October 18, 2007

Surprise, surprise

Back in August, I pointed out that subprime crisis was in part the result of years of government efforts to prevent "discrimination" against minorities in the mortgage market. Now, the NYT reports -- unwittingly, of course -- that the current supbrime mortgage crisis is in part an outgrowth of the long government war on redlining:

Study Finds Disparities in Mortgages by Race

By MANNY FERNANDEZ

Home buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels, according to a new analysis of home loan data by researchers at New York University.

The analysis, by N.Y.U.’s Furman Center for Real Estate and Urban Policy, illustrates stark racial differences between the New York City neighborhoods where subprime mortgages — which can come with higher interest rates, fees and penalties — were common and those where they were rare. The 10 neighborhoods with the highest rates of mortgages from subprime lenders had black and Hispanic majorities, and the 10 areas with the lowest rates were mainly non-Hispanic white.

The analysis showed that even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender.

In Jamaica, Queens, for example, where the majority is black and the median household income was $45,000 in 2005, 46 percent of the mortgages were issued by lenders who specialize in subprime loans, the second highest rate in the city. In Bay Ridge, Brooklyn, which had a median income of $50,000 and is mostly white, the rate was among the lowest in the city, with 3.6 percent of home loans coming from subprime lenders.

The analysis provides only a limited picture of subprime borrowing in New York City. The data does not include details on borrowers’ assets, down payments or debt loads, all key factors in mortgage lending. And comparing neighborhoods is inexact; the typical borrower in one may differ from a typical borrower in another.

Jay Brinkmann, an economist with the Mortgage Bankers Association, said there was not enough information in the Furman Center analysis and other studies on the issue to draw conclusions about whether subprime lenders were discriminating against minority home buyers. One of the crucial missing pieces is the credit histories of individual borrowers, he said.

But the Furman Center study, a summary of which is being released today, still raises questions about the role of race in lending practices. A separate analysis of mortgage data by The New York Times shows that even at higher income levels, black borrowers in New York City were far more likely than white borrowers with similar incomes and mortgage amounts to receive a subprime loan.

“It’s almost as if subprime lenders put a circle around neighborhoods of color and say, ‘This is where we're going to do our thing,’” said Robert Stroup, a lawyer and the director of the economic justice program at the NAACP Legal Defense and Educational Fund Inc.

The New York State Division of Human Rights is investigating whether subprime lenders have been engaging in discriminatory practices by singling out minority communities. ...

Even so, housing and civil rights advocates said the findings highlight lending patterns that have long troubled them.

They say minority communities whose financing needs were starved decades ago because of redlining — banks’ refusal to offer loans or other services in minority areas — are now singled out for high-cost, high-risk mortgages in a kind of reverse redlining.

In other words, in the past, poor credit risks in minority neighborhoods had a hard time getting mortgages at the standard rate. So, now, after decades of government lawsuits and programs to direct more lending to minorities, the complaint is that the poor credit risks in minority neighborhoods are getting mortgages, they just have to pay more for them. Obviously, the only solution is for the rest of us to subsidize the mortgages of minorities. After all, how much could it cost? A trillion or two?

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

27 comments:

ge berman said...

In the interest of balance, Steve, it should be noted that the taxes on blacks (to a very large extent non-home-buyers) contributed to the subsidization of mortgage interest rates for whites (FHA, VA) for a fair number of years.

ziel said...

The acid test for lending discrimination is default rate. If minorities are being unfairly steered to subprime loans, their default rate should be lower than whites'. Is this happening? Don't know - but no need to speculate based on this study.

L'Emmerdeur said...

Now, now, Steve, the point has always been that a white credit (good or poor) was treated as superior to a black credit of equal quality.

Besides, the real crisis brewing now isn't the crappy mortgages made to poor black people, but the prime mortgages made to (we assume) mostly white people which are somehow going into default at record rates.

Imagine that! White people with money are retarded, greedy slobs, too. Bonus points: those white people are asking to be bailed out by the government, and unlike black folks, they are going to get it, and you and I are going to pay for it.

Anonymous said...

Typical NYT faux victimization propaganda – this time from the other side of the argument of lenders giving “victim” minorities too much credit instead of too little. Every NYT article on PC issues like race, sex, gender and immigration is like taking a SAT reading comprehension test to spot the lies, omissions and errors in logic.

The financial lending sector is one of the most sophisticated, efficient and competitive consumer markets. No one is walking away from profits due to unfair discrimination. If there were this mythical opportunity vacuum created by ignorant and unfounded racism in the lending sector, there would be no shortage of entrepreneurial, well-funded and idealistic people and corporations jumping in to fill it and profit by it.

The only color discriminated against is green, notably the inability to earn it, keep it and manage it. Nativist disliked poor ethnic immigrant swarthy Jews and yellow Chinese when they arrived and intensely discriminated against them without any federal handouts. Both groups earned respectability via financial, educational and other cultural successes just as SE Indians, sometimes very dark skinned, are doing today (the wealthiest ethnicity by some studies).

One the large scale, lending decisions today are intensely impersonal data driven decisions. The only conclusion to draw from the underlying study is that non-Hispanic whites with equal incomes are statistically significantly better risks than Blacks and Hispanics not because of melatonin but because they have more assets, larger down payments, lower debt loads, more stable income, and buy homes in neighborhoods that are safer financial bets.

Race isn’t even collected or used as a variable in the calculations made by the analytic software that standardizes these lending decisions so how can it be the primary decision factor this article alleges?

If there were truth to this claim, people would rush to start profitable businesses around this market inefficiency, not serving up faux white guilt, lining up parasitic lawyers and expecting yet more nanny government "protections" and racists special-interest handouts. I smell trial lawyers, race hustlers, government bureaucrats, elite and liberal ideologues and "victimized" racists sniffing out another free lunch here at the unjust expense of whitey (primarily middle class tax payers).

assetmgmt said...

>>But the Furman Center study, a summary of which is being released today, still raises questions about the role of race in lending practices.

It does no such thing, for the key reason that the NYT *admits* earlier in the article:

>>The data does not include details on borrowers’ assets, down payments or debt loads, all key factors in mortgage lending.

Anyone who's ever obtained a mortgage knows that income is only one small part of the data collection process. But the Furman Center has fed its biased report ("a summary of which is being released today") to the eager Times reporter, and he dutifully reports on the institutional racism that he and the Center so ardently believe in.

Anonymous said...

“There certainly is a disgraceful element here, but how big it is, we don’t know,” said Julia Vitullo-Martin, a senior fellow at the Manhattan Institute, a conservative research group, who looked at a portion of the Furman Center analysis. “Is it a few rogue lenders, or is it an extensive problem that requires a regulatory response? We don’t know yet.”

Why is someone from the Manhattan Institute so quick to jump to the conclusion that racism is the problem? The article mentions that they don't have the credit histories of the individual borrowers.

Mark said...

Obviously, the only solution is for the rest of us to subsidize the mortgages of minorities. After all, how much could it cost? A trillion or two?

Stop giving them ideas, Steve. They already do that, to some degree, with car insurance. They can discriminate on every measure but race.

What bothers me is that these alleged "studies" keep suggesting that 2 people making the same in income are equal credit risks, which of course is bollocks.

I'll use myself as an example: I was making slightly less 5 years ago than I am now. But back then I also had quite a bit of credit card debt, which I have none of now. Which "me" is the greater credit risk? I have never, ever seen these studies take debt into account. They also don't consider past credit history, because I've never seen them compare credit scores. When I see a study that says blacks with a 750 credit score and the same income are more likely to get subprimes than whites then I'll consider.

It'd also be nice to know how much research black borrowers did compared to whites. At the height of the homebuying boom advertisements for mortgage companies were everywhere. You couldn't miss 'em. How many companies did black borrowers talk to? Did they ever ask themselves "MAybe I should talk to that company with the fat guy on TV? How many estimates did they get? No business is obligated to steer people to the least costly option. Everytime I go into a fast food joint, they always ask "Would you like fries with that? Would you like a drink with that? Would you like to supersize that?" Can I sue them for trying to get more money out of me?

Of course it was Peter Brimelow who, years ago in Forbes, suggested the obvious: if banks were discriminating against black borrowers, then why did black borrowers still have significantly higher default rates?

Anonymous said...

Steve Sailer: Back in August, I pointed out that subprime crisis was in part the result of years of government efforts to prevent "discrimination" against minorities in the mortgage market.

If anyone's interested, we've got a thread going, over at Spengler's site, concerning some of the possible consequences of your line of thought:

Economics/Demographics observation at Free Republic
http://spengler.atimes.net/viewtopic.php?t=6578

Larry, San Francisco said...

I have worked in the credit industry for a long time and I can tell you that the only color they care about is green.
In determining whether to give someone credit the most important determinant is credit score, income is secondary. Someone with a spotty credit history no matter how much they make is going to get a subprime loan.
More over credit institutions cannot use 5 digit zip codes in determining credit (i.e. explicitly redline). In addition credit models that detemine who gets credit are audited annually by the feds. If a model contains a field that has disparate impact on minorities then there has to be a ton of evidence for it. A defunct credit card company I used to work for had a rule for people with little credit history, if you had rented something from a rent to buy store (like Fingerhut) we would only offer you a secure card (i.e. you send us $100 we will lend $100 back to you) whereas if you hadn't we would offer you a $100 line. Since minorities were more likely to have these rental trades we would, on average, give them worse offers. The company I worked for was so incompetent they lost the analysis this policy was based on. The feds then made us give up this policy. Over the following year we found that people with the rental trade were three times more likely to never pay us than people without a rental trade. The feds then allowed us to reinstute the original policy.

La Griffe du Lion said...

In 2003, at the request of Congress, the Federal Reserve Board undertook a study of bias in the lending market. The full report was submitted in August and is available online at: www.federalreserve.gov/boarddocs/RptCongress/creditscore/creditscore.pdf

The FBR found no bias. What they did find was that the mean credit score of blacks was a full standard deviation lower than that of Non-Hispanic whites. Approximately 53% of blacks were in the lowest quintile of credit scores--precisely the subprime portion of the loan market. About 16% of whites fell in this quintile. Three different credit-scoring algorithms produced identical results. And none of this was related to income.

Interestingly, the black default rate was consistently higher than that predicted by black credit scores. Thus, contrary to complaints of some in Congress, the system works to the advantage of African Americans. The FBR calls the discrepancy between score and performance "unexplained," but, quantitatively, it is simply the result of regression to the mean, or, in Bayesian terms, the effect of group membership.

ricpic said...

Blacks are never to blame. For anything.

AllanF said...

It is an interesting proposition. I have been inclined to think no. All my understanding is that "sub-prime" was really a national phenomonon. (Long, but excellent backgrounder here.)

Housing was in a bubble and we simply ran out of greater-fools. If you look at the price to income ratios there was absolutely no way this was long-term sustainable.

And yet, the US market is not nearly over-priced on an income ratio as Spain, UK, Vancouver BC, to name three from the top of my head.

So one must ask, what is different in the US. Is it minorities taking on sub-prime? Maybe. Is it so much more land that home builders could over-build and thus run out of greater-fools so much faster? Maybe.

currahee said...

Hi Steve,
A couple of summers ago I was working for a major builder selling detached homes in Oxnard to barrio move-ups. Sub-prime galore plus city bond assisted loans for total basket cases. Bales of money for the builder. Oxnard now total wreck, president at the time is now working for the company in India (tough subpoena).
All true.

Anonymous said...

"But the Furman Center study, a summary of which is being released today, still raises questions about the role of race in lending practices."

Race cannot play a role because it clearly does not exist. Problem solved!

Mark said...

More over credit institutions cannot use 5 digit zip codes in determining credit (i.e. explicitly redline). In addition credit models that detemine who gets credit are audited annually by the feds. If a model contains a field that has disparate impact on minorities then there has to be a ton of evidence for it.

In other words, white people are already heavily subsidizing black borrowers. If explicit redlining were allowed how much less would the average white borrower pay in interest? Enough to make it worth his while, I'd bet.

It should be noted that the taxes on blacks (to a very large extent non-home-buyers) contributed to the subsidization of mortgage interest rates for whites (FHA, VA) for a fair number of years.

Yes, and white taxpayers are subsidizing blacks, who disproportionately use welfare. And school lunches. And public housing. And prisons. And Head Start. And an endless number of other government programs.

Mark said...

The bottom line with blacks is that you can't win. If blacks hadn't been getting these loans at all they'd say these businesses had been trying to lock them out of the increase in home prices.

There was a CNN or Fox News story the other day about a new charter school in Chicago run by the Marine Corps. Some blacktivists were bitching about how they were trying to recruit minorities for the military.

Now when we didn't let minorities serve they bitched. When we segregated them they bitched. When we integrated them and sent them to Vietnam they bitched. If instead the Marine Corps had opened a charter school in Provo, Utah (black population << 0.1%) they'd bitch that they'd deliberately chosen a place with no blacks to help.

Too many blacks are just whiners by nature. Nothing is ever their fault.

Anonymous said...

I can see the headline now:

"Subprime Lending Crisis: Blacks Hit Hardest"

Anonymous said...

... we've got a thread going, over at Spengler's site, concerning some of the possible consequences of (Steve's) line of thought ...

Here is a macro sketch of the consequences:

Tolerant Patriarchy ---> Matriarchy ---> Anarchy ---> Intolerant Patriarchy

We exited the Tolerant Patriarchy in the 1990's. We have entered matriarchy and the only good news is that this is a short transitional phase. Soon it will be "centre cannot hold" stuff.

One of Steve's Henchmen

Anonymous said...

Now, now, Steve, the point has always been that a white credit (good or poor) was treated as superior to a black credit of equal quality.

Source, please?

Cato said...

Do any of the "studies" on lending discrimination ever make any claims about at what point in the loan approval process the discrimination takes place? In many financial centers these days, the actual approval decision is made in some remote location away from the physical office. Further, the whole process seems to be pretty mechanized (of course, this is especially true of online lenders). It's difficult to see where anyone who wanted to could discriminate against a customer.

Big Bill said...

One of the fascinating things about liberalism and the bankruptcy of its ideologies is its ability to present the same activity as both discriminatory and non-discriminatory with equal vehemence.

For example, when the banks "redlined" the ghetto and refused to give ghetto dwellers mortgages, small mortgge companies who lended to the ghetto were heroes to the liberals.

I remember when just such a company was singled out for praise for taking on bad risks and helping first-time homebuyers in Philly -- for "trusting" the ghetto "community".

Now, however, it is clear that some of those bad risks are not just bad risks, but utter bankrupt deadbeats.

You would figure that the liberals of ten years ago would still recognize the nobility of the mortgage lenders and suggest a course correction. They should say to the high-risk mortgage companies, "well, all those defaults are a shame. We do appreciate your help, however. I guess you will have to reconsider your lending criteria and raise your rates."

Nope. Instead, the companies are now viewed by liberals as predators, people who "drew a circle" around the ghetto, people who "targeted" the ghetto. The mortgage companies, who are dropping like flies for having misjudged the honesty and creditworthiness of the ghetto are not demoins who are (somehow) profiting mightily from this suffering and collapse, when in fact they are laying off tens of thousands of workers and declaring bankruptcy themselves.

With liberals, you can't win for losing. There is no way to anticipate what they will deem racist. This week you are helping the bruthas. Next week your help is Evil Racist White discrimination. Never forget this.

Ther banks were evil for not lending to the ghetto and you were a hero for lending to it. Now you are evil for lending to it, and the banks are ? ... are ...?

That is the real funny thing. You will never, EVER hear those same liberals mention the obvious inverse corollary: "I guess those ol' redlining banks were right not to loan money to the ghetto on thirty year notes, weren't they?"

Nope. If you lend to the ghetto you are a predator. if you don't lend to the ghetto your are discriminatory. There literally is no way to win.

Anonymous said...

I can see the headline now:

"Subprime Lending Crisis: Blacks Hit Hardest"
====================================

No, much better would be:

"Subprime Lending Crisis: Blacks deepest in the Red"

If you had to distill the whole housing mess down to one idea I think it closely resembles Steve's "Let the good times roll" in the Katrina debacle. For both blacks and whites.

appeal to reason said...

Read this study on housing discrimination:
http://www.urban.org/UploadedPDF/mortgage_lending.pdf
Especially read chapter 5, which is a critique of default analysis.
Do any of the "studies" on lending discrimination ever make any claims about at what point in the loan approval process the discrimination takes place? In many financial centers these days, the actual approval decision is made in some remote location away from the physical office.
Well, if you read chapter 1 of this "study," it says that a significant portion of the discrimination happens at the pre-approval process; i.e., banks are much more likely to tell black candidates for a loan that they don't qualify than they are to tell equally qualified white candidates; they are much more likely to give "counseling" to whites for their credit problems, and so forth.

NFHA concluded that lenders often appeared to be less interested in giv-
ing information to black customers than to whites; urged black customers, but
not whites, to go to another lender; and emphasized to black customers, but
not whites, that application procedures would be long and complicated.
According to these investigative audits, blacks were also more likely than
equally qualified whites to be told that they did not qualify for a mortgage
(before they had filed a formal application), and whites were more likely to be
“coached” on how best to handle potentially problematic aspects of their credit
profile (Smith and Cloud 1996).

Appeal to Reason said...

ziel said:
Don't know - but no need to speculate based on this study.
Its a dead link.

L'Emmerdeur said...

For "anonymous" who asked for a source:

http://www.clevelandfed.org/research/Commentary/1996/081596.htm

David said...

No one has addressed La Griffe du Lion's brilliant comment. That really is the last word.

appeal to reason said...

the link that lu griffe de lion posted is dead. As such, I will try to address his points, assuming that he is accurately reporting and interpreting the data.

The FBR found no bias. What they did find was that the mean credit score of blacks was a full standard deviation lower than that of Non-Hispanic whites.
That's not the point. The point is that banks are more likely to give a loan to a white person than a black person with equal credit.

Interestingly, the black default rate was consistently higher than that predicted by black credit scores.
Again, look at chapter 5 of the study I posted for a critique of default analysis.