CommunityThe Bullpen

“Bad News” and Housing

I think that any housing reporter or analyst is disqualified from talking about the market if they claim that judicial foreclosure states are “hampering” the recovery. Because what they’re really saying here – quite openly – is that due process is bad for business. That’s what Bill McBride says right here, when distilling some data showing that mortgages in foreclosure remain near record high levels:

From LPS: “Foreclosure inventory in judicial states is 6.5% – more than 2.5X that of non-judicial states (2.46%); national average is 4.14% […]

The good news is the flow into the pipeline has slowed. The bad news – especially in judicial states – is that the pipeline is still very full.

This is not bad news. This is very revealing news about the ability for banks and servicers to prove ownership on their loans. In states where they must do so – in states that have judicial oversight over the process – banks and servicers cannot get much done. In states where the theft can happen in a more under-the-radar way, things are starting to loosen up. I don’t know what planet you have to be from where you call due process “bad news.”

The real “bad news” for borrowers, particularly those most vulnerable to the predations of the subprime crisis – and here we’re talking about people of color – is that they have been tagged with lingering effects of the implosion, the modern-day version of the Scarlet Letter, in the form of a low credit score.

For blacks, the picture since the recession has been particularly grim. They disproportionately held subprime mortgages during the housing boom and are facing foreclosure in outsize numbers. That is raising fears among consumer advocates, academics and federal regulators that the credit scores of black Americans have been systematically damaged, haunting their financial futures.

The private companies that calculate credit scores say they do not consider race in their formulas. Lenders also say it is not a factor when deciding who qualifies for a loan; federal laws prohibit the practice. Still, studies have shown a persistent gap between the credit scores of white and black Americans, and many worry that it is only getting wider […]

For most people, credit is the key to accessing the trappings of the American Dream, such as higher education and homeownership. That makes the scores, and the detailed personal financial reports that accompany them, one of the most important factors in determining financial opportunity.

“It’s one more way that credit scoring .?.?. sort of sets in stone income and wealth disparities between minorities and whites,” said Chi Chi Wu, a lawyer with the National Consumer Law Center. “The playing field was never level.”

A recent paper from the National Community Reinvestment Coalition shows that even high-income African-American and Latino borrowers faced outsized risks after the housing crash. Their income did not shield them from harm at greater degrees than their white counterparts. Their only recourse from this pervasive discrimination and abuse would be to appeal to the courts. But that’s not available in all states. This is certainly “bad news,” but not the way most housing analysts see it.

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David Dayen

David Dayen