August 12, 2007

A trillion here, a trillion there, pretty soon we're talking about real money

Now that the long predicted dubious mortgage crash has finally arrived, I keep remembering that going back to the early 1990s, the government has been twisting the arms of private lenders to get them to lend more mortgage money to minorities than the private firms believed was justified by colorblind principles of creditworthiness.

This history seems to have disappeared down the memory hole because it's all in the sacred cause of fighting discrimination (real or imagined), but I recall it distinctly from when I was a daily reader of the Wall Street Journal in the 1990s.


For example, there was a celebrated 1993 study by the Boston Fed showing that minorities' mortgage applications were rejected at a higher rate. (Peter Brimelow pointed out in Forbes that minorities did not have lower default rates, suggesting that lenders were behaving in a rationally colorblind manner, but that was not a popular view at the time.)

Have the chickens finally come home to roost?


I'm sure the private financial markets were quite capable of blowing up a big bubble by themselves in the eternal see-saw struggle between greed and fear, but this political pressure for lending to minorities with doubtful credit must have exacerbated the problem.
About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites.

A reader has sent me some links to articles from 5 to 9 years ago to show me I'm not hallucinating about what I remember. The first are from early in this decade about Fannie Mae's big plans for boosting mortgages for minorities. Now, I don't pretend to understand what Fannie Mae is (but does anybody?). It's some kind of quasi-governmental publicly-traded for-profit thinga-ma-bob, but Fannie Mae's past pronouncements do make interesting reading at present.

Straightforward tax-and-spend programs were out of favor in the 1990s, but lean-on-lenders for the benefit of your political constituents is always in season.

From 2000:


Fannie Mae Bending Financial System to Create Homeowners, Says Raines

Yet home ownership is unevenly distributed in society, [Fannie Mae head Franklin] Raines said. He quoted the famous pronouncement by W.E.B. Du Bois, in The Souls of Black Folk in 1903, that the problem of the 20th century is the problem of the color line. Du Bois also observed that the size and arrangement of people's homes is an index of their condition.

"We have made great progress since then," Raines said, but "minorities have yet to achieve parity in home ownership in America."

Raines said 70 percent of white people own a home, but the figure is less than 50 percent for minorities, female headed households, and others, despite the current period of "unprecedented prosperity." Minorities, he said, are still often unserved and overcharged.

In the past 30 to 40 years, he said, various approaches have been tried to increase affordable housing for minority and lower income families.

In the early days of the movement, he said, there was a significant commitment of government funds. The state of Connecticut, for example, built and managed 8,000 units of affordable housing, including Stowe Village and Charter Oak Terrace in Hartford. But later, all over the country, government pulled back and eventually thousands of units of housing had to be torn down because they had become uninhabitable.

In the 1980s, public-private partnerships were seen as more effective.

Now, said Raines, more money is being invested in community development through private mechanisms, including Fannie Mae, which works through mainstream lenders to reach out to underserved communities.

During the 1990s, Fannie Mae pledged $1 trillion in capital over seven years to boost home ownership among underserved populations. Last spring, said Raines, the commitment was completed ahead of schedule, and Fannie Mae pledged a further $2 trillion to assist 18 million families during the next decade.


And from Jet in 2002:


Fannie Mae to invest $700 billion in minority housing -
Business Jet, Oct 28, 2002

Fannie Mae, the nation's largest source for financing home mortgages, plans to invest at least $700 billion through 2009 to provide financing to 4.6 million minority households.

News of the breakthrough came during the New Orleans conference of the National Bankers Association (NBA).

Franklin D. Raines, Fannie Mae's chairman and chief executive officer, told the audience that the NBA was uniquely focused on lending to underserved, minority and immigrant families.

"Through this agreement," said Raines, "we hope to extend the benefits of the housing finance system to more Americans in underserved communities and boost minority home ownership rates closer to the national rate of 60 percent."


From Insight on the News back in 1999:


Easy Credit Turning into Hard Times? -
Brief Article Insight on the News, Nov 8, 1999 by Patrice Hill

Analysts worry that banks are too quick to give credit where credit isn't due ... and will pay the price during the next recession.

The easy flow of credit during the 1990s has helped to fuel a nationwide housing boom and spending spree that has kept the economy humming. But analysts say banks have lowered their lending standards, particularly to tap into the fast-growing minority markets, and have been under strong political pressure to do so despite studies showing minorities are more likely to default than whites. The result of this largess may be soaring levels of bankruptcy and default during the next recession.

"We have created a tremendous amount of risk," says Cynthia Latta, economist with DRI/McGraw-Hill in Boston. "At some point, the economy is going to turn down. There will be large numbers of defaults that will trigger a lot of political heat."

Politicians have pushed for the lower standards out of a legitimate desire to spread today's prosperity to groups that previously were on the margin, says Latta. "Banks are under a great deal of pressure to lend in these communities," she says. "It is very political. But I still have reservations about whether you're really doing anyone a favor by letting them borrow 100 percent of the cost of a home. It makes it so easy for them to get in over their heads." If the economy turns sour and unemployment rises, minorities will be the first laid off -- paving the way for a wave of defaults.

Federal laws on fair lending and community reinvestment require bankers to reach out to minorities, notes David Lereah, chief economist with the Mortgage Bankers Association. The record rates of homeownership among minorities as well as the rest of the population shows that these reach-out programs are working.

Nevertheless, Lereah agrees that banks and the economy will pay a price in the next recession. "If the economy goes into a tailspin and experiences recession, then I do worry about some of the low down-payment loans," he says. "The borrowers don't have that much at stake, don't have that much equity in the homes. If they lose their jobs, they could walk away from the homes."

A recent study by Freddie Mac, the federally chartered Federal Home Loan Mortgage Corp. that buys mortgages from banks to resell to investors, documents the shaky financial standing of minorities. The study found that nearly half of black borrowers and a third of Hispanics have "bad" credit records -- that is, they have a record of delinquent loans or bankruptcy -- compared with a quarter of whites. Moreover, income does not explain the disparity, according to the study. Among people with incomes of $65,000 to $75,000, 34 percent of blacks have bad credit, compared with 20 percent of whites.


Apparently, the Fed pumped so much money into the system after 9/11 that, with stocks in disfavor after the Internet bubble burst, that the liquidity flooded into the home market, postponing the day of reckoning in housing until now.

Adversity.net
has collected some articles from 1999:


Mortgage Lenders to Step Up Pursuit of Minorities (10/13/99)
BOSTON, Oct. 13, 1999 (Reuters) - "The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership in underserved groups.

"'We need to push into these underserved markets as much as we can,' said David Glenn, president and chief operating officer of Freddie Mac. Glenn made his remarks at the annual convention of the U.S. Mortgage Banker Association of America (MBA) this week.

"Freddie Mac, like its sister agency Fannie Mae, is a government-chartered corporation that buys mortgages from banks and packages them into securities for investors.

"In September, Freddie Mac launched a new lending program, based on research done in collaboration with five black colleges, to bring more African-Americans into the market.

"The call for greater efforts to broaden minority home ownership comes at a time when interest rates are pinching mortgages. A record $1.5 trillion mortgages were granted in 1998 in a refinancing boom fueled by the lowest interest rates in nearly three decades.

"The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories.

"Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low-and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets."

Utah (Salt Lake City): Companies Help Minorities With Home Mortgages (05/01/99)
"Premier and M&T Mortgage in Midvale this week agreed to work with the U.S. Department of Housing and Urban Development (HUD) to make an even deeper commitment to helping minorities buy homes. Both companies already seek out low-income and minority customers, especially Latinos, through Spanish-speaking loan officers.



"But they also now have signed formal agreements with HUD to conduct second reviews when loans are declined and to help those who don't qualify address the factors that led to loan denials. "It basically requires lenders to go the extra mile," said Richard Bell, community representative at HUD in Salt Lake City. "It's sometimes hard to persuade them to agree to something like this."


"The agreements do not require lenders to change their underwriting practices. Each applicant still must have a satisfactory credit history, manageable debt load, be employed, and in most cases, have some type of down payment. About 20 Utah lenders have signed HUD agreements in the past two years, but Bell said Premier and M&T have perhaps taken the concept of marketing to minorities and helping them qualify for loans the furthest. (The Salt Lake Tribune, Sat., 05/01/99, by Lesley Mitchell)
[link http://www.sltrib.com/1999/may/05011999/business/101982.htm ]

Wisconsin (Milwaukee): Racial Lending Gap Here Still Too Wide, But There's Hope (04/11/99)
"Ironically, whites may have directly benefited from efforts to expand the number of minority people who receive home loans. After all, making the application process fairer could expand the pool of eligible whites as well as eligible minorities. Hence, such efforts may help explain why the rejection rate has not soared among whites here as it has across the nation." (Milwaukee Sentinel Journal 04/11/99)
[link http://www.jsonline.com/news/editorials/0411loans.asp ]



And nobody in the government seems to have learned a damn thing over the years. Here's an AP article from just a few weeks ago when the bad credit crisis was already severe:


Wednesday, July 25, 2007
Justice Dept. says it is investigating discrimination against minorities in home loans
By ALAN ZIBEL, AP Business Writer

WASHINGTON (AP) — The Justice Department is investigating several possible instances of discriminatory mortgage lending, and plans to open more probes soon, an agency attorney told lawmakers on Wednesday.

House members said at a subcommittee hearing that evidence of racial discrimination in the mortgage market is especially troubling given the surge in home-loan defaults that has showed signs of expanding beyond the market for borrowers with weak, or subprime, credit.

"There is no excuse, and no one should be at all willing to settle for a situation in which race of a borrower today makes so much difference for some people," Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said.

Grace Chung Becker, a deputy assistant attorney general, said several Justice Department investigations into discriminatory mortgage lending are ongoing based on the agency's own leads and referrals from banking regulators.

"We expect to initiate additional investigations in the coming months," Becker said.

Since last fall, the Federal Reserve has made three referrals of cases to prosecutors, with the Federal Deposit Insurance Corp. making two, Becker said. Two cases have been closed without charges, she said.

A Fed study last year found that 55 percent of blacks and 45 percent of Hispanics received home loans with rates that exceeded Treasury securities by at least 3 percentage points, compared with 17 percent for whites.

Consumer groups say this data provides evidence of discrimination in the mortgage market, while the banking industry says it can be misleading because buyers' credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account.

At the hearing, consumer groups said banking regulators have not been aggressive enough in going after lenders that discriminate against minority borrowers. Ginny Hamilton, executive director of the Fair Housing Center of Greater Boston said they have displayed "minimal and halfhearted efforts" to prevent discrimination.

Banking regulators defended their track record, and several said they have investigations of discriminatory practices under way.

Earlier this month, a report by the Washington-based National Community Reinvestment Coalition found that higher income does not protect blacks and Hispanics from receiving mortgage loans with above-market rates.

The report, which analyzed federal data on home loans. concluded that in 2005 blacks in 171 metropolitan areas were at least twice as likely as whites to receive expensive loans, and said the trend was more severe at higher income levels, rather than lower ones. Similar trends were apparent for Hispanics as well.

It's common for low-wage workers in the Washington, D.C. area to be are steered into taking out loans for homes that cost $300,000 or more, on which they quickly default, said Saul Solorzano, executive director of the Central American Resource Center of Washington.


My published articles are archived at iSteve.com -- Steve Sailer

31 comments:

Anonymous said...

It would be nice if $60,000 starter homes were still available in America, but they aren't. People making nine bucks an hour struggle to pay for $140,000 mortgages financing 100% of their cost if their overtime gets cut, a divorce happens, an uninsured kid gets sick, etc.

This has been a long-time coming.

No wonder our birthrate sucks, responsible people can seldom afford a second and third child these days. Homes are getting outrageously expensive, the average person changes jobs 8 times in their lifetime, fears of insourcing of illegal cheapo labor and outsourcing to Chinese sweatshops probably get minorities in particular to make rash decisions when any opportunity to buy a house comes along.

Vol-in-Law said...

I was amazed to see The Daily Show's 'senior black correspondent' explain that 'sub prime lending' was actually irresponsible lending targetted at minorities, African-American especially. It's amazing how a left-wing comedy show can speak the truth more plainly than any serious 'mainstream' right-wing commentator would dare to.

SFG said...

Thanks for reminding me why I read your blog. The dirty truth nobody ever dares to dig up. Good luck with your book!

Anonymous said...

The subprime mortgage market, at least insofar as it has involved firms which specialize in a particular geographic area(and can thus be characterized as "targeting" minority neighborhoods) is now under legal attack as "predatory lending", in violation of federal fair housing laws. The theory is that minorities are deliberately victimized by being given unaffordable loans on which they will default. Query doesn't this, combined with anti-redlining laws, put lenders in a double bind situation? Yes it does: the ultimate policy goal is to force banks to offer credit to minorities with poor credit on the same terms as to whites with good credit.Who will pay for the added risk? The banks will have to raise their rates for mortgages to those with good credit, thus speading the cost of the risk.

Dennis Mangan said...

You wonder how much Raines, himself black and once considered a presidential candidate but now disgraced, had to do with this. In any case, someone ought to figure out exactly how much minority lending figured in our current crisis; I'm sure the NY Times will be right on it.

Cato said...

If the consumer groups really think that discrimination is going on, I have a proposal for them. They should start their own mortgage company and begin making prime-level loans to all of those credit-worthy minorities who are currently being underserved.

When I got my mortgage, I couldn't even see any opportunity for the lending officer to discriminate if she wanted to. She had my credit score, my income, the house appraisal, and knew that I had the funds to make my down payment. She plugged in the numbers and some back office came back to her within a couple of minutes with the possibilities.

One thing that might be interesting would be to compare approval rates for in-person applications (where there is a theoretical opportunity to discriminate) vs. those done online (where there really isn't).

RobertHume said...

So perhaps the housing construction boom, which drew many illegals into the country, was instigated to give too favorable housing deals to illegals. (I attended a conference once where it was made explicit that mortgage bankers could legally avoid the issue of the borrower's immigration status.) Too complex a Ponzi scheme for my poor head to analyze further. But it shows where winking at the law can lead.

Anonymous said...

In the past 30 to 40 years, he said, various approaches have been tried to increase affordable housing for minority and lower income families.

In the early days of the movement, he said, there was a significant commitment of government funds.

If you didn't realize it while reading the article up until this paragraph, it is at this point that you know who you're dealing with: It's a "movement" to equalize economic outcomes i.e. socialism.

Reality check: Bankers aggressively pursue actual credit-worthy customers. They fight over them like mad. But certain minorities are never going to be pursued in this manner -- unless the taxpayer is paying for the additional risk premium.

Reality check: The new majority non-white America will be significantly less credit-worthy than the old majority white America. This means economic chaos and a chronically weak currency. No amount of leftwing koolaid can convince the monetary system to behave otherwise.

essex said...

Oh, how well I remember this controversy in the early 90's. It remains one of my favorite examples of the "none so blind" syndrome on the Left. There was no way to make my liberal friends see the logic of Brimelow's argument or the even more basic argument that banks are in business to make money, and, if they could make it lending to blacks or Hmong or Martians, they would do it. As far as the Left was and is concerned, if black mortgage applicants were not approved at the exact same rate as white applicants, then racism was the only possible cause. And, furthermore - in classic liberal mode - it must be fought tooth and nail, using all the vast resources of Federal, state, and local government, not to mention every pressure group on the Left. To them, there simply is no other answer, and any attempt at logical discussion is met with fingers in the ears and a humming of "la la la, I can't hear you!"

Nevertheless, I doubt that the current crisis is primarily due to affirmative action in lending. Greed is a far more likely basis, along with the "everybody MUST be a homeowner" philosophy that pervades modern thinking. Frankly, I think a financial crunch and recession would not be an unmixed disaster. In the long term, we would be better off if the levels of careerism, greed, and unbridled materialism in contemporary American society were held in check in for a while. It's a cliche to say that adversity builds character, but that doesn't make it any less true for individuals or for societies.

Michael said...

Thomas Sowell recently made a similar point:

"Sub-prime politicians

....

"Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans.

"The Community Reinvestment Act lets politicians pressure lenders to lend to people they might not lend to otherwise — and the same politicians are quick to cry "exploitation" when the interest charged to high-risk borrowers reflects that risk.

"The huge losses of sub-prime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micro-manage the economy."

http://jewishworldreview.com/cols/sowell080807.php3

Anonymous said...

Steve Sailer: Now, I don't pretend to understand what Fannie Mae is (but does anybody?). It's some kind of quasi-governmental publicly-traded for-profit thinga-ma-bob, but Fannie Mae's past pronouncements do make interesting reading at present.

Yeah, the government is getting so large that no one is entirely certain just exactly what it is anymore.

Every once in a while, you'll get these stories where people try to tabulate the actual size of all government obligations, and the numbers are so monstrous, they're almost meaningless. E.g.:

THE UNITED STATES IS INSOLVENT
December 17, 2006
http://financialsense.com/fsu/editorials/martenson/2006/1217.html

Steve Sailer: About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites

ALAN ZIBEL: A Fed study last year found that 55 percent of blacks and 45 percent of Hispanics received home loans with rates that exceeded Treasury securities by at least 3 percentage points, compared with 17 percent for whites.

There isn't enough information there to apply Bayes' Rule, but obviously it would be interesting to know the reverse [conditional]: What percentage of all subprime loans are made to minorities?

PS: Von Mises Institute recently examined Mae/Mac here:

Fannie Mae: Another New Deal Monstrosity
By Karen DeCoster and Eric Englund
7/2/2007
http://www.mises.org/story/2627

Anonymous said...

Not that it means anything, but Democrat Franklin Raines, the former Fannie Mae CEO, is black, and was a political employee.

Zach said...

It's strikingly reminiscent of education. Keep detailed statistics of acceptance to higher education, but not of graduation rates for minorities, as if the goal of affirmative action is simply to get minorities to campus. The result is that a disproportionate number don't graduate, don't pass the bar, don't get into med school, etc. A set up for failure. It would have been far better to go to UC-Santa Cruz and graduate than to Stanford and drop out.
Similarly, they keep detailed records of home loans given, but not of defaults. It would be far better to be denied a loan, improve your credit, make a larger down-payment, and buy a cheaper house than to default on a hugely expensive house.
The bottom line is that not only do these policies harm society as a whole, but they harm the very people they are trying to help. Thus, they are at their base, racist, discriminatory and bigoted (bigotry of low expectations).

Fred said...

The current mortgage bust is a liquidity crisis, not a credit crisis. Issuers of most sub-prime mortgage-backed debt securities aren't defaulting on their interest payments, it's just that no one wants these securities right now, so their market prices have dropped. The Fed's easy money policies before Y2K and after 9/11, inflated a liquidity bubble, and now it's deflating.

The smart money (e.g., Chicago-based hedge fund Citadel) understands this and is buying up these securities now for dimes on the dollar.

Anonymous said...

Thomas Sowell has also been pointing out, for what seems like at least 20 years, that liberals' asinine housing restrictions (at least at the state and local level) necessarily create these astronomical housing costs. Liberals put up such a fight against building anything, that supply is artificially capped in many areas of the country - then they complain that what is being built is luxury housing and "unaffordable" Well no shit!!

Anonymous said...

iSteve: gee, what a surprise that the massive Long-Term Capital Management hedge fund taxpayer bailout of almost a decade ago was not a one-time dealio. Da market's down less than 10% off an all time high and da Feds pull up da dumptrucks full of cash for Jim Cramer & friends.

Captain Bush said "no federal bailout" in an interview quite recently and then Bernanke opens the spigot. Apparent contradiction? Not in Bushland. It wasn't "amnesty" then, and it's not a "bailout" now.

The Fed was originally tasked with "taking away the punch bowl when the party gets interesting". But it seems the modern role of the Federal Reserve is to provide ultimate cover for the Wall Street hedge fund crowd. Because certain hedge funds are "too big" to let fail.

This is a totally sick Japanese level of corruption, folks. Where instead of cleaning house and taking the pain, and letting the weak (or criminal) get culled from the herd, instead the sh*theads are bailed out and allowed to screw up another day.

IF Long-Term Capital had been allowed to go under it never would've come to this. A big lesson would've been learned.

And by the way, once again, the man most resented by the churners on Wall Street, Warren "derivatives are weapons of mass destruction" Buffett assessed the landscape accurately and warned his flock. What did the big brokerages do for their clients? Same thing they always do: they launched a propaganda campaign.

PS Thanks for the tip on the location of the smart money, Fred, I'll be sure to call them bright and early in the morning!

Anonymous said...

Remember the entirely fictional movie critic from a few years back steve? here's an article describing the same sort of circumvention of truth but this time the industry is wall street instead of hollywood.

A ratings charade?

But hey when the ratings range from AAA to BBB instead of say A to Z [god forbid A to F] you already know your dealing with a bunch of professional fudgers. why be very surprised when it turns out that AAA can mean many things.....good pretty good partly cloudy indeterminate not so good might be bad etc.

Really like this quote from the article:

"In this secretive market, there is no easy way for investors to find out what their CDOs are worth."

In other words they run a straighter game at one of michael vick's dogfights.

Fred said...

"PS Thanks for the tip on the location of the smart money, Fred, I'll be sure to call them bright and early in the morning!"

Touché. Since I doubt any of us reading Steve's website have the money to be a Citadel client, and since Citadel itself is privately-held, here's a more useful tip for you, if you have the stones to follow it. Since you can't get into the citadel, buy a piece of the fortress: Fortress Investment Group (NYSE: FIG).

Fortress's stock has been hammered recently, partly because of concerns about exposure to sub-prime-backed CDOs in its hedge funds. Based on the research I've looked at, and the the backgrounds of some of its key execs, I am betting there's some smart money at Fortress too, and it is going to profit from the current situation. Fortress is releasing earnings on Tuesday, so we'll know more then.

Do your own due diligence of course -- I'm just a guy on the Internet.

Anonymous said...

"Anonymous, at 8/12/2007 9:19 AM" wrote:

"Reality check: The new majority non-white America will be significantly less credit-worthy than the old majority white America. This means economic chaos and a chronically weak currency. No amount of leftwing koolaid can convince the monetary system to behave otherwise."

Great observation! Proof are the countries of South Africa and Zimbabwe (former Rhodesia). When my mom emigrated to South Africa in the 50's she had to fork out 5 Deutsche Mark for 1 South African Rand. Now that we have our perpetual "hero" Mendela and the ANC running that country, you can get 5 South African Rands for 1 Deutsche Mark (1 Euro / 2). That tells you more about the REAL trust in black political leadership than all the PC talk and chattering by church-groups, NGO's and western politicians.

About Zimbabwe we need not waste another sentence.

Anonymous said...

Anon at 8/12/2007 9:O4,what would you and Thomas Sowell like to do? pave over the last remaining habitat for Grizzlies,Black Bear and thousands of other endangered animal and plant species? Pave over even more farmland? Most White Americans aren't in favor of raping and pillaging the beautifull American Lanscape.

It is time to face the fact that land in America is scarce. Post -1965 immigration has made land much more of a scarce resource than it otherwise would have been. This is very likely the underlying cause of the current housing crisis.

Republican and Democratic politicians never bothered to ask White Americans if they wanted compete in a rat race with post-1965 immigrants and their offspring for space in the US.

Anonymous said...

Fred: Fortress Investment Group

Have they bottomed out yet?

http://finance.yahoo.com/q/bc?s=FIG&t=1y&l=off

From the purely naive perspective, that curve looks like it might still be heading down.

Fred said...

Anonymous:

"Have they bottomed out yet?"

The low for the year was 17.21 (I bought at 18.10), but it's impossible to say definitively that that was the bottom -- it's possible that there will be bad news during tomorrow morning's second quarter conference call and that will drive the stock to a new low. I don't think that will happen though.

"From the purely naive perspective, that curve looks like it might still be heading down."

Bear in mind that the chart you linked to doesn't include today's price movement. The stock closed at $20.57 today (though it's down about 20 cents after hours as I write this).

You might also want to look at the insider transactions in the stock, which you can link to from Yahoo!. Check out what price the director Rubin made his last buy at.

Jedster said...

Over the last fifteen years, the amount of residential mortgage debt has skyrocketed past $11 trillion. On a yearly basis, total new residential mortgage debt was about 2.5% of GDP in 1990; by 2005 is it around 9%, falling to 6.6% in 2006. The total residential mortgage debt has shot up from 50% of the GDP to about 83% of the GDP during that time.

This bubble has been the secret sauce to keep Bush in office -- at least one-third of GDP growth under Bush came from the housing market.

Meanwhile, although the homeownership rate has climbed, it has only climbed by about 7.5%. I'm not sneezing at that figure, but it was a VERY expensive 7.5% that may in fact be quite hard to maintain.

(FYI, My estimate is that a little less than half of the total increase since 1990 has been in the minority population. It's important to remember that during that time, minorities represented roughly 70% of the nation's total population increase.)

Jedster said...

The explosion in mortgage debt was most acute from 2001-2005, a 5 year span of annual double-digit percentage increases in total residential mortgage debt. During this span, the average annual increase in residential mortgage debt was 12.8%; during the previous 10 years it had been 6.6%.

Interest rates justified this explosion in part: during the previous 10 years, on average a 30 year mortgage with 20% gave you $138k for every $1k per month you spent; from 2001-2005, you got $164k.

During this five year span, total residential mortgage debt increased by $4 trillion -- a whopping 67% increase -- climbing from 56% of GDP to 81% of GDP. On an annual basis, net new mortgage debt averaged 8.0% per year, up from a 3.2% average for the previous 10.

The average existing SFR increased in value from $147k to $219k, a 48% increase. Perhaps not surprisingly, the increase in national GDP * increased purchase power due to lower interest rates was 50%.

In 2000, the white non-hispanic homeownership rate was 73.6%; the black non-hispanic homeownership rate was 47.6%. By the end of 2005, the peak of the bubble, the white homeownership rate had grown 3% to 75.8% and the black homeownership rate had grown 2.3% to 48.8%.

Anonymous said...

On the related topics of crumbing infrastructure and social decay, here are two headlines off Drudge. Are they harbingers of doom? Perhaps. But they are definitely harbingers of Third World status. And notice how they are never described as such.

Learn from the fall of Rome, US warned

US Slipping in Life Expectancy Rankings

Hey, Drudge, why not use "US Slipping Toward Third World Life Expectancy" as a headline?

Reasonable people can agree that we are inviting the Third World to America. After all, that is official U.S. immigration policy. But you don't see any headlines in the media about any Third World-ization of America taking place. Not from Drudge or anyone else mainstream. No way.

Plausibly the Third World immigrants could be assumed to be assimilating. And therefore the U.S. could take them in while still not becoming more like the Third World. But we know that multiculturalism (non-assimilation) is the official policy of government. Therefore it is official policy that we become more like the immigrants. Therefore the term "Third World-ization" is perfectly accurate in describing U.S. immigration policy. The term should be able to be used in conversation at any dinner party at say, Alan Greenspan's house or Dianne Feinstein's house, without the slightest concern that it is not politically correct.

So why aren't basic trends like downward life-expectancy, literacy, infant mortality, decreased transparency, currency devaluation etc identified by the mainstream media as characteristics or components of Third World-ization?

If I missed the memo that says the term "Third World" is not acceptable speech in polite society, fine. Let's substitute "developing world". I'm sure that's acceptable to the most sensitive liberal.

So why aren't basic trends like downward life-expectancy, literacy, infant mortality, decreased transparency, currency devaluation etc identified by the mainstream media as characteristics or components of the developing world?

In other words, why aren't there more headlines that say the U.S. is becoming more like the developing world?

Jedster said...

anon@9.09pm:

Methinx you might just be getting a bit carried away -- those stats are certainly not good news, but heading towardsa third world country? WTF?

Mexico's life expectancy is a little over 76; cuba's a little over 78; costa rica's is higher than ours; puerto rico's is higher as well, as is the us virgin islands. so yes, we're lower or in the same ballpark as some countries that might suprise you.

but we're way way way above the global average by at least 10 years.

the sky may be falling, but the reasons aren't quite the same as those that you might suspect.

a white non-hispanic in the u.s. had the following life expectancies by year:

1950: 69.1
1960: 70.6
1970: 71.7
1980: 74.4
1990: 76.1
2000: 77.6
2004: 78.3

certainly we could be doing better on this front, but it hardly looks like a situation wherein immigrants are tearing this country apart.

Anonymous said...

Ten years ago Michael Levin pointed out in "Why Race Matters" that when you control for other socio-economic variables, black spending patterns indicate a stronger preference for immediate gratifications over longer-term investments than higher-IQ races show.

For instance, less on computers and more on computer games. More than similar white households on entertainment, eating out, clothing, cometics etc. Instant pleasure is part of the negroid phenotype; squirrelling money away in assets or building your own business is not.

Is this, rather than some mysterious process of subconscious discrimination, why blacks are less keen on the biggest and longest financial commitment-- home ownership?

Anyhow, why should it be regarded as a universal desideratum? Many prosperous European countries have far lower rates of home ownership than Britain or the USA. IIRC, at one time the country with the highest rate was Bangladesh!

Renting where you live in an age of physical and social mobility and volatile markets makes a lot of sense. Freighting yourself with so much debt that your kids have to inherit it, as they often do in Japan, is fine if you live in a spiritually collectivist society; but Americans would rather pay up or go bust in their own lifetimes. "Spending the Kids' Inheritance" and all that.

The subprime crisis may do the USA a favour by damaging the fetish of owning your home.

Anonymous said...

From what I have read, there are big differences in how different countries collect statistics on "infant mortality." Supposedly, in France for example, a very premature infant born alive will be allowed to die and then will be registered as a stillbirth, even if the baby survives for several weeks, whereas a similar child born in the USA would receive all possible treatment, even though the child will likely die anyway. BUT if the child dies in the USA, it will be recorded as a "death" and thus help to lower the average U.S. life expectancy average.

Also, pregnant black women in the USA have huge rates of venereal disease compared to pregnant white women, and venereal disease is very strongly linked to premature birth and all of the problems associated with premature birth. High blood pressure is also a bigger problem for blacks than for whites, and it can cause life-threatening complications for both the mother and the baby.

ALWAYS be suspicious of social science statistics.

Anonymous said...

Steve,

I think you are mixing a few different problem areas together regarding minorities and home lending. The systemic issues with the mortgage system lie with cheap Fed money and a complete evisceration of lending standards for everyone.

The government sponsored entities(GSEs) of Fannie and Freddie have to have at least some standards to back a loan. I don't think they can outright set aside money for minorities either, just do the usual shell game of "serving undeserved areas". Whites benefited just as much, if not more.

Subprime lending is the domain of private lenders, not the GSEs. The GSEs have at least minimal standards.

No-documentation, low-documentation, stated income, high Loan-To-Value, high Debt-To-Income, interest only, pay option, negative amortization loans are the realm of private lenders. They pushed this crap on everyone that they could.

Think of these people as the non-cognitive elite borrowers, regardless of race. They didn't know what they were signing, and even if they did they couldn't understand the terms and conditions.

Even people who should have known better got caught up in the hype of "housing always goes up!" and "they're not making anymore land!".

As usual women and minorities will be affected more.

We'll probably see a large number of illegal and legal Hispanic immigrants involved in the outright fraud scenarios. Spanish speaking legal residents don't seem to have much trouble screwing over their co-linguists.

David said...

"As usual women and minorities will be affected more."

And we'll hear about the "women and minorities" ad infinitum, as usual. The newsroom boys jockeying for moral status wouldn't have it any other way.

Anonymous said...

Correlate by race:

http://money.cnn.com/magazines/fortune/storysupplement/subprime_statebystate/