal

EstateOwners

MedianValueofInvestmentReal

Estate(ifowned)

White7






4AccordingtoChang(2010),stockownershipincludesdirectownershipofstocksharesandindirectownershipthroughmutual

fundsandretirementaccounts(suchas401(k)andIRAaccounts).5Chang(2010)usesthelabelWhite.TheauthorsofthispaperdonotknowwhetherthislabelincludesHispanicsornot.

6AccordingtoChang(2010),investmentrealestateincludesanyrealestateotherthanonesprimaryresidence.Themedian

valueispro-ratedbasedonthepercentageownedbytherespondentifownershipisshared.7Chang(2010)usesthelabelWhite.TheauthorsofthispaperdonotknowwhetherthislabelincludesHispanicsornot.


7/49



Status

ProportionofInvestmentReal

EstateOwners

MedianValueofInvestmentReal

Estate(ifowned)

Singlemale 9% N/A

Singlefemale 9% N/A

Asian


Singlemale 16% N/A

Singlefemale 8% N/A

Hispanic/Latino Married/cohabitating 16% $60,000

Singlemale 13% N/A

Singlefemale 0% N/A

Source:Chang(2010)p.87,slightlymodifiedbyauthors

Table3aboveshowsthatmarried/cohabitatingAsians(24percent)andWhites(22percent)havethe

highestproportionofinvestmentrealestateownedandthatsingleHispanic/Latino,Asian,and

Black/AfricanAmericanfemaleshavethelowestproportion,withzero,eight,andninepercent,

respectively.Whilemarried/cohabitatingAsiansandsingleWhitemaleshavethehighestmedianvalues,

with$150,000and$130,000,respectively,Blacks/AfricanAmericansandHispanics/Latinoshavethe

lowestmedianvalues,with$40,000and$60,000,respectively. 8

Table4belowshowsinformationonprivatelyownedbusinessassetsbyrace,ethnicity,gender,and

maritalstatus.

Table4:RateofPrivatelyOwnedBusinessAssetsandMedianValuebyRace,Ethnicity,Gender,andMarital

Status


Status

ProportionofPrivatelyOwned

BusinessAssets

MedianValueofPrivatelyOwned

BusinessAssets(ifowned)

White9


Singlemale 12% $100,000Singlefemale 6% $60,000



Singlemale 9% N/A

Singlefemale 3% N/A

Asian


Singlemale 15% N/A

Singlefemale 3% N/A

Hispanic/Latino


Singlemale 2% N/ASinglefemale 0% N/A

Source:Chang(2010),p.89,modifiedbyauthors

Table4aboveshowsthatmarried/cohabitatingWhites(19percent)andAsians(18percent)arethe

highestproportionofprivatelyownedbusinessassetownersandsinglefemaleHispanics/Latinos,

8Duetothesizeofthesamplesomesubgroupsdonothaveentriesinthetable.9Chang(2010)usesthelabelWhite.TheauthorsofthispaperdonotknowwhetherthislabelincludesHispanicsornot.


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Blacks/AfricanAmericans,andAsiansarethelowestproportion,withzeropercentfortheformergroup

andthreepercentforthetwolattergroups.WhileWhitesandAsianshavethehighestvalueofprivately

ownedbusinessassets,with$150,000and$100,000,respectively,Blacks/AfricanAmericansand

Hispanics/Latinoshavethelowestvalue,with$50,000and$62,000,respectively.10

AmongAsianAmericansandPacificIslanders,however,therearevastdifferencesintermsofincomes

andwealth.Table5illustratesthesedifferences,calculatedbyPatrapornetal.(2009),basedonAmericanCommunitySurvey(2006)data

11.

Table5:ParityIndexesofSelectEconomicIndicatorsforSelectAsianGroups

MeanIncome MeanInterest,

Dividend,and

RentalIncome

MeanHomeValue MeanHomeEquity

AllAsians $81,500 $2,000 $283,300 $104,400

AsianIndian 1.22 1.10 0.93 0.76

Chinese 1.01 1.35 1.14 1.29

Filipino 1.04 0.50 1.09 0.99

Japanese 0.99 1.65 1.18 1.84

Korean 0.86 1.00 0.88 0.68Vietnamese 0.82 0.45 0.90 1.06

OtherSoutheast

Asian

0.68 0.15 0.53 0.40

OtherAsian 0.87 0.65 0.78 0.67

Source:Patrapornetal.(2009)

Patrapornetal.(2009)calculatedparityindexes,takingthemeanvalueofeacheconomicindicatorfor

eachAsiangroupanddividedthatbytheaverageforallAsians,concludingthattherearevast

differencesamonggroups.Futureresearchshouldanalyzewhethertheparityindexeschangedduring

andaftertheGreatRecession.

ThetablesaboveillustratethatBlacks/AfricanAmericans,Hispanics/Latinos,andselectAsiangroupsare

atadisadvantagedpositionintermsofwealthandwealthbuilding.Theyarealsomorevulnerableto

economicshocksduetotheconcentrationoftheirwealthinonemajorassetclass.Althoughowner-

occupiedhousingistheprincipalassetofthemedianhouseholdintheUnitedStates,theoverreliance

onowner-occupiedhousingformostBlacks/AfricanAmericans,Hispanics/Latinos,andselectAsian

groupshasresultedinacatastrophiclossofwealthasaresultoftheburstofthenationalhouseprice

bubblein2006andtheensuingforeclosurecrisisthatstartedinearly2007,bothofwhichhavehada

disproportionateimpactonfamiliesandcommunitiesofcolor(JointCenterforHousingStudiesof

HarvardUniversity,2012).Whilemanypeoplerelyonprofessionalandpersonalnetworkstogainmore

insightsforwealthbuilding,manyBlacks/AfricanAmericansrelyonpersonalnetworksthatmightnot

necessarilybenefitthem(Reid,2010).

10Duetothesizeofthesamplesomesubgroupsdonothaveentriesinthetable.

11WethankJaneDuongoftheNationalCoalitionforAsianPacificCommunityDevelopment(CPACD)forreferringustothis

source.


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Overthepastfewyears,thevastmajorityoftangibleassetshasdeclined,althoughtheliteratureon

wealthlostduringtheGreatRecessionisthinduetothescarcityofdatasources.Examplesofworksthat

havefocusedonthisaspectareWolffetal.(2010)2,Kochharetal.(2011),andWelleretal.(2012).

Kochharetal.(2011)utilizedatafromtheSurveyofIncomeandProgramParticipation(SIPP)of2005

and2009andfindthatnon-HispanicWhitesexperiencedanegativechangeof16percentinmediannet

worth,whereasBlacks/AfricanAmericansexperiencedanegativechangeof53percentandHispanics/Latinosexperiencedanevenhigher66percent.Morespecifically,non-HispanicWhite

householdshadamediannetworthof$134,992in2005andamediannetworthof$113,149in2009.

Incontrast,Black/AfricanAmericanhouseholdshadamediannetworthof$12,124in2005and$5,677

in2009.Hispanic/Latinohouseholdshadanetworthof$18,359in2005and$6,325in2009.

Welleretal.(2012)findthatcommunitiesofcoloraresubstantiallylesslikelythantheirwhitefellow

citizenstoenjoytheopportunitiesthatcomefromhavingagoodjob,owningahome,andhavinga

financialsafetycushionintheformofhealthinsurance,retirementbenefits,andprivatesavings.[]

Thisdifferenceexistsbecauseeconomicopportunitieserodedfasterforcommunitiesofcolorthanfor

whitesduringtheGreatRecessionandthoseopportunitieshavebeencomingbackmuchmoreslowlyforcommunitiesofcolorthanforwhitesduringtheeconomicrecovery(Welleretal.,2012,p.1).More

specifically,theauthorsshowthatBlacks/AfricanAmericansandHispanics/Latinoshavesufferedfrom

thefollowingdifficulties:

Highandincreasedunemploymentratescomparedtootherracialgroups; Loweremploymentratesthanotherracialgroups; Lowermedianhouseholdincomesanddecreasedmedianhouseholdincomescomparedto

otherracialgroups;

Disproportionaterepresentationamongminimumwageearners; Higherpovertyratesandincreasedpovertyratessincethebeginningoftherecessioncompared

tootherracialgroups;

Lowerhealthinsurancecoverageratesthanotherracialgroups; Lowerretirementplancoverageratesintheprivatesectorthanotherracialgroups; Increaseinthewealthgapbetweenthemandnon-HispanicWhitesandAsians;and Substantialdecreaseintheirhomeownershiprate,partlyduetoforeclosure.

TheImpactoftheForeclosureCrisisandtheGreatRecessionontheHomeownershipRateandHome

ValuesofFamiliesandCommunitiesofColor

Notsurprisingly,thehomeownershipgapbetweennon-HispanicWhiteandBlack/AfricanAmerican

households,richandpoorhouseholds,andmore-educatedandless-educatedhouseholdshaswidened

considerablycomparedtoadecadeearlier,basedonMarchCurrentPopulationSurveystakenin2001,

2003,2005,2007,2009,and2011(Rosenbaum,2012;seealsoKochharetal.,2009).Table6below

illustratestrendsinhomeownershipbyraceandethnicity.


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Table6:TrendsinHomeownershipamongU.S.Households,byRaceandEthnicity,2001to2011

2001 2003 2005 2007 2009 2011

AllHouseholds 67.94% 68.47% 69.41% 68.46% 67.48% 66.45%

White12

Households

74.55% 75.21% 76.18% 75.22% 74.67% 74.03%

Black

Households

48.32% 48.41% 49.61% 49.01% 46.92% 44.59%

Hispanic/Latino

Households

45.61% 47.58% 49.23% 49.31% 47.86% 46.59%

AsianHouseholds 53.43% 56.84% 59.60% 59.79% 58.68 57.83%

White/BlackRatio 1.54 1.55 1.54 1.53 1.59 1.66

White/Hispanic/Latino

Ratio

1.63 1.58 1.55 1.53 1.56 1.59

White/AsianRatio 1.40 1.32 1.28 1.26 1.27 1.28

Source:Rosenbaum(2012),slightlymodifiedbyauthors

Table6aboveillustratesthatthehomeownershipratein2011waslowerthantheratein2001for

White,Black/AfricanAmerican,andHispanic/LatinohouseholdsbuthigherforHispanics/Latinosand

Asians.Italsoillustratesthatthehomeownershipratepeakedin2005forWhitesandBlacks/African

Americansbutonlyin2007forHispanics/LatinosandAsians,indicatingthenegativeimpactofthe

foreclosurecrisisbutalsoalageffectforHispanics/LatinosandAsians.Thelageffectfor

Hispanics/LatinosandAsiansmightbeduetothehigheraveragehouseholdsize,whichmightinclude

morehouseholdearners,thuspossiblydelayingforeclosure.WhileHispanics/Latinoshadanaverage

householdsizeof3.52membersin2010,Asianshadasizeof3.02members,followedbyBlacks/African

Americans(2.63members)andnon-HispanicWhites(2.46members)(U.S.BureauoftheCensus,2010).

ThelageffectforAsiansmightalsobeexplainedbytheirfavorableincomesituationasagroup,whichis

morefavorablethanotherracialandethnicgroupsandmighthaveimpactedthemtoalesserdegreein

theforeclosurecrisis.WhileAsianshadamedianhouseholdincomeof$67,022in2010,non-Hispanic

Whiteshadamedianhouseholdincomeof$52,480,followedbyHispanics/Latinos($40,165)and

Blacks/AfricanAmericans($33,578).

Table6alsoshowsthatBlacks/AfricanAmericanshadthelargestpercentagepointchangeinthe

homeownershiprateofallracialandethnicgroups.Thischangewas2.09percentagepointsbetween

2007and2009and2.33percentagepointsbetween2009and2011,followedbyHispanics(1.45percentagepointsfrom2007to2009and1.27percentagepointsfrom2009to2011)andAsians(1.11

percentagepointsbetween2007and2009and0.85percentagepointsbetween2009to2011).In

contrast,theWhitehomeownershipratechangedonly0.55percentagepointsfrom2007to2009and

12Rosenbaum(2012)usesthelabelWhite.TheauthorsofthispaperdonotknowwhetherthislabelincludesHispanicsor

not.


11/49


0.64percentagepointsfrom2009to2011.Allratioswerelowestin2007butincreasedagainin2009

and2011,indicatingrisinginequalities.

Table7belowillustratesthevastdifferencesandthetrendinhomeownershipratesamongAsian

groups,basedonthe2000and2010Censuses.

Table7:HomeownershipRatesamongAsianAmericanandPacificIslanderGroups

13

TotalPopulation2000

HomeownershipRate2000

TotalPopulation2010

HomeownershipRate2010

AsianIndianalone 536,883 46.96% 928,183 53.94%

Bangladeshialone 11,028 27.11% 32,236 45.13%

Bhutanesealone N/A N/A 3,230 2.79%

Burmesealone N/A N/A 22,397 28.47%

Cambodianalone 37,567 44.24% 58,451 51.62%

Chinese(except

Taiwanese)

764,454 58.04% 1,057,114 61.96%

Chinesealone 803,746 58.42% 1,135,720 62.25%

Filipinoalone 507,658 60.18% 741,840 62.19%

Hmongalone 26,672 40.18% 46,495 46.71%

Indonesianalone 13,173 38.08% 19,701 51.00%

Japanesealone 337,226 60.74% 331,834 64.35%

Koreanalone 338,196 40.73% 491,726 46.99%

Laotianalone 38,741 53.49% 51,775 59.64%

Malaysianalone 3,545 27.93% 5,306 47.70%

Mongolianalone N/A N/A 4,191 21.05%

Nepalesealone N/A N/A 15,141 28.39%

Okinawanalone N/A N/A 1,235 77.73%

Pakistanialone 40,570 41.77% 94,183 55.29%

Singaporeanalone N/A N/A 1,203 49.88%

SriLankanalone 6,937 51.03% 13,505 57.22%

Taiwanesealone 39,292 65.86% 73,417 66.02%

Thaialone 34,718 49.10% 50,891 55.67%

Vietnamesealone 292,244 54.17% 433,498 65.49%Source:2000and2010U.S.Censuses,SummaryFile2,calculatedbyauthors

Whilehomeownershipratesforallgroupshaveincreasedfrom2000to2010,thequestionremains

whetherthehousepricewasinflatedwhenahomewasboughtand,ifso,howmuchequityhasbeen

lostduringthenationalhousepricecrash.Futureresearchcouldfocusonthefactorsthatinfluence

homeownershipratesofthesegroups,inparticularthosegroupsthathaveseenlargechanges,the

pointintimewhenhomeswherebought,andhowmuchequityhasbeenlost.

Whilemuchworkhasfocusedonthedeclineinpropertyvalues(e.g.,Standard&PoorsIndices,2012),

notmanyworkshavefocusedonraceandethnicity.Wolffetal.(2010)utilizedatafromthe2007SurveyofConsumerFinances(SCF)andthe2009PanelStudyofIncomeDynamics(PSID),bothofwhichare

nationalinscope.Inregardstothedeclineinaveragevalueofhomeequityfrom2007to2009,theyfind

thatallhouseholdsfacedadeclineof39.1percent,whilenon-HispanicWhitesfacedadeclineof36.9

percent,Blacks/AfricanAmericansof48.0percent,andHispanics/Latinosof44.6percent,indicating

racialandethnicinequalitiesintermsoflossofvalue.

13WethankJaneDuongoftheNationalCoalitionforAsianPacificCommunityDevelopment(CPACD)forreferringustothis

source.


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Inaddition,whilesignificantworkhasfocusedonthenumberandproportionofunderwaterborrowers

(Footeetal.,2008;Melzer,2010),mostanalyseshavenotfocusedonraceandethnicity.Wolffetal.

(2010)areanexception.Theyusedatafromthe2007SurveyofConsumerFinances(SCF)andthe2009

PanelStudyofIncomeDynamics(PSID),bothofwhicharenationalinscope.Withregardtothe

projectedshareofhomeownerswithnegativehomeequityin2009,Wolffetal.(2010)findthatthe

overallprojectedproportionofhomeownerswithnegativehomeequityis16.4percent,whiletheproportionofnon-HispanicWhitesis14.5percent,theproportionofBlacks/AfricanAmericansis27.9

percent,andtheproportionofHispanics/Latinosis23.2percent.Thesefindingsindicatethatborrowers

notonlypurchasedpropertiesinmetropolitanareasandneighborhoodsthatdisproportionatelylost

valueduetotheforeclosurecrisisbutcouldalsoindicatethatsomehomevaluesmighthavebeen

inflateduponorigination,corroboratedbytheliterature(NationalAssociationofHomeBuilders,2012).

WhileWolffetal.s(2010)focusisnational,CowenandBuitragos(2012)focusisregional.Theyutilize

proprietarydataonhomeequity,propertyvalues,andoutstandingmortgagedebtonresidential

propertiesinzipcodeareasofsixcountiesintheChicagoarea(Cook,DuPage,Kane,Lake,McHenry,and

WillCounties)inthefourthquarter2011.Table8belowillustratestheirfindings.

Table8:AverageHomeEquity,Values,andOutstandingMortgageDebtintheChicagoSixCountyRegion

(4th

Quarter2011)

HomeEquity HomeValue Outstanding

MortgageDebt

Loan-to-ValueRatio

10%orLessofColor $108,069 $334,292 $226,223 67.7%

1019.9%ofColor $101,152 $313,581 $212,429 67.7%

2049.9%ofColor $60,379 $240,833 $180,455 74.9%

5079.9%ofColor $20,761 $160,928 $140,167 87.1%

80%orMore


$6,800 $85,967 $79,167 92.1%

50%ormore

Hispanic/Latino

$35,174 $278,163 $242,989 87.4%

ChicagoSixCounty

Region

$72,272 $260,847 $188,575 72.3%

Source:CowanandBuitrago(2012),slightlymodifiedbyauthors

Table8aboveshowsthathomeequity,homevalues,andtheoutstandingmortgagedebtarehighest

buttheloan-to-valueratiosarelowestinthosecommunitiesthathavethelowestproportionofpeople

ofcolor.Thesefindingsillustratenotonlytheprecariousfinancialsituationmanypeopleofcolorarein

butalsotheeffectofthecurrenteconomiccrisisonthesepopulations.

Thedecreaseinpropertyvalueshasnotonlyaffectedfamilies,ithasalsoaffectedadjacentproperties

andentireneighborhoods,triggeringpolicydiscussions.Numerousworkshaveanalyzedthespillover

effects,comingtotheconclusionthatthespillovereffectsofforeclosurearenegative,althoughthereis

varietywhenitcomestoresults(seeLee,2008foraliteraturereviewoftheeffectofforeclosureson

propertyvalues).Forexample,Moreno(1998)calculatesthatforMinneapolis/St.Paulaforeclosureofa

homewithanFHA-insuredmortgagethatbecomesvacantandboardedandthatthecityrehabilitates


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forresalewillaffectsurroundingpropertiesbyabout$10,000(whiletheaveragecostperforeclosed

propertyis$73,300).

ImmergluckandSmith(2006)analyzepropertycharacteristicsandsalespricesforsingle-familyhomesin

CookCounty,thecentralcountyinwhichChicagoislocated.Theyestimatethateachforeclosurewithin

aneighthofamileofasingle-familyhomeresultsinadeclineof0.9percentinvalue,resultinginan

averageof$159,000(sic)perforeclosure.Schuetzetal.(2008)focusonalongitudinaldatasetfrom2000to2005inNewYorkCityandfindthatpropertiesincloseproximitytoforeclosuressellata

discountthatincreaseswiththenumberofadjacentforeclosures,althoughtheincreaseisnotlinear.

Schuetzetal.(2008)alsofindthatthereisathresholdeffect,whereproximitytoaverysmallnumberof

foreclosuresdoesnotseemtohaveaconsistentnegativeimpactonpropertyvalues.

Hardingetal.(2009)takerepeat-salesdatafrom1990through2007fromsevendifferentMetropolitan

StatisticalAreas(MSAs)andfindthatthepeakcontagioneffectfromtheclosestforeclosureswas

approximatelyonepercentbutthatthediscountdecreasesasthedistancetotheforeclosedproperty

increases.Linetal.(2009)analyzetheeffectofforeclosuresonpropertyvaluesfortheChicagoPrimary

MetropolitanStatisticalArea(PMSA),basedona2006datasetwithfourmodels:first,amodelthatmeasuresthetimeeffectonly;second,amodelthatmeasuresthedistanceeffectonly;third,amodel

thatincludestimeinteractedwithdistanceeffects;andfourth,amodelthatincludestimeinteracted

withdistanceeffects,correctedforsamplebias.Themostsevereeffectis8.7percentwithinafew

blocks(i.e.,lessthan0.1kilometersfromaforeclosedhome)withinthefirsttwoyears,althoughover

timeandwithincreaseddistancethenegativeeffectofforeclosuredecreases.LeonardandMurdoch

(2009)focusonDallasCounty,utilizing2006dataandcorrectingforspatiallags.Consistentwithother

research,themagnitudeofthenegativeeffectdisappearsoverspace.LeonardandMurdochfindthat

theeffectofanadditionalforeclosurewithin250feetofasaleisapproximately$1,666,controllingfor

everythingelseinthemodel.Campbelletal.(2011)analyzetheeffectofspilloversfromforeclosuresin

Massachusetts,usinglongitudinaldatathatrangesfrom1987to2009.Theyfindthatforeclosurediscountsareabout27percentonaverage,acknowledgingvandalismthattypicallyaffectsforeclosed

homes.Lastly,Wassmer(2012)analyzestheexternaleffectsofresidentialhomeforeclosuresonhomes

inSacramento,California,andfindsa31.9percentdropinmarketvalueforanon-RealEstateOwned

(REO)homesale,translatingintoanaverageof$48,827perhome.Insum,foreclosurespilloversare

negative,thusjustifyingpublicintervention.

Follow-upworkbyMikelbank(2008)forColumbus,Ohio,includestheimpactofforeclosuresonboth

adjacentandvacantandabandonedpropertiesonpropertyvalues.Hefindsthattheforeclosureimpact

perpropertyis$4,738($4,267,$4,256)andthatthevacancyimpactis$5,509($4,710,$4,411)per

property($10,247,$8,977,$8,667totalperproperty)when(a)twoseparatemodelsarerun,oneforforeclosureandoneforvacantandabandonedhomes;(b)onemodelisrun,includingavariablefor

foreclosureandavariableforvacancy;and(c)onemodelisrun,includingavariableforforeclosureand

avariableforvacancy,inaspatialeconometricframework.

WhitakerandFitzpatrick(2012)expandMikelbanks(2008)analysisandincludeforeclosed,vacant,and

tax-delinquentpropertiesintheiranalysisforCuyahogaCounty,thecountyencompassingCleveland,

Ohio.Theydifferentiatebetweenhigh-poverty,medium-poverty,andlow-povertyneighborhoodsand


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usedifferentdistancebuffers.WhitakerandFitzpatrick(2012)findthatforthecaseofhigh-poverty

neighborhoods,thesalepriceofahomeis1.5percentlowerwitheachadditionaldelinquenthome

within500feet.Inmedium-povertyneighborhoods,therearenegativeimpactsof2.1percentduetoa

vacanthome,1.9percentduetoadelinquenthome,and2.7percentifanearbyhomeisbothvacant

anddelinquent.Incaseoflow-povertyneighborhoods,theimpactofvacanthomesis1.7percentand

theimpactofforeclosedhomesis1.8percentonthepriceofahome.

Theprolongedandseverenationalhousepricecrashhasalsofueleddiscussionsonstrategicdefault

(seeFooteetal.(2008)andQuigleyandvanOrder(1995)forearlierwork).AsGuisoetal.(2011)point

out,themainprobleminstudyingstrategicdefaultsisthatthisisdefactoanunobservableevent.

Whilewedoobservedefaults,wecannotobservewhetheradefaultisstrategic.Strategicdefaulters

havealltheincentivetodisguisethemselvesaspeoplewhocannotaffordtopayandsotheywillbe

difficulttoidentifyinthedata(Guisoetal.,2011,p.2).Nevertheless,Tirupatturetal.(2010)developa

definitionwherestrategicdefaultsaredefaultsonmortgageobligationsbyborrowerswhoarea)

underwaterontheirmortgagesandb)haveothermeaningfulnon-mortgageobligationsonwhichthey

continueperforming(Tirupattur,2010,p.2).Theyfindthattheincidenceofstrategicdefaultsishigher

athighercreditscores,morerecentvintages,amongloanswithlargebalances,andamongnon-recoursestates,forexampleCalifornia.Mayeretal.(2011;seealsoGriffithandEizenga,2012fora

discussiononstrategicdefaultinconnectionwithprincipalreductionsofmortgagessecuredbythe

GSEs)analyzestrategicdefaultinconnectionwiththeannouncementoftheCountrywideSettlementin

October2008.Theypointoutthatitisdifficulttoobservewhetheraborrowerdefaultedinresponseto

thesettlementbutaddressthisprobleminthreeways.First,theyestimatethenumberof additional

defaultsamongCountrywideborrowersuntilFebruary2009,justbeforetheHAMPmodification

programwasannounced,relativetothenumberofadditionaldefaultsduringthesameperiodamong

comparableborrowerswhodidnotbenefitfromthesettlement.Second,theyinvestigatethe

settlementseffectsinacross-sectionofborrowerswithgreateraccesstoliquiditythroughcreditcards

andlowercurrentcombinedloan-to-value(CLTV)ratios.Third,theyanalyzetheeffectofthesettlementinasubsetofCountrywide-servicedloansthatwerenoteligibleforthesettlement.Mayeretal.(2011)

findthattheCountrywideSettlementseffectswerelargestamongCountrywideborrowerswhohad

accesstosubstantialliquiditythroughcreditcardsandthosewithrelativelylowcurrentCLTVratios,

indicatingstrategicbehavioramongborrowersinresponsetothesettlement.

Bhuttaetal.(2010)discusstwohypothesesaboutwhyborrowersdefault.Thestrategicorruthless

defaultoccurswhenaborrowersequityfallssufficientlybelowsomethresholdamountandthe

borrowerdecidesthatthecostsofpayingbackthemortgageoutweighthebenefitsofcontinuingto

makepaymentsandholdingontotheirhome(Bhuttaetal.,2010,p.3).Thedoubletrigger

hypothesisholdswhendefaultoccurswhenequityisnegativebutabovethethresholdstatedinthestrategicdefaulthypothesis(discussedabove)yetthereisanegativeincomeshock.

Whilesomestudiesutilizequantitativemethods,othersusequalitativeones.Inregardstoquantitative

methods,Bhuttaetal.(2010)studyborrowersfromArizona,California,Florida,andNevadawho

purchasedhomesin2006,usingnon-primemortgageswith100percentfinancing.Ofthese

approximately133,000loans,80percenthaddefaultedbySeptember2009.Basedonacumulative

distributionfunction,theauthorsfindthatthemedianborrowerwalksawayfromhishomewhenheis


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62percentunderwater(Bhuttaetal.,2010,p.21),meaningthathalfoftheborrowerswouldwalk

awayiftheirhomewaslessthan62percentunderwaterandthathalfwouldwalkawayiftheirhome

wasmorethan62percentunderwater.Thisishelpful,asmuchoftheliteraturehasfocusedonthe

numberandtheproportionofborrowersunderwater(e.g.,about12millionborrowers(Bernanke,

2012),orabout23percentofborrowers(CoreLogic,2012))andtheproportionseriouslydelinquent(i.e.,

past60daysdue)(OfficeoftheComptrolleroftheCurrencyandUSDepartmentoftheTreasury,2012).

Nevertheless,itwouldbeinterestingtoknowmoreaboutthoseborrowerswhoaremoreunderwaterthan62percentintermsofgeography,demography,andsocioeconomics.Futureresearchshouldfocus

ontheseaspects.

Inregardstoqualitativemethods,Guisoetal.(2011)utilizetheChicagoBoothKelloggSchoolFinancial

TrustIndexsurvey,withatotalof4,159observationsovereightwavesfromDecember2008to

September2010,tofindouttheproportionofcurrentdefaultsthatisstrategicandtostudythe

determinantsofborrowersattitudestowardsstrategicdefault.Threeimportantquestionswere:First,

Howmanypeopledoyouknowwhohavedefaultedontheirhousemortgage?Second,Ofthepeople

youknowwhohavedefaultedontheirmortgage,howmanydoyouthinkwalkedawayevenifthey

couldaffordtopaythemonthlymortgage?Third,theauthorsofthesurveyasked,Ifthevalueofyourmortgageexceededthevalueofyourhouseby50K[100K/150K]wouldyouwalkawayfromyourhouse

(thatis,defaultonyourmortgage)evenifyoucouldaffordtopayyourmonthlymortgage?Guisoetal.

(2011)classifyadefaulterasastrategiconewhenhe/shegoesfrombeingcurrenttosixtydayslateon

his/hermortgageforthefirsttimewhileremainingcurrentonhis/hercreditcardbalancesforthe

followingsixmonths.Overall,82percentthoughtthatstrategicdefaultwasmorallywrong.The

perceivedstrategicdefaultrateis35percent.Ninepercentwouldwalkawayoncenegativeequity

reaches$50,000,and23percentwouldwalkawayoncenegativeequityreaches$23,000.More

specifically,Table9belowshowstheproportionofborrowersdefaultingstrategicallybyhousevalue.

Table9:ProportionofBorrowersDefaultingStrategicallybyHouseValue HouseValue Shortfallat$50K Shortfallat$100K Shortfallat$150K

Lessthan$100K 14.4% 35.9% 52.8%

$100Kto$200K 11.3% 27.8% 44.4%

$200Kto$400K 8.6% 19.0% 31.1%

Morethan$400K 6.7% 16.8% 30.8%

Source:Guisoetal.(2011),slightlymodifiedbyauthors

Table9aboveillustratesthatthepropensitytostrategicallydefaultishighest(52.8percent)forthose

whohaveashortfallof$150,000whenthehousevalueislessthan$100,000andthatthispropensityis

lowest(6.7percent)forthosewhohaveashortfallof$50,000whenthehousevalueismorethan

$400,000.Guisoetal.(2011)alsoprovideinformationonthechangeinthedefaultprobabilitywhenthe

shortfallincreases,illustratedinTable10below.


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Table10:ChangeinDefaultProbabilityWhenShortfallIncreasesbyHouseValue

HouseValue Changefrom0to$50K

[sic]

Changefrom$50Kto

$100K[sic]

Changefrom$100Kto

$150K[sic]

Lessthan$100K 14.4%[sic] 21.5% 16.9%$100Kto$200K 11.3%[sic] 16.5% 16.6%

$200Kto$400K 8.6%[sic] 10.4% 12.1%

Morethan$400K 6.7%[sic] 10.1% 14.0%

Source:Guisoetal.(2011),slightlymodifiedbyauthors

Table10aboveillustratesthat,perhapsinterestingly,thehighestchangeinthedefaultprobability

occurswhentheshortfallincreasesfrom$50,000to$100,000incasethehousevalueislessthan

$100,000(21.5%),followedbyanincreasefrom$100,000to$150,000,alsoforhomesbelow$100,000,

indicatingborrowerswhodonothavemuchtoloseanylongerduetotheseverehousepricecrash.

Guisoetal.(2011)alsoanalyzesocioeconomicfactorsthatinfluencethedecisiontodefaultstrategically

fortwoscenarios:(a)astrategicdefaultforadecreaseinhomeequityof$50,000and(b)astrategic

defaultforadecreaseinhomeequityof$100,000.Theauthorsconductalogisticregressionanalysis

withthedependentvariablethatequals1iftheborrowersaysthathe/sheiswillingtodefaultwhenthe

valueofhis/herhomeequitydecreasedby$50,000or$100,000,respectively, evenifhe/shecanafford

topaythemonthlymortgagecosts.

Theauthorsfindthatinthecaseofa$50,000decrease,Blacks/AfricanAmericans,Hispanics/Latinos,

seniorcitizens,thosewhohavewealth(measuredwithaproxy),andthosewhothinkthatthereisa

probabilityofbecomingunemployedoverthenext12monthsaremorelikelytodefaultstrategically,

whilethoseresidingontheWestcoast,females,andthosewithanincomehigherthan$100,000are

lesslikelytodefaultstrategically.Inthecaseofa$100,000decrease,Blacks/AfricanAmericans,

Hispanics/Latinos,thoseunderage35,andthosewhothinkthatthereisaprobabilityofbecoming

unemployedoverthenext12monthsaremorelikelytodefaultstrategically,whilethoseresidingonthe

Westcoast,thosewhoholdacollegedegree,thosewhohavechildren,andthosewithanincomehigher

than$100,000arelesslikelytodefaultstrategically.Theauthorsalsoanalyzetheeffectofmoralityon

strategicdefault;thechangeinmorality;anger,trust,andstrategicdefaults;defaultsandinformation

aboutotherdefaulters;thedeterminantsoftheprobabilitythatlenderspursuedefaults;andtheroleof

themediainexplainingstrategicdefaultsintheirstudy.

Riley(2012)replicatedtheGuisoetal.(2011)study,basedona2011surveyof600loansinthe

CommunityAdvantageProgram(CAP).CAPisasecondarymortgagemarketprogramstartedin1998by

theFordFoundation,FannieMae,andSelf-Help,anon-profitlenderinDurham,NorthCarolina.Self-

Helppurchases30-yearfixed-rateloanswithnear-primeinterestratesthatweremadetoborrowers

withincomeslessthan80percentoftheareamedianincome(AMI)ortoborrowersofcolorwholivein

Censustractswithahighproportionofpeopleofcolorthatarebelow115percentoftheAMI.

TheCommunityAdvantageProgramandPanelSurveywasconductedin2011bytheCenterfor

CommunityCapitalattheUniversityofNorthCarolinaatChapelHill.Thegoalofthesurveywasto


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collectattitudesaboutstrategicdefault.Thirty-fourpercentoftherespondentsstatedthattheyknew

defaulters,and14percentansweredthattheyknewstrategicdefaulters,similartoGuisoetal.(2011).

Rileycalculatedtheperceivedstrategicdefaultrate(i.e.,thenumberofstrategicdefaulterstototal

defaulters)as34percent,similartoGuisoetal.(2011)s35percent.Eighty-onepercentthoughtthat

defaultwasmorallywrong,12percentwouldwalkawayincaseofa$20,000equityshortfall,27percent

wouldwalkawayincaseofa$50,000equityshortfall,and51percentwouldwalkawayincaseofa

$100,000equityshortfall.

TheseproportionsaremuchhigherthantheproportionsobtainedbyGuisoetal.(2011).Intheircase,

onlyninepercentwouldwalkawayincaseofashortfallof$50,000,andonly23percentwouldwalk

awayincaseofashortfallof$100,000.However,Riley(2012)alsofoundthatthemedianborrower

woulddefaultat111percentnegativeequity,comparedto62percentnegativeequityinBhuttaetal.

(2010).Tominimizestrategicdefaultrisk,Riley(2012)suggeststargetinganyprincipalwrite-downsor

interestratereductionsbasedonnegativeequitydebtserviceburdenrelativetoincome.

White(2010)pointsoutthatthevastmajorityofunderwaterborrowershasnotwalkedawayand

arguesthatthepredominantmessageofpolitical,social,andeconomicinstitutionsintheUnitedStateshasfunctionedtocultivatefear,shame,andguiltinthosewhomightcontemplateforeclosure.These

emotionsinturnfunctionasaformofinternalizedsocialcontrol,encouragingconformitytothenormof

meetingonesmortgageobligationsaslongasonecanaffordtodoso(White,2010,p.997-998).He

alsopointsoutthatthecredit-reportingsystemoperatesinconjunctionwithothereconomic,political,

andsocialinstitutionsasameansofsocialcontrolbyincreasingtheemotionalcostofdefault.

Moreover,thecredit-reportingsystemoperateslargelyoutsideofthelegalprocessasanormenforcer,

ensuringimmediatereputationalpunishmentforthoseindividualswhomightbetemptedtoflouttheir

moralcommitmenttopaybyexercisingtheirlegalrighttodefault(White,2010,p.1006-1007).

Theimplicationsoftheeconomiccriseshavebeenenormous,bothnationallyandglobally,andwillcontinuetoimpactcurrentandfuturegenerationsfordecadestocome.Atthesametime,thedeclinein

housepricesinmostcommunitiesintheUnitedStatescouldtranslateintohomeownership

opportunitiesforthosewhohavemaintainedrelativelystableemployment,afavorableincomeand

liabilitysituation,andaFICOscorethatmakesobtainingasustainablemortgagepossible.Nevertheless,

somearguetherecentdecreaseinlending(Scir,2011)makeshomeownershipamootpoint.

HendeyandSteuerle(2011)analyzemovementintoandoutofhomeownershipfor1,200households

withchildrenin15low-incomeneighborhoodsinsixcities14,basedontwosurveys,oneconductedin

2005-06andonein2008-09or2010. Whilethehomeownershiprateincreased,17percentofboth

rentersandownerschangedtenurebetweenthetwosurveydatapoints.Withregardtomovementsoutofhomeownership,theauthorsfoundthatthepovertyandequitystatusesmattermost.More

specifically,homeownerssurveyedinthefirstsurveywholivedbelow100percentofthefederal

povertylevelorbetween100and200percentofthepovertylevelwere,respectively,320and184

percentmorelikelytobecomerentersthanhouseholdslivingabove200percentofthepovertylevel,

aftercontrollingforothercharacteristics(HendeyandSteuerle,2011,p.1).

14Denver,DesMoines,Indianapolis,Providence,SanAntonio,andWhiteCenter,locatedinKingCounty,Washington.


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Also,thosewithlessthan10percentequityintheirhomeswere3.7timesmorelikelytohavebecome

rentersthanthosewith20to40percentequity(HendeyandSteuerle,2011,p.1).Withregardto

movementintohomeownership,theauthorsfound,interestingly,thatHispanics,regardlessofwhether

theyareimmigrantsornot,havemorethantwicetheprobabilityofmovingfromrentingtoowningas

non-Hispanic[W]hites[while]non-Hispanicblacksare67percentlesslikelytobecomeownersthan

[W]hiteslivingintheseneighborhoods(HendeyandSteuerle,2011,p.1-2).Thisisremarkablegiventhe

Hispanic/Latinohomeownershiprateof46.59percentincontrasttothenon-HispanicWhiterateof74.03percentin2011(Rosenbaum,2012).ThisisalsointerestinggivenKochharetal.s(2011)findings

thatBlacks/AfricanAmericansexperiencedanegativechangeof53percentandHispanics/Latinos66

percent,basedontwoSIPPsurveys(2005and2009).Moreresearchindifferentcommunitiesshouldbe

undertakenonchangesintenure,equity,andassetsamongpeople,inparticularpeopleofcolor.

TheImpactoftheForeclosureCrisisonRelocationofFamiliesandCommunitiesofColor

Whileinvoluntarymovesarealmostnevereasyforadults,theyaretypicallyverydifficultforchildren,

whoneedconsistentroutinesandstablefamilystructures.Whiletheeffectsofmovesonchildrenhave

beenstudiedextensivelyinthepast(Birmanetal.,1994;JelleymanandSpencer,2008;Kerbowetal.,

2003;Rumberger,2003;Tuckeretal.,1998),theeffectsofmovesduetotheforeclosurecrisisonchildrenhaveonlybeenstudiedrecentlyandinselectcommunities.Atthenationallevel,Isaacs(2012)

estimatesthatmorethaneightmillionchildrenhavebeenaffectedbytheforeclosurecrisis;2.3million

childreninsingle-familyhomeshavealreadylosttheirhomestoforeclosures,threemillionchildrenin

owner-occupiedhomesareatseriousriskoflosingtheirhomesinthefuture,andthreemillionchildren

lostorareatrisktoloserentedhomesduetoforeclosure(seealsoLovellandIsaacs,2008,forearlier

nationalestimates).

Atthelocallevel,Beenetal.(2011a)analyzetheprevalenceofforeclosureamongbuildingshousing

NewYorkCitypublicschoolstudents,morespecificallyelementaryandmiddleschoolstudentswho

attendedpublicschoolinthe2003to2004(12,067foreclosedstudents)and2006to2007schoolyears(20,453foreclosedstudents).Consistentwiththeliteraturediscussedelsewhere(Carretal.,2011),56

percentofstudentslivinginpropertiesenteringforeclosurewereBlack/AfricanAmericanin2003to

2004,and30percentwereHispanic/Latino.In2006to2007,57percentofstudentslivinginproperties

enteringforeclosurewereBlack/AfricanAmerican,comparedto29percentHispanics/Latinos.Beenet

al.(2011a)alsoanalyzeschoolmobilitybyforeclosurestatusforschoolyears2006to2007and2007to

2008.Table11illustratestheirfindingsonschoolmobilitybyforeclosurestatus.Table11:SchoolMobilitybyForeclosureStatus,2006to2007and2007to2008

StudentsLivinginProperties

EnteringForeclosure

StudentsNotLivinginProperties

EnteringForeclosure

Grades1to4-stayedinsameschool

-changedschools

-exitedsystem

84%

13%

3%

83%

10%

7%

Grades6to7

-stayedinsameschool

-changedschools

-exitedsystem

85%

12%

3%

83%

10%

7%

Source:Beenetal.(2011),abbreviatedbyauthors


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Table11aboveshowsthatahigherproportionofstudentslivinginpropertiesenteringforeclosure

changedschoolsthanstudentsnotlivinginpropertiesenteringforeclosureandahigherproportionof

studentsnotlivinginpropertiesenteringforeclosureexitedthepublicschoolsystem,comparedto

studentslivinginpropertiesenteringforeclosure.

Beenetal.(2011b)alsoconductregressionanalysestounderstandthesefindingsbetter.Controllingfor

race,ethnicity,poverty,grade,andoriginalschool,theyfindthatfor allstudentsintheNewYorkCity

publicschools,Black/AfricanAmericanstudentsweremorelikelytomovethanothers(seeTable4in

Beenetal.(2011b)).Theauthorsalsofindthatnon-HispanicWhite foreclosedstudentsarelesslikelyto

movetoanewschool(althoughtheregressioncoefficientisnotsignificantatthefivepercentlevel),

andthatHispanicandAsianforeclosedstudentsaremorelikelytomovetoanewschool(thecoefficient

forHispanicsissignificantatthefivepercentlevelwhileitisnotsignificantforAsians;Black/American

Americanstudentsserveasbasecaseintheregression;seeTable5inBeenetal.(2011b)).

Theimpactsofmovestriggeredbytheforeclosurecrisisonacademicachievementofchildrenhave

beenmixed(andtheseresultsareconsistentwithearlierstudiesbeforetheforeclosurecrisis(see

Rumberger,2003,amongothers)).Beenetal.(2011a)findforNewYorkcitythatstudentswhomoved,regardlessofwhethertheymovedduetoaforeclosureornot,experiencedadecreaseintheproportion

oftestingproficient/advancedinbothmathematicsandreading,asillustratedinTable12below.

Table12:ComparisonofMeanSchoolCharacteristicsofStudentsGrades1to7beforeandafterMove

byForeclosureStatus

OriginSchool

2006to2007

Destination

School

2007to2008

Changebetween

SchoolYears

CharacteristicsofSchoolsofChildrenin

BuildingsEnteringForeclosureWho

Moved

-%Black/AfricanAmerican

-%Hispanic/Latino

-%FreeandReducedPriceLunch

-%EnglishLanguageLearners

-%SpecialEducation

-%TestingProficient/AdvancedinMath

-%TestingProficient/AdvancedinReading

NumberofStudents

50%

34%

81%

13%

13%

74%

53%

1,998

46%

35%

77%

11%

14%

62%

48%

1,956

-4%

1%

-4%

-3%***

0%

-12%***

-5%***

CharacteristicsofSchoolsofChildrenin

BuildingsNotEnteringForeclosureWho

Moved

-%Black/AfricanAmerican

-%Hispanic/Latino-%FreeandReducedPriceLunch

-%EnglishLanguageLearners

-%SpecialEducation

-%TestingProficient/AdvancedinMath

-%TestingProficient/AdvancedinReading

NumberofStudents

30%

41%77%

18%

14%

77%

57%

89,395

31%

41%74%

13%

14%

65%

51%

89,258

1%

-1%-3%**

-5%***

0%

-12%***

-5%***

Source:Beenetal.(2011a),slightlymodifiedbyauthors


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Notes:Lessthanonepercentofstudentswereexcludedfromtheanalysiseachyearbecausethey

attendedspecialeducationschools;*indicatesthattheprobabilitythatthedifferencesarerandomis

lessthan5percent;**probabilitylessthan1percent;***probabilitylessthan.1percent.

Beenetal.(2011a)alsocomparedtheaveragecharacteristicsoftheneighborhoodssurroundingthe

schoolsattendedbystudentsingradesonethroughsevenbeforeandafteraschoolmoveby

foreclosurestatus.Table13belowprovidesdetails.

Table13:ComparisonofMeanCharacteristicsofNeighborhoodsSurroundingSchoolsAttendedbyStudents

Grades1through7beforeandafteraSchoolMovebyForeclosureStatus OriginSchoolsNeighborhood

2006to2007DestinationSchools

Neighborhood2007to2008

Changebetween

SchoolYears

CharacteristicsofNeighborhoodsSurroundingSchoolsAttendedbyStudentsinBuildingsEnteringForeclosureWhoMovedSchools-%Black/AfricanAmerican-%Hispanic/Latino-%LivinginPoverty

-%Owner-OccupiedUnitsNumberofStudents

48%27%24%

33%1,998

39%28%23%

30%1,956

-9%***0%-1%

-3%**

CharacteristicsofNeighborhoodsSurroundingSchoolsAttendedbyStudentsnotinBuildingsEnteringForeclosureWhoMovedSchools-%Black/AfricanAmerican-%Hispanic/Latino-%LivinginPoverty-%Owner-OccupiedUnitsNumberofStudents

30%32%24%28%89,395

28%29%22%29%89,258

-1%-3%

-2%***0%

Source:Beenetal.(2011a),slightlymodifiedbyauthors.

Notes:Lessthanonepercentofstudentswereexcludedfromtheanalysiseachyearbecausethey

attendedspecialeducationschools;*indicatesthattheprobabilitythatthedifferencesarerandomislessthan5percent;**probabilitylessthan1percent;***probabilitylessthan.1percent.

AsillustratedinTable13above,moves,regardlessofwhetherornottheywererelatedtoforeclosure,

resultindestinationneighborhoodsthathavealowerproportionofBlacks/AfricanAmericansanda

lowerproportionofpeoplelivinginpoverty,butnotahigherproportionofHispanics/Latinos.

Regardlessofthesefindingsandaspointedoutabove,moves,regardlessofwhetherornottheyare

relatedtoforeclosure,aredisruptiveandseemtohaveanegativeimpactonchildren.

PettitandComey(2012)studytherelationshipbetweenforeclosureandstudentsresidentialand

schoolmobilityandthequalityofthenewschoolsandneighborhoodswhereforeclosedstudents

relocateforthreecities:NewYorkCity,Baltimore,andWashington,DC.Theyutilizethreeuniquelocal

datasets:first,student-levelpublicschooladministrativerecords;second,property-levelforeclosure

dataandparcel-levelhousinginformation;andthird,school-levelfiles.Theanalyzedcitieshavedifferent

housingmarkets,differentforeclosureprocesses,anddifferentschoolenrollmentpolicies,yetthe

proportionofstudentsaffectedwassimilar,rangingfrom1.8(inNewYorkCity)to2.7percent(in

Baltimore)forthemostrecentschoolyearforwhichdatawasavailable.PettitandComey(2012)also

findthattheproportionofBlack/AfricanAmericanstudentswholiveinaforeclosedhomeascompared


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toothergroupsisquitehigh:90percentinBaltimore,88percentinWashington,DC,and57percentin

NewYorkCity.

Withregardtoresidentialmobility,Table14belowpresentsthecharacteristicsoforiginanddestination

neighborhoodsforallstudentsandforstudentsimpactedbyforeclosurewhomovedinBaltimoreandin

Washington,DC.

Table14:CharacteristicsofOriginandDestinationNeighborhoodsforAllStudentsandForeclosedStudentswhoMovedinBaltimoreandinWashington,DC

Origin:AllStudents

Origin:StudentsinForeclosed

Homes

Destination:AllStudents

Destination:StudentsinForeclosed

Homes

Difference:AllStudents

Difference:StudentsinForeclosed

HomesBaltimore NumberofPart1Crimes

15

64 61 61 60 -3 -1

NumberofJuvenileArrests

16

134 122 127 131 -7 9

PercentVacantand

AbandonedHomes

12% 10% 11% 11% -1.1% 0.9%

MedianHomeSalesPrice

$124,743 $125,258 $125,756 $123,055 $1,013 ($2,203)

PercentReceivingFreeorReducedPriceMeals

67% 66% 59% 60% -8.2% -6.0%

Washington,DC

NumberofViolentCrimes

17

50 47 48 43 -2 -4

NumberofPropertyCrimes18

18 18 19 20 1 2

PercentofHouseholdsReceivingTANF

14% 15% 15% 17% 1.0% 2.0%

PercentofHouseholdsReceivingFoodStamps

29% 29% 29% 32% 0.0% 3.0%

Source:PettitandComey(2012),p.28,slightlymodifiedbyauthors

Table14aboveshowsthatstudentsimpactedbyforeclosureinBaltimoremovedtoneighborhoodswith

slightlylowernumbersofcrimes,highernumbersofarrests,slightlylowerproportionsofvacantand

abandonedhomes,lowermedianhomesalesprices,andlowerproportionsofstudentswhoreceivefree

orreducedpricemealsatschool.ForeclosedstudentsinWashington,DC,however,movedto

neighborhoodswithalowernumberofviolentcrimes,aslightlyhighernumberofpropertycrimes,and

slightlyhigherproportionsofhouseholdsreceivingTANFandfoodstamps.Expandingtheanalysis,using

15Per1,000residents.

16Per1,000juveniles.




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multivariateregression,PettitandComey(2012)findthatstudentsinhomesinforeclosurewhomoved

inBaltimoreandWashington,D.C.,didnotendupinsignificantdifferentqualityneighborhoodsthan

otherstudentswhomoved,withtheexceptionofoneneighborhoodindicatorinBaltimore.[]

StudentsinforeclosedhomesinBaltimoremovedtoneighborhoodswithsignificantincreasesinthe

juvenilearrestrate,controllingforotherstudentandneighborhoodcharacteristics(p.28).

Table15belowpresentsthecharacteristicsoforiginanddestinationschoolsforallstudentsandforforeclosedstudentswhomovedinBaltimore,inWashington,DC,andinNewYorkCity,basedonPettit

andComey(2012).

Table15:CharacteristicsofOriginandDestinationSchoolsforAllandforForeclosedStudentsWhoMovedin

Baltimore,inWashington,DC,andinNewYorkCity Origin:

AllStudentsOrigin:

StudentsinForeclosed

Homes

Destination:AllStudents

Destination:StudentsinForeclosed

Homes

Difference:AllStudents

Difference:StudentsinForeclosed

Homes

Baltimore

%Black/AfricanAmerican 92% 93% 91% 91% -0.6% -1.9%

%Hispanic/Latino 2% 2% 2% 2% 0.1% 0.1%

%ReceivingFreeorReducedPriceMeals 70% 70% 63% 63% -7.3% -6.8%

%TestingProficientor

AdvancedonReading

64% 64% 66% 67% 1.4% 2.7%


AdvancedonMath

52% 52% 54% 56% 2.0% 3.9%

NumberofStudents 18,543 374

Washington,DC

%Black/AfricanAmerican 85% 90% 88% 87% 2.7% -2.7%

%Hispanic/Latino 11% 8% 8% 10% -2.8% 1.7%

%ReceivingFreeorReduced

PriceMeals

69% 70% 66% 68% -3.4% -2.2%


AdvancedonReading

40% 38% 40% 37% 0.2% -0.7%

%TestingProficientorAdvancedonMath

36% 34% 37% 34% 1.2% 0.4%

NumberofStudents 18,712 223

NewYorkCity

%Black/AfricanAmerican 31% 50% 32% 47% 1.1% -3.0%

%Hispanic/Latino 41% 34% 40% 35% -1.1% 1.0%

%ReceivingFreeor

ReducedPriceMeals

77% 81% 74% 78% -3.2% -3.0%


AdvancedonReading

57% 53% 51% 48% -5.4% -5.0%


AdvancedonMath

77% 74% 65% 62% -12.4% -12.0%

NumberofStudents 91,393 1,998

Source:PettitandComey(2012),p.33,slightlymodifiedbyauthors.

Table15abovepresentsamixedpictureregardingoriginanddestinationschoolsinthethreestudy

communities.Whilestudents(ofanyraceandethnicity)fromforeclosedhomesmovetoneighborhoods

withalowerproportionofBlacks/AfricanAmericansandalowerproportionoffreeorreducedprice

19GradesPK-11

20GradesPS-11

21Grades1-7


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mealrecipients,theymovetoneighborhoodswithahigherproportionofHispanics/Latinos.Intermsof

academicachievements,findingsweremixed.InBaltimore,studentsmovedtoschoolsthathavea

slightlyhigherproportionofstudentswhotestproficientoradvancedinbothreadingandmath.

InWashington,DC,studentsmovedtoschoolswithaslightlylowerproportionofstudentstesting

proficientoradvancedinreadingbutwithaslightlyhigherproportionofstudentstestingproficientor

advancedinmath.InNewYorkCity,however,studentsmovedtoschoolsthathavealowerproportion

ofstudentswhotestproficientoradvancedinbothreadingandmath.Thesemixedfindingsraise

questionsabouttheimpactoftheforeclosurecrisisontheeducationalopportunitiesofchildrenandthe

implicationsofeducationalopportunitiesontheirfutureopportunitiesforbuildingwealth.More

researchshouldbeundertakenforothercitiesintermsoforiginanddestinationschoolsforstudents

whomovedtriggeredbyaforeclosure.

WhilePettitandComey(2012)findmixedimpactsoftheforeclosurecrisisonchildren,otherstudies

findanegativeimpact,forexampleonacademicachievement(Birmanetal.,1994;Kerbowetal.,2003;

Tuckeretal.,1998).Rosengren(2010),forexample,findsapositivecorrelationbetweenahigh

concentrationofREOpropertiesandnegativeeducationoutcomes,includingthehighschooldropout

rateandtheproportionofstudentswhofailedthestatewidestandardizedmathtest(seealsoComey&

Grosz,2010andKachura,2011).

Inameta-studyoftheeffectofresidentialmobilityonchildrenshealthoutcomesovertheirlifecourse,

JelleymanandSpencer(2008)concludethathighfrequencyresidentialchangeispotentiallyauseful

markerfortheclinicalriskofbehavioralandemotionalproblems(p.584).Issuesidentifiedwerehigher

levelsofbehavioralandemotionalproblems,increasedteenagepregnancyrates,acceleratedinitiation

ofillicitdruguse,adolescentdepression,andreducedcontinuityofhealthcare.

TheImpactoftheForeclosureCrisisandtheGreatRecessiononSmallBusinessFinancing

Formostlow-andmoderate-incomepeople,buildinghomeequityisthemostimportantandtypicallytheonlystrategytobuildwealth(BelskyandRetsinas,2005).Whilesomebuildhomeequityforthelong

run,othersbuildequitytoleverageforotherinvestments.Regardingtheformer,somebuildhome

equitytoliverent-freeduringtheirretirement;othersbuildhomeequitytoselltheirhomestofinance

theirstayinassistedlivingoranursinghomeortoleavewealthbehind.Somebuyersbuildhomeequity

ascollateralordirectfinancingforhighereducationloansfortheirchildrenorgrandchildren(orpossibly

themselves)whileothersbuildhomeequityascollateralforaloantostartanewbusiness.Somewhat

surprisingly,alloftheseaspectshavebeenunder-researchedintherecentanddistantpastduetoa

scarcityofrecentdata(seethediscussionbelow).Thisdearthisespeciallysurprisinginthecurrent

economiccontextgiventheroleofhousingtofinancesmallbusinessesandtheextensiveattentionthe

needtosupportsmallbusinesseshasreceived.Interestingly,theredoesnotseemtobemuch

informationontheconnectionbetweentheforeclosurecrisisanditseffectonsmallbusinessfinancing.

Morerecentdatashouldbecollectedandmoreresearchshouldbeundertakentoclosethisgapin

knowledge.

Inthefollowingsections,wefocusontheconnectionbetweenhomeequityandsmallbusiness

financing.Giventhelimiteddata,therearetwoanglestoapproachthisquestion:(a)mortgagedataand

(b)entrepreneurshipdata.


24/49


Regardingmortgagedata,the2001ResidentialFinanceSurvey(RFS),sponsoredbyTheDepartmentof

HousingandUrbanDevelopment(HUD)andconductedbytheU.S.BureauoftheCensus,wasdesigned

toprovidedataaboutthefinancingofnonfarm,privatelyowned,residentialproperties(U.S.Bureau

oftheCensus,2001,n.p.).Itisbasedonmailedquestionnairessenttoasampleofpropertyownersand

tolenderswhoheldmortgagesonthesampleproperties,basedon50,000addressesfromthe2000

Census.Table16belowprovidesabreakdownofthereasonsfortakingoutahomeequitylineofcredit

(HELOC),oneofthequestionsintheRFS.In2001,onlytwopercentofHELOCborrowerstookoutaHELOCtostartabusiness.

Table16:ReasonsforTakingoutaHomeEquityLineofCreditbySingle-FamilyHomeownerswithaHomeEquity

LineofCredit

1991 2001

Makeadditions,improvements,orrepairstotheproperty 45% 54%

Consolidatedebts 26% 21%

Purchaseautoorothervehicle 9% 10%

Payforeducationormedicalexpenses 4% 6%

Othertypesofinvestments 4% 4%

Investmentinotherrealestate 3% 3%

Otherpurposes

22

9% 3%Source:Cavanaugh(2007)(Figure1),basedon1991and2001RFS

Whilethereareotherproprietarymortgagedatasets,suchasLenderProcessingServices(LPS)and

BlackBook,neitherprovidesinformationaboutwhethertheloanpurposewastofinanceabusiness.

Regardingentrepreneurshipdata,therearethreedatasourcesthatprovideinformationofinterest.The

firstdatasourceistheKauffmanFirmSurvey(KFS)oftheKauffmanFoundation.Theseconddatasource

isthePanelStudyofEntrepreneurialDynamics(PSED),administeredbyTheUniversityofMichiganand

sponsoredbytheEwingMarionKauffmanFoundation,theNationalScienceFoundation(NSF),theSmall

BusinessAdministration(SBA),andtheUniversityofMichigan.ThethirddatasourceistheSmall

BusinessandAccesstoCreditsurvey,administeredandfundedbytheNFIB(NationalFederationof

IndependentBusiness)ResearchFoundation.Wewilldiscussthesesourcesofinformationindetail

below,focusingontheconnectionbetweenhomeequityandsmallbusinessfinancing.

TheKFShasbeenadministeredsince2004,whentheFoundationstartedsendingasurveytoacohortof

nearly5,000firms.Thiscohortistrackedannuallyandaskedseveralhundredquestionsonarangeof

topics,includingthebackgroundofthefounders,thesourcesandamountsoffinancing,firmstrategies

andinnovations,andoutcomessuchassales,profits,andsurvival(KauffmanFoundation,n.d.).

Currently,surveydatafrom2004through2008arepubliclyavailable.

OneofthequestionsrelatedtoourresearchquestionisDidyouusepersonalloans[from]abankto

financetheoperation[?]23Table17belowprovidesinformationonresponses.

22Includesresponsecategoriesnotusedin1991:Tostartabusiness(2percent);Topurchaseotherconsumerproducts(1

percent);Topaytaxes(1percent);Tosettleadivorce(1percent)(Cavanaugh,2007,p.1).23Theliteralquestionwasasfollows:Anotherwaytofinanceabusinessisdebtfinancing.Debtismoneyborrowedthathasto

bepaidbackwithorwithoutinterest.Imgoingtoaskyouaboutsomedifferenttypesofdebtfinancingyoumayhaveusedon

behalfof[NAMEBUSINESS]tofinancetheoperationofthebusiness.Foreach,pleasetellmeifyouusedthistypeatanytime

duringcalendaryear[2004,2005,2006,2007,2008].Didyouusepersonalloansfromabankorotherfinancialinstitution,such


25/49


Table17:ResponsestoQuestionDidyouusepersonalloans[from]abanktofinancetheoperation?

AbsoluteNumber(Proportion)

Response:Yes Response:No TotalNumberofResponses

2004 807

(16.56%)

4,067

(83.44%)

4,874

(100%)

2005 515

(13.56%)

3,464

(87.06%)

3,979

(100%)

2006 419(12.31%)

2,986(87.69%)

3,405(100%)

2007 296

(10.12%)

2,629

(89.88%)

2,925

(100%)

2008 260

(9.95%)

2,354

(90.05%)

2,614

(100%)

Source:KauffmanFoundation(n.d.),calculationsoftotalsandproportionsundertakenbyauthors

WhileTable17doesnotanswerwhetherahomeservedascollateral,itneverthelessillustratesthatthe

proportionsofrespondentswhousedpersonalloanshasdecreasedfrom16.56percentin2004to9.95

percentin2008.

ThePSEDresearchprogramwaslaunchedtoenhancetheunderstandingofhowpeoplestart

businesses,basedonnationallyrepresentativesamplesofnascententrepreneurs.PSEDIbeganwith

screeningin1998to2000,heldacohortof830,andhadthreefollow-upinterviews.PSEDIIbeganwith

screeningin2005/2006andacohortsizeof2,044,andwillhavesixannualinterviews.PSIDIhad

questionnairesinsixwaves.WaveAcontainsaquestionnairethathasseveralquestionsinSectionE:

Start-UpFinances,forexample24:

QuestionE1:Havefinancialinstitutionsorotherpeoplebeenaskedforfundsforthisnewbusiness,do

youexpecttoforfundsinthefuture[sic],orisoutsidefinancialsupportnotrelevantforthisnew

business?AnswerChoicesE1:(a)yes,(b)no,notyet,expecttoask,(c)no,notrelevant

QuestionE2:Inwhatmonthandyeardidyoufirstseekoutsidefundingforthisnewbusiness?

AnswerE2:[month/year]

QuestionE3:Haveyoureceivedthefirstoutsidefundingfromfinancialinstitutionsorotherpeoplefor

thisnewbusiness?

AnswerChoicesE3:(a)yes,(b)no

QuestionE4:Inwhatmonthandyeardidthefirstoutsidefundingbeginforthisnewbusiness?


QuestionE5:Hascreditwithasupplierbeenestablished,willcreditwithasupplierbeestablished,oris

thisnotrelevanttothenewbusiness?

asamortgageorhomeequityloanusedforthebusiness?Source:http://www.kauffman.org/kfs/KFSWiki/Data-

Dictionary/Base-Line/f7a_pers_loan_bank_0.aspx24Source:http://www.psed.isr.umich.edu/psed/data(Questionnaires:1.WaveAQuestionnaire;questionnairesinWavesB

throughFareverysimilartoWaveA).Neitherquestionnairecontainsaquestionaboutwhetherhomeequityloanswereused

toestablishthebusiness.


26/49


AnswerChoicesE5:(a)yes,(b)no,notyet,expecttoask,(c)no,notrelevant

QuestionE6:Inwhatmonthandyearwassuppliercreditfirstestablished?


Finally,theNFIBResearchFoundation,thenationslargestsmallandindependentbusinessadvocacy

organization(Dennis,2011,n.p.),askedTheGallupOrganizationtoconducttheSmallBusinessand

AccesstoCreditsurveyinlate2011.Thesamplingframeofsmallemployerswasbasedonfilesofthe

Dun&BradstreetCorporations.Asmallemployerwasdefinedasabusinessowneremployingnoless

thanoneindividualinadditiontotheowner(s)andnomorethan250(Dennis,2011,p.73).Basedona

stratifiedrandomsample,856interviewswerecompleted.Thissurveycontained26questionswith

severalfollow-upquestionsforsomequestions,followedby12demographicquestions.Table18below

showsselectrealestatefinancecharacteristicsforownedrealestatebytheinterviewedsmall

employersfrom2008to2011.

Thehomeownershiprateforsmallemployersisdisproportionatelyhighcomparedtothegeneral

population,whiletheproportionofownerswhohaveanunderwatermortgageisdisproportionately

low.Whileninepercentofemployersreportedtohaveusedtheirresidenceascollateralin2008,6

percentuseditascollateralin2009,7percentuseditin2010,and11percentuseditin2011(seede

Soto(2000)foralternativeinsightsfordevelopingcountries).Theseproportionsarealmostalways

higherforbusinessandinvestmentrealestate(versusowner-occupiedresidences).Schweitzerand

Shane(2010)discussaproprietaryquarterlysurveyconductedbyBarlowResearchwhichfoundthatin

2007,20.5percentofthebusinessownersreportedpledgingtheirhomesascollateralfortheir

businessesand18.2percentsaid[that]theyborrowedagainsttheirhomestoobtainapersonalloan

wheretheproceedswereusedtofinanceasmallbusiness(SchweitzerandShane,2010,p.2).Thus,

weconcludethatboththebusinessandtheinvestmentrealestatemarketandalsotheresidentialreal

estatemarkethaveaneffectonsmallbusinessfinancing.

WhileTable18belowpresentsdescriptivestatisticswithcorrelations,itwouldbeinterestingto

undertakefutureresearchwithinferentialstatisticsthatanalyzethecausationbetweentheforeclosure

crisisandsmallbusinessfinancing,possiblyassistedbyinterviews.

Table18:SmallEmployerOwnedRealEstatebySelectedRealEstateFinanceCharacteristic:2008to2011

Characteristic Residential Business Investment AllRealEstate

2008

2009

2010

2011

Total Owned Mortgage Total Owned Mortgage Total Owned Mortgage Total Owned Mor

Own(atleastone)

95%93%

94%

89%

37%37%

36%

22%

41%39%

37%

36%

96%95%

95%

92%

1st

Mortgage 69%

63%

61%

64%

72%

67%

65%

71%

24%

20%

19%

14%

63%

55%

63%

63%

22%

21%

18%

19%

52%

52%

49%

54%

75%

71%

68%

71%

78%

75%

71%

77%

2nd

Mortgage 18%

17%

16%

15%

19%

18%

17%

16%

27%

27%

26%

23%

2%

2%

1%

1%

4%

6%

4%

6%

7%

7%

7%

9%

1%

3%

2%

3%

4%

4%

5%

8%

7%

7%

9%

9%

21%

20%

17%

17%

21%

21%

18%

18%

27

28

25

24


27/49


Characteristic Residential Business Investment AllRealEstate

2008

2009

2010

2011

Total Owned Mortgage Total Owned Mortgage Total Owned Mortgage Total Owned Mor

Upside-Down 8%

9%

6%

14%

9%

10%

7%

16%

13%

15%

10%

22%

1%

3%

1%

2%

4%

2%

4%

11%

6%

6%

6%

17%

3%

3%

3%

4%

6%

6%

8%

11%

12%

12%

15%

15%

11%

13%

8%

18%

11%

14%

9%

20%

14

19

12

26

MortgagedforBusiness

Purposes

18%16%

15%

14%

19%17%

16%

16%

26%25%

24%

22%

5%6%

2%

5%

9%16%

9%

22%

20%20%

20%

35%

2%5%

2%

3%

6%6%

5%

10%

11%11%

9%

18%

23%21%

17%

19%

24%22%

18%

21%

3029

2

26

Usedas

Collateral

9%

6%

7%

11%

10%

7%

7%

12%

13%

10%

11%

17%

7%

4%

4%

5%

19%

11%

19%

24%

30%

30%

30%

38%

2%

3%

2%

2%

5%

5%

6%

5%

10%

10%

12%

9%

16%

11%

11%

15%

17%

14%

11%

16%

2

16

16

2

N 690

635

734

737

654

618

693

672

471

416

457

478

690

635

734

737

324

248

324

239

198

135

198

157

690

635

734

737

314

278

310

286

158

168

166

158

690

635

734

734

668

609

708

688

5

4

5

5

Source:Dennis(2012)(Table9inDennis(2012),rearrangedbyauthors)

TheImpactoftheForeclosureCrisisandtheGreatRecessionontheProspectsforWealthBuilding

(IncludingHomeownership)forFamiliesandCommunitiesofColor

Theprospectsforwealthbuilding,includinghomeownership,forfamiliesandcommunitiesofcolorwill

dependnotonlyonthespeedoftheeconomicrecoverybutalsoonthefutureoftheGovernment

SponsoredEnterprises(GSEs;discussedbelow)andthedefinitionoftheQualifiedResidentialMortgage

(QRM;seeCarretal.(2011),amongothers),ashomeownershipiscriticalwhenitcomestobuilding

wealth.Thewealthdisparitybetweennon-HispanicWhitesandpeopleofcolorisprimarilyattributable

tothesubstantiallyhigherhomeownershipratefortheformergroup,alongwiththelocationofthose

properties.Theeconomiccrisis,includingtheforeclosurecrisis,haswidenedthewealthgap,andplans

torestructurethemortgagemarketwillneedtofactorinaffordablehomeownership,including

affordablehomeownershipforborrowersofcolor.

InSeptember2009,theU.S.GovernmentAccountabilityOffice(GAO)reviewedstudiesanddata,and

interviewedhousingfinanceexpertsandofficialsfromtheenterprises,theFederalHousingFinance

Agency(FHFA),DepartmentsoftheTreasuryandtheU.S.DepartmentofHousingandUrban

Development,theFederalReserve,lenders,andcommunitygroups.Theyoutlinethefollowingthree

options,whichgenerallyfallalongacontinuumwithsomeoverlapinkeyareas:

Reconstitutetheenterprisesasfor-profitcorporationswithgovernmentsponsorshipbutplaceadditionalrestrictionsonthem[];

Establishtheenterprisesasgovernmentcorporationsoragencies[];and Privatizeorterminatethem.(U.S.GovernmentAccountabilityOffice,2009,n.p.)

Morespecifically,theGAOprovidesasummaryofimplicationsoftheoptionstorevisetheenterprises

structures,giveninTable19below.


28/49


Table19:SummaryofImplicationsoftheOptionstoRevisetheEnterprisesStructures Reestablishas

Government-SponsoredEnterprises(GSEs)

EstablishGovernmentCorporationorAgency

PrivatizeorTerminate

Abilitytoprovideliquidityandsupporttomortgagemarkets

ReconstitutingtheenterprisesasGSEsmayprovideliquidityandotherbenefitstomortgagefinanceduringnormal

economictimes.However,asfor-profitentities,theircapacitytosupporthousingfinanceduringstressfuleconomicperiodsisopentoquestion.

Agovernmententity,withaccesstoTreasury-issueddebt,maybepositionedtoprovidemortgageliquidityduringnormal

andstressfuleconomicperiods.But,withoutaportfoliotoholdmortgages,itscapacitytodothelatteralsomaybelimited.TreasuryortheFederalReservemayneedtostepinandpurchasemortgageassetsundersuchcircumstances.

IfotherfinancialinstitutionsassumedkeyenterpriseactivitiessuchasmortgagepurchasesandMBSissuance,aliquid

mortgagemarketcouldbereestablishedinnormaleconomictimes.But,privatemortgagelendinghascollapsedinthecurrentrecession.Afederalmortgageinsurercouldhelpensurethatprivatelendersprovidemortgagefundinginstressfuleconomicperiods.

Supporthousingopportunitiesfortargeted

groups

For-profitstatusandeliminationofmortgage

portfolioscouldlimitenterprisescapacitytofulfillthisobjective.But,permittingsmallermortgageportfolios,expandingFHAprograms,orprovidingdirectfinancialassistancetotargetedborrowerscouldbealternatives.

Mightbeexpectedtoperformthisfunctionasa

publicentity.But,mayfacechallengesimplementingaprogramtopurchasemortgagesforsuchgroupsiftheycannotholdthesemortgagesinportfolio.FHAinsuranceprogramscouldbeexpandedasanalternative.

Wouldeliminatetraditionalbasis

(governmentsponsorship)forpreviousprogramsthatrequiredenterprisestoservemortgagecreditneedsoftargetedgroups.But,afederalmortgageinsurercouldberequiredtoestablishsuchprogramsduetoitsgovernmentsponsorship.

Potentialsafetyandsoundnessconcerns

Althoughadditionalregulationscouldminimizerisks,safetyandsoundnessconcernsmay

remainasthisoptionwouldpreservetheenterprisespreviousstatusasfor-profitcorporationswithgovernmentsponsorship.

Maymitigateriskduetolackofprofitmotiveandtheeliminationofexistingmortgageportfolios.

However,managingtheenterprisesongoingMBSbusinessstillwouldbecomplexandrisky,andagovernmententitymaylackthestaffingandtechnologytodosoeffectively.

Inonescenario,riskswoulddecreaseasmortgagelendingwouldbedispersedamongmany

institutions.But,largeinstitutionsthatassumedfunctionssuchasMBSissuancemaybeviewedastoobigtofail,whichcouldincreaserisks.Afederalmortgageinsureralsomaynotchargepremiumsthatreflectitsrisks.

Keyelementsforpotentialregulatoryandoversightstructure

Reduceorperhapseliminatetheenterprisesmortgageportfolios,increasecapitalstandardsandimposeregulations,

suchasexecutivecompensationlimits,andestablishnewownershipstructures,asappropriate.RequirefinancialdisclosurestohelpensuretransparencyandprovidecongressionaloversightoftheenterprisesandFHFAsperformance.

Provideentitywithflexibilitytohirestaffandobtainnecessarytechnology.Establishrisk-sharingarrangements

withtheprivatesector,appropriatedisclosuresofrisksandliabilitiesinthefederalbudgettohelpensuretransparency,androbustcongressionaloversightofoperations.

FragmentedU.S.financialregulatorystructurewouldneedtoberevised,asGAOhasidentifiedinpreviousreports,tohelp

overseerisksoflargeinstitutionsthatmayassumeenterprisefunctionsoracquiretheirassets.Oversightstructureforafederalmortgageinsureralsowouldneedtobeestablished.

Source:U.S.GovernmentAccountabilityOffice(2009)


29/49


InDecember2010,TheCongressionalBudgetOffice(CBO)subsequentlydiscussedthreebroad

approachesforthefutureofthesecondarymortgagemarket,giventhecosttotaxpayersofthe

governmenttakeoveroftheGSEsandgiventhestructuralweaknessesthatcontributedtothefinancial

problemsoftheGSEs.Thosealternativescouldtakeoneofthefollowingforms:

Hybridpublic/privatemodelinwhichthegovernmentwouldhelptoensureasteadysupplyofmortgagefinancingbyprovidingexplicitguaranteesonprivatelyissuedmortgagesorMBSsthat

metcertainqualifications; Fullypublicmodelinwhichawhollyfederalentitywouldguaranteequalifyingmortgagesor

MBSs;or

Fullyprivatemodelinwhichtherewouldbenospecialfederalbackingforthesecondarymortgagemarket(CongressionalBudgetOffice,2010,p.vii).

Table20belowillustratesthekeyfeaturesofalternativesforthesecondarymortgagemarket.Table21

belowillustratesthekeyfactorsforassessingalternativesforthesecondarymortgagemarket.Both

tablesaddresscommondesignissues,suchashowtostructureandpriceanyfederalcreditguarantees,

whetherandhowtosupportaffordablehousing,andhowtostructureandregulatethesecondary

market.

Table20:KeyFeaturesofAlternativesfortheSecondaryMortgageMarket

HybridPublic/PrivateModel

FullyFederalAgency FullyPrivateMarket

ExistingoperatingassetsofFannieMaeandFreddieMac

HandedovertospecializedissuersoffederallybackedMBSs(couldbenon-profit,cooperative,orprivatefirms),soldtoprivate-labelissuers,orliquidated

Usedforoperationsofagency,soldtoprivate-labelissuers,orliquidated

Soldtoprivate-labelissuersorliquidated

LicensestoissuefederallyguaranteedMBSs

Underpublic-utilitymodel,onlyafew;undercompetitivemarket-makermodel,availabletoanyfirmmeetingspecified

criteria

None;operationsundertakenbyagency

None

FederalguaranteesforloansorMBSs

Explicit,possiblycoveringonlycatastrophicrisks

Explicit None(phasedout)

Privatecapitalsroleinsecondarymarket

Absorbsmostoralllosses,exceptincasesofunusuallylargeshocks

Noneonfederallyguaranteedsecurities;absorbsalllossesonprivate-labelsecurities

Absorbsalllosses

Allowableactivitiesforfederallyguaranteedsecuritizers

Underpublic-utilitymodel,restrictedtoissuingMBSsandholdingverylimitedportfolios;undercompetitivemarket-makermodel,restrictedonlyenoughtolimitspilloverofriskto

government

IssuingguaranteesandpossiblyholdingportfoliosofmortgagesandMBSs

Notapplicable

Supportforaffordablehousing

Couldoccurthroughtermsonfederalguarantees,feesonissuersoffederallybackedMBSs,orgovernmentagencies

Couldoccurthroughagency Nospecialrole;couldoccurthroughgovernmentagencies

Roleofissuersofprivate-labelMBSs

Serveborrowerswhosemortgagesdonotqualifyforfederalguarantees

Serveborrowerswhosemortgagesdonotqualifyforfederalguarantee

Dominantplayersinsecondarymarket,alongwithotherprivatefinancialinstitutions

Source:CongressionalBudgetOffice(2010)


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Table21:KeyFactorsforAssessingAlternativesfortheSecondaryMortgageMarket HybridPublic/Private

ModelFullyFederalAgency FullyPrivateMarket

Supplyoffinancingformortgages

Undernormalmarketconditions,thesupplyoffundingforfederallybackedmortgageswouldbefairlystable.Duringperiodsofmarketstress,financingcouldbecomelessavailable,especiallyunderversionswithnarrowerfederalguaranteesandmorerelianceonprivatecapital.

Thesupplyoffundingforfederallybackedmortgageswouldbefairlystablebothinnormaltimesandduringperiodsofmarketstressbecauseuncertaintyaboutthestrengthofthefederalguaranteewouldbeminimized.

Themarketwouldbemoresusceptibletofluctuationsinthesupplyoffunding.Duringperiodsofacutemarketstress,fundingcouldbecomeextremelyscarcewithoutfederalintervention.

Supportforaffordablehousing

Mortgagesthatsatisfiedaffordable-housinggoalscouldbesubsidizedthroughlowerfederalguaranteefees,withthesubsidycostshowninthebudget.Orresponsibilitycouldbetransferredtoafullyfederalagency,suchasthefederalHousingAdministration.

Subsidiescouldbedeliveredbytheagencyandwouldbeshowninthefederalbudget.

Responsibilitywouldbetransferredtoafullyfederalagency,suchastheFederalHousingAdministration,orsubsidieswouldbediscontinued.

Taxpayersexposuretorisk Intermediariesinthesecondarymarketwouldbearallcreditlossesuntiltheircapitalwasexhausted,limitingthecreditriskthattaxpayerswouldface.Ifonlyafewspecializedfirmsparticipatedinthemarket,theymightreceivegovernmentsupportiftheirsolvencywasthreatened.

Taxpayerswouldbeartheentirecreditriskonguaranteedmortgages.Private-labelissuersseenascriticaltothefunctioningofthemortgagemarketmightreceivegovernmentsupportduringperiodsofacutemarketstress.

Taxpayersexposuretocreditriskwouldbeverysmallundernormalmarketconditions.Taxpayerscouldbeexposedtogreaterriskthroughfederaldepositinsuranceifbanksboremorecreditrisk.Firmsseenascriticaltothefunctioningofthemortgagemarketmightreceivegovernmentsupportduringperiodsofacutemarketstress.

Pricingoffederalguarantees

Thegovernmentcouldhavetroublefullypricingcatastrophicriskorsettingrisk-sensitiveprices,whichwouldprobablyshiftsomecosttotaxpayers.

Thegovernmentprobablyhasweakerincentivesthanprivateguarantorsdotochargefeesthatwouldfullycompensatefortherisksassociatedwithguarantees,suggestingthattaxpayerswouldprobablybearacost.

Noexplicitfederalguarantees;however,anyimplicitfederalguaranteesthatarosewouldbefreetotheprivateissuersofMBSsandhencewouldentailacosttotaxpayers.

Incentivestocontrolrisktaking

Thepresenceoffederalguaranteeswouldcreateanincentiveforexcessiverisktaking.Limitinggovernmentguaranteesandchargingrisk-basedpricesforthemwouldreducethatincentive.Inaddition,privateintermediarieswouldhaveanincentivetosetrisk-basedpricesandmonitorrisktaking.

Havingthegovernmentabsorballcreditlosseswouldcreateastrongincentiveforexcessiverisktakingbyoriginators.Thegovernmentcouldcounterthatincentivebysettingrisk-basedpricesforguaranteesandbyrest

foreclosure on communities of color_2

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