LITTLE ROCK — There’s a relationship between residential segregation and the subprime mortgage loans that helped launch the financial crisis, says Greg Squires, a professor of sociology, public policy and public administration at George Washington University.
His research shows a link between the concentration of minority-group members in neighborhoods and the proportion of high-cost loans, a link independent of other factors that increase the proportion of bad loans, he said, such as average credit scores and education levels.
The correlation is particularly strong in segregated black neighborhoods, Squires said during his recent speech at the University of Arkansas Clinton School of Public Service.
“The level of black-white segregation and the level of Hispanic-white segregation is a meaningful, statistically significant predictor of the level of subprime lending in America’s metropolitan areas,” he said last Thursday.
The speech came as politicians in Washington continue to debate proposed federal legislation aimed at heading off another financial crisis by imposing tougher regulations on Wall Street and large financial institutions.
Squires, who has published books and written articles for The New York Times and The Washington Post, said his research doesn’t imply that the entire subprime crisis should be blamed on residential segregation.
Homeowners who took on mortgages they couldn’t afford, bankers who didn’t verify incomes, investors who gobbled up mortgage-backed securities and regulators who fell asleep at the wheel all bear culpability, he said.
Racial segregation of neighborhoods created a context that enabled this kind of lending to flourish, he said.
Squires hypothesized that honest lenders avoid poor areas where members of minority groups live because residents are perceived to be at higher risk of defaulting on loans. That creates a housing-loan vacuum that creates a market for the purveyors of bad loans, Squires said.
“Anytime you isolate and segregate a population - particularly a population that’s lower income and less well connected in a lot of ways - you isolate them and separate them from mainstream institutions,” he said.
If Congress’ goal is to prevent another housing-inspired financial collapse, Squires said, it should look at ways to reduce residential segregation in addition to imposing new regulations on financial institutions.
Some of his suggestions were an increase funding for fair-housing advocacy groups, more tax credits for developers who build low-income housing in upper-income neighborhoods and a requirement that more developers who receive public assistance set aside a share of housing for low-income residents.
Arkansas, Pages 10 on 04/28/2010