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African Americans hit hard by foreclosures

Foreclosures affect people from all ethnic backgrounds, but minority buyers suffered more financial turmoil than other groups. According to new information, the subprime mortgage crisis has disproportionately affected African American homebuyers, of which there are many in Washington, D.C., potentially wiping out previous economic gains and leaving that population at a long-term disadvantage.

Experts say that African Americans' credit scores were hard-hit by the mortgage crisis, which could prevent them from buying another home, purchasing a car or even obtaining a loan for college. There has been a persistent gap nationwide in the credit scores of whites and minority populations, according to experts, and the trend is seemingly getting worse.

Many minority homebuyers were tricked into mortgages with unusual fees and high interest rates. They did not fully understand the terms of the loans before they entered into these agreements, and now they are suffering because of lending companies and their unscrupulous practices. Even people who had great credit to begin with are dealing with financial hardship because of lenders' confusing terms.

Experts agree that African Americans are falling behind in the credit score game. The Federal Reserve has begun collecting data about the financial impact of the mortgage crisis on different ethnic groups, and it appears that African Americans were the hardest hit. Less than a quarter of African Americans have prime credit scores, while more than 60 percent of whites fall into that category. The average African American consumer is unable to reach the national average credit score, even by age 75.

These had previously prevented African Americans from purchasing homes, but the housing boom changed all of that. People with lower credit scores had access to lenders, but the terms of their mortgages were often confusing and financially troublesome. Minority populations benefitted from increased homeownership at first, but when the loan conditions became clearer, their credit scores began to plummet.

It remains to be seen whether African American homebuyers will be able to recover from the rash of foreclosures that has plagued their communities. Economic forecasters remain hopeful, but it will likely take years before the credit score gap is closed, they say.

Source: The Washington Post, "For black Americans, financial damage from subprime implosion is likely to last," Ylan Q. Mui, July 8, 2012

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