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Housing Costs Threaten Middle-Class Security

The economic security of America's African-American and Latino middle class is endangered by insufficient assets and high housing costs that put America's households of color at risk of impoverishment, according to a new study by Demos and the Institute on Assets and Social Policy at Brandeis University.

"The vast majority of African-American and Latino families who have entered the middle class are either borderline or at high risk of falling out of the middle class altogether," Demos said and lack of affordable housing is one of the most significant contributing factors.

Only 26% of African-American and 37% of Latino middle-class families spend less than 20% of their after-tax income on housing - both are below the national average of 40%.

Entitled "Economic (In)Security: The Experience of the African-American and Latino Middle Classes," the report found that one in four African-American and less than one in five Latino middle-class families in America is financially secure - or three out of four African-American and four out of five Latino middle-class families are financially at risk.

The report, the first to measure the economic stability of households of color in the United States according to Demos, shows assets and housing costs "are among the key destabilizing factors Latino and African-American families face."

"African-American and Latino families, even those who have made it into the middle class, still face very serious barriers to financial security," said Demos senior fellow and report co-author Jennifer Wheary.

Data show that these families are constantly at risk of poverty. Up to 95% of African-American and 87% of Latino middle-class families do not have enough net assets to meet three-quarters of their essential living expenses for even three months if their source of income were to disappear. Only 2% of African-American and 8% of middle-class Latino families have enough net financial assets to meet three-quarters of their essential living expenses for nine months if their source of income disappeared.

The report found only 26% of African-American middle-class families have the combination of assets, education, sufficient income and health insurance to ensure middle-class financial security. One in three are at high risk of falling out of the middle class. Similarly, less than one in five Latino families, or 18%, are securely in the middle class.

More than twice as many, 41%, of Latino families are in danger of slipping out of the middle class. Based on findings, the report recommends a set of policies expected to help open access to, and strengthen, America's middle class.

These policies cover a range of important issues affecting American households, including asset building and debt reduction, making higher education more accessible and affordable, and addressing the health care crisis.

"Financial health eludes the majority of African-American and Latino middle class," said Thomas M. Shapiro, director of the Institute on Assets and Social Policy at Brandeis and one of the co-authors of the report. "Tremendous middle-class gains earned in schools, achieved on the job, and seen in paychecks are eroded by lack of assets, which seriously undermines the financial security of African-American and Latino middle-class families."

The study is based on the new "Middle Class Security Index," which measures the financial security of the middle class by rating household stability across five core economic factors: assets, educational achievement, housing costs, budget and health care. Based on how a family ranked in each of these factors, they were defined as financially "secure," "borderline" or "at risk."

African-American middle-class families are less secure and at greater risk than the middle class as a whole on four of the five indicators of security and vulnerability. Latino middle-class families are less secure and at greater risk on all five indicators.

Other studies show that financial risks faced by African-American and Latino borrowers are part of a nationwide trend toward growing financial vulnerability. For example, a recent report by the Center for American Progress, Washington, found that "the U.S. credit card market is showing signs of trouble just as the home mortgage crisis surges to unprecedented heights across the United States." CAP said cash-strapped borrowers may increasingly rely on credit card lending products, staging the ground for "a possible unraveling of the U.S. credit card market." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/