Reuters - May 8, 2014, by Jennifer Chaussee - Despite a rebound in the U.S. housing market, African-American and Latino neighborhoods remain disproportionately impacted by the real estate crash, with many minorities still underwater on their mortgages, a report showed on Thursday.

The city with the highest rate of underwater homeowners - at 56 percent - is Hartford, Connecticut, where 83 percent of the population is Latino or African American, according to the report by the University of California, Berkeley's Haas Institute for a Fair and Inclusive Society.

Newark, New Jersey came in second with 54 percent of homeowners underwater and 89 percent of the population either Latino or African American, according to the report, which matched 2013 housing data to race and income data for zip codes across the country.

California, the most populous U.S. state, was home to 17 of the country's most underwater zip codes in 2013, the report shows. The predominantly Hispanic Inland Empire region has been hit especially hard, with 35 percent of homeowners underwater, meaning they owed more on mortgages than their homes are worth.

The report also showed that, during the housing bubble, these minority populations were less likely to be sold conventional mortgage loans and more likely to receive sub-prime loans when purchasing homes.

"At the peak of the housing market, the financial industry targeted the African-American and Latino communities with subprime loans," said Peter Dreier, a co-author of the report and professor of urban and environmental planning at Occidental College in Los Angeles. "They were lied to and misled to think they didn't qualify for conventional loans."

The report was released in the blue collar San Francisco suburb of Richmond, where 34 percent of homeowners were underwater in 2013. In neighboring San Pablo, home values remain 50 percent below their peak value in the 2007, just before the housing bubble burst.

In both areas, more than half of all residents are either Latino or African American.

The report comes as Richmond is pushing to implement a controversial program that would allow local municipalities to take over and restructure underwater loans and convert vacant foreclosure properties into affordable housing.

Last September, a federal district judge dismissed a lawsuit Wells Fargo had filed against Richmond challenging the program.

"In the absence of the federal government taking initiative, more and more cities are looking to Richmond to see if they can do what Richmond is doing," Dreier said.

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