September-October 2009 Issue • Volume 37 • Issue 7

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Sociologist Delivers Policy-relevant Economic Testimony to Congress

Acceleration of mortgage market collapse has roots in policies that foster segregation of communities

by Lee Herring, ASA Public Affairs and Public Information Office

Sociologists were busy this summer testifying on Capitol Hill in a range of hearings on a variety of issues. These issues ranged from the contributors to, and economic fallout from, predatory mortgage lending to how the nation can capitalize on lost talent of female students who choose not to pursue science, technology, engineering, and mathematics careers. This article highlights testimony on the origins of the nation’s current economic crisis and potential policy solutions that are based on sociological analysis. Watch future Footnotes for stories on other sociologically inspired testimony and briefings from the summer of 2009!

Foreclosure Report


Gregory Squires with Congresswoman
Carolyn B.Maloney, Chair of the Joint
Economic Committee.

Shortly before the Census stakeholders celebrated the swearing-in of a new U.S. Census director, sociologist Robert Groves, in late July, Gregory Squires, George Washington University, delivered invited testimony before the Joint Economic Committee on the nation’s economic crisis and how it relates to Census-relevant numbers. The Joint Committee is examining the role of the mortgage lending industry in the nation’s economic slump. Squires’ testimony, "Segregation as a Driver of Subprime Lending and the Ensuing Economic Fallout," posited that racial and ethnic neighborhood segregation was a primary driver of subprime lending practices and the economic crises that followed.

Squires, a professor of sociology and public policy and public administration, stated that "few issues have posed the range and severity of challenges to the nation as have recent developments in financial services."

Because of dramatic changes and so-called risk-diffusing "innovations" in the nation’s mortgage lending markets in recent years, (e.g., passage of the Community Reinvestment Act in 1977), "enforcement of the federal Fair Housing Act (FHA), and compliance with a range of local, state, and national fair lending rules have increased access to credit for many households and communities long denied conventional financial services," Squires testified. But in the latest decade, the escalation of subprime and predatory lending practices have put many families and neighborhoods in financial jeopardy, as default and foreclosure rates skyrocket, particularly in minority and low-income areas.

"The housing and related economic crises that disproportionately impact poor and minority communities, and are now threatening many middle income families, are inextricably linked to specific financial industry practices as well as broader forces of inequality and uneven development," Squires told the Committee.

Squires emphasized the central role that "surging economic inequality and persistent racial segregation have played. The concentration of income and wealth at the top coupled with the concentration of poverty and persisting levels of segregation and hyper-segregation have led directly to significant increases in subprime and predatory lending among vulnerable communities." Most significant is that "racial and ethnic segregation remain statistically significant predictors of the level of high-priced loans even after controlling for credit rating, poverty level, percent minority, and education."

"Reforming the regulation of financial services is a necessary but insufficient step for ameliorating the crises created by recent lending practices. Broader, macro-economic policies that directly address various trajectories of economic inequality and dynamics of discrimination and segregation must complement progressive banking and bank regulatory reforms if emerging challenges are to be met," said Squires, referencing his and others’ analyses of this issue. (See Gregory D. Squires, Derek S. Hyra, and Robert N. Renner, "Segregation and the Subprime Lending Crisis," presented at the Federal Reserve Board’s Community Affairs Research Conference, April 16, 2009, and the July/August Footnotes.)

Preventive Policy Options

Politically feasible tools available to respond to the overall surge in inequality include indexing the federal minimum wage to the cost of living, adopting more municipal living wage ordinances, expanding the Earned Income Tax Credit, enacting the Employee Free Choice Act, and adopting the more provocative Income Equity Act, offered by former Minnesota Representative Martin Sabo, to deny corporations tax deductions on any executive compensation exceeding 25 times the pay of the firm’s lowest paid workers.

Squires also proposed several housing and land use policies to reduce inequality, many of which have already been adopted in various communities around the nation. They include inclusionary zoning laws requiring developers to set aside a share of housing units to meet affordable housing objectives; tax-based revenue sharing, whereby a portion of the increasing property tax revenues in prosperous neighborhoods is used to invest in housing and other community development initiatives in distressed areas; and mobility programs enabling families to leave ghettos and barrios for more prosperous, safer outlying urban and suburban communities.

Passage of The National Mortgage Reform and Anti Predatory Lending Act (H.R. 1728) would reduce substantially the provision of inappropriate products in the mortgage market. Squires noted state and local governments receiving federal support for housing and community development are required to "affirmatively further fair housing" in the utilization of those funds and testified that, "Recipients of TARP, bailout, or any other federal financial support should be required to pursue this objective as well."

Assuring responsible lending requires federal oversight of the independent mortgage companies, the unregulated entities who originated the bulk of subprime mortgages, and the affiliated institutions that are involved in the trading of mortgage-backed securities. Passage of the CRA Modernization Act of 2009 (H.R. 1749) would bring heretofore unregulated mortgage lenders under greater federal supervision and would reduce the prevalence of high-cost lending, said Squires. The President’s proposal for the creation of a Consumer Financial Protection Agency is another promising possibility. logo


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