Congress must work to help minorities stay in their homes and create a consumer financial protection agency to prevent the abuses of subprime mortgages if African Americans and Latinos are going to recover the record amount of wealth they lost during the financial meltdown, said Rep. Maxine Waters (D-CA.) at Milano The New School for Management and Urban Policy in New York City.

"Minorities have relied primarily on homeownership to build wealth," said Waters "Now that wealth is at risk."

Data from the subprime mortgage crisis, "boring statistics," Waters joked, stunned the crowd as Waters ran through them. African Americans and Latinos already have 10 cents of wealth for every dollar of their white counterparts and are less likely to have investments in the stock market or opportunities for intergenerational transfers of wealth. For whites, home equity represented 43 percent of wealth, while the same figure was 63 percent for African Americans.

With the United States facing the worst foreclosure epidemic since the Great Depression, minority wealth is in grave danger.

"All bubbles eventually burst, and when this bubble burst, the impact was felt by minorities in particular," Waters said.

Leading up to the crisis was the Bush administration's push to lessen rental subsidies and instead embrace homeownership programs as its primary wealth creation and housing program. Banks then pushed more into previously ignored minority areas, selling subprime mortgage products, which charged more fees and higher interest rates under the guise of opening up the market, said Waters.

"Eventually, they made a good case for saying, 'Listen, we can go in to neighborhoods where we think people need a little bit of extra help, where perhaps the credit ratings is not as good, where they don't have as much in down payment, but we've got to limit the risk," said Waters. Interest rates would be reduced when buyers showed they could handle the mortgage, but that never happened.

"Without any empirical data, when they came into these communities with subprime loans, they realized there was gold in them there hills," Waters said.

That's when Wall Street became more heavily involved in securitizing subprime mortgages. At the same time, lending standards were relaxed because of the increased involvement of Wall Street. From 2001 to 2005, mortgage-backed securities increased to $2.1 trillion from $1.3 trillion.

"Lenders weren't necessarily accountable for whether or not the loans they were originating were good for borrowers or sustainable over the long term. As a result, lenders had every incentive to write unsustainable loans, and they did just that," said Waters.

The fee-based compensation system also encouraged mortgage brokers to sell costly loans that may not have been best for borrowers. In 1994, subprime loans were 5 percent of the mortgage market. By 2005, they had quadrupled to make up 20 percent of the mortgage market.

From 2001 to 2005, homeownership rates jumped from 67.1 percent to 69.2 percent, the highest recorded. At the same time, the average price of a new home jumped to $305,900 from $207,000 from 2000 to 2006. Speculators and potential home buyers began to flood the market. Exotic mortgage products made it cheaper to buy than rent during the early years of the loan and pushed more people into the market

"The increase in home prices drove more home buyers into the market. They wanted to buy because they saw prices rising, and they thought they would be left out. They wanted to buy because suddenly homeownership was a very profitable way for the average person, who might not have enough to play the stock market or have a job that allows for retirement savings, to create some wealth," said Waters. "What they didn't know was that these products were highly risky and, in some cases, designed to strip out home equity."

A 2007 study from Harvard's Joint Center for Housing Studies found that 46 percent of Latinos and 55 percent of African Americans received subprime mortgages in 2005, compared with 17 percent of whites. A 2007 study from the National Community Reinvestment Coalition found that middle- and- upper-income African Americans were twice as likely to receive higher interest rates as whites with similar incomes.

As she traveled from her district in California to other cities around the country, such as Cleveland, Waters said she sees the results. Historically minority areas are now stuck with houses that are underwater, where owners owe more than the home is worth.

Home price declines and interest rate increases left homeowners without enough equity to refinance. Mass defaults began in places like Nevada, Phoenix and Florida and almost took Wall Street down as well.

"This crisis is heavily concentrated among people of color. The subprime meltdown is really a meltdown of minority homeownership, minority wealth and minority communities," said Waters.

In 2006, 48.2 percent of African Americans and 49.5 percent of Latinos owned their homes. In 2009, the homeownership rate for African Americans is 46.5 percent and 48.1 percent for Latinos.

The crisis is not over. The Center for Responsible Lending estimates there are 6,500 foreclosures each day, and 2.4 million homes will enter the foreclosure process this year. One in four Americans owe more on their homes than the home is worth.

The creation of a Consumer Finance Protection Agency, said Waters, will help keep companies from engaging in the type of abusive practices that helped cause this crisis. The new agency would have broad powers to create rules to prevent abuse, hold hearings, issue subpoenas and file lawsuits, but Waters said she is unsure that legislation to create the agency will pass because the banking industry is lobbying heavily against it.

Another immediate step would be to help people modify their loans more quickly to make them affordable. Only 12 percent of the 3 million loans eligible for the program have been modified so far.

Job creation and investment in minority communities is also urgently needed. Small and- minority-owned banks must have more access to capital.

Waters is currently under investigation by the House Ethics committee for setting up a meeting with Treasury officials for one of the country's largest minority-owned banks, even though her husband had stock in the bank and was once on the bank's board. She said her actions were in line with her goal of helping small and minority banks access more federal funds.

James Carr, chief operating officer for the national community Reinvestment Coalition, said it's important to understand that what happened in the subprime mortgage meltdown was not an accident or a run of bad luck.

"It wasn't a crisis that was predictable; it was predicted," said Carr. "For many firms, exploitation became the operative business model."

Sarah Ludwig, co-director of the Neighborhood Economic Development Project, called for stronger government regulation. Years before the collapse, Ludwig said her organization, as well as others, tried to make it clear to federal and state officials what was in the works.

"We were told that we should be glad people were getting access to credit, that there's been a democratization of credit," Ludwig said. "It was basically an all-out drop of advocacy. What is the role of government if it's not to rein them in," she said.

Carr said there's more trouble looming. Already, foreclosures are up 9 percent in the first half of this year, compared with the second half of last year. Approximately 11.4 percent of homeowners with a mortgage are behind on payments, and 70 percent of the adjustable-rate mortgages are set to trigger next year for what may be a $1,000 per month average increase for borrowers, said Carr.

And as long as the unemployment rate -- 9.8 percent nationally but more than 15 percent for African Americans -- continues to rise, homeowners are going to continue to struggle to pay their bills.

Waters called for a moratorium on foreclosures for the unemployed. Carr said more of the stimulus dollars need to be focused on the hardest-hit communities in the form of "jobs, jobs and more jobs." A 2008 study by United for a Fair Economy found African Americans and Latinos could lose $213 billion in wealth as direct result of the foreclosure crisis.

"Wealth building is the difference between sending your kids to college or not. It's the difference between retiring with a comfortable nest egg and relying on Social Security. It's the difference between starting your own business and working at a low-paying job," said Waters.