Underwater America

Executive Summary

Executive Summary 

CONTRARY TO THE CLAIMS OF MANY observers that the recent rise in housing prices is solving the nation’s foreclosure and related economic crises, millions of families continue to face financial devastation from which many may never recover. This report examines national trends that are leaving many families behind and identifies the most troubled geographic “hot spots”– metro areas, cities, and neighborhoods in all regions of the country—where a significant portion of families are still “underwater,” which means they owe more on their mortgages than their homes are worth. 

Despite home prices rising in many parts of the country, the total value of owner-occupied housing still remains $3.2 trillion below 2006 levels. Despite rising home prices, there are still some 9.8 million households underwater, representing 19.4 percent of all mortgaged homes—nearly one out of every five such homes. Underwater homeowners are significantly more likely to default on their mortgages than homeowners with positive equity. 

In the first report of its kind, we analyze negative equity and foreclosure data together with race and income data, at the ZIP code level, the city level and the metropolitan area level. The report shows that if we drill down to the neighborhood level, a startling number of communities across the country still face very high underwater rates.

The report also clearly shows that the legacy of predatory lending has resulted in a disproportionately negative impact on African American and Latino communities. For example, of the 100 cities with the highest underwater rates, in 71 of them the population is more than 40 percent African American and Latino.

Almost five million families have lost their homes to foreclosure since 2008, and foreclosures continue at rates higher than prior to the Great Recession. For African Americans and Latinos specifically, between 2005 and 2009, they experienced a decline in household wealth of 52 percent and 66 percent, respectively, compared to 16 percent for whites. This reflects, in large part, disparities in foreclosure rates among these groups, since for most Americans, and particularly for people of color, their homes are their largest source of wealth. Homeownership constituted 92 percent of the net worth for African Americans and 67 percent for Latinos, compared to 58 percent for whites.

While some communities across the country have benefited from rising home prices, this upward trend is expected to slow down dramatically in 2014, which means the hot spots that have been left behind by the recovery are not likely to see their fortunes substantially improve any time soon. Market forces alone will not bring the recovery to these severely impacted communities. 

This image is of a house with a sign on its yard reading "STAND TOGETHER STOP FORECLOSURES STOP EVICTIONS"

KEY FINDINGS 

  • In the 15 hardest-hit metropolitan areas with populations over one million, between 23 percent and 35 percent of homeowners are underwater.
  • One in ten Americans live in the 100 hardest-hit cities where the number of underwater homeowners ranges from 22 percent to 56 percent.
  • More than 10 million Americans live in the 395 ZIP codes where between 43 percent and 76 percent of homeowners are underwater. n In those metropolitan areas, cities, and zip codes that have been hardest-hit, African Americans and Latinos constitute a far higher share of the population than they represent in the total population in the US.
  • In the 100 hardest-hit cities with populations over 100,000, the number of underwater homeowners ranges from 22 percent to 56 percent.
    • In 71 of these cities, African Americans and Latinos account for at least 40 percent of the population.
    • In 66 of these cities the median household income is below $50,000 (the national median is $51,371).
    • In 2013, more than 320,000 homeowners in these cities went into default or foreclosure. 
  • In the 395 hardest-hit ZIP codes with populations over 5,000, between 43 percent and 76 percent of homeowners are underwater. 
    • In almost two-thirds of these ZIP codes, African Americans and Latinos account for at least half of the residents. 
    • In 71 percent the median household income is below $50,000. 
    • In 2013, nearly 113,000 homeowners in these ZIP codes went into default or foreclosure.
  • The eleven states with the highest number of hardest-hit ZIP codes are (in order): Georgia, Florida, Illinois, Michigan, Ohio, New Jersey, Maryland, Missouri, California, Nevada, and North Carolina.

RECOMMENDATIONS

The housing crisis is far from over for the families living in these hot spots. Despite a wide variety of federal initiatives and some voluntary programs, the crisis in hard-hit communities has not been resolved, primarily because one of the most effective tools—principal reduction to bring mortgages to their current market values—has been little utilized. We need bold intervention to make up for the shortcomings and inadequacies at the federal level. 

Here are some key steps that should be taken immediately to address this crisis and ensure an equitable recovery for all homeowners:

  1. Loan holders—banks, government sponsored enterprises (i.e., Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency, FHFA), and investors—should reduce the principal on underwater mortgages to current market values. 
  2. If loan holders are unwilling or unable to reduce the principal on underwater mortgages to current market values, they should allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.
  3. Local municipalities should use all options at their disposal to facilitate the goal of resetting mortgages to current market values, including the use of “reverse eminent domain” (the program proposed in Richmond, California and elsewhere) to acquire mortgages in order to restructure them with fair and affordable terms. 
  4. Banks, government sponsored enterprises like Fannie Mae and Freddie Mac, and investors that own vacant homes that have already been foreclosed upon should sell them to publiclyowned or nonprofit entities that can convert them to affordable housing units for residents of the community instead of selling them to speculators.
  5. Local municipalities should use all options at their disposal to facilitate the goal of turning vacant, foreclosed homes into affordable housing. This includes the use of “reverse eminent domain” to acquire properties in order to convert them to affordable housing units for residents of the community and to prevent them from being purchased by speculators.