December 1, 2008

"Reverse Redlining"

The LA Times reports in "Civil Rights Complaint Targets Wall Street Rating Firms:"
In what is apparently the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street rating firms, charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African American and Latino home buyers across the country.

The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investors Service and Fitch Ratings enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

The firms "knew or should have known" that subprime loans disproportionately were marketed to minority consumers -- a process known as "reverse redlining" -- and that those borrowers would ultimately default and go into foreclosure at high rates, according to the coalition's complaint. ...

The filing cites multiple studies that found that African Americans and Latinos received a disproportionate share of subprime loans during the housing boom years. A Federal Reserve study in 2006 estimated that 45% of mortgages extended to Latinos and 55% of loans to African Americans were subprime -- a utilization rate "three to four times that of non-Hispanic whites."

Because the loans themselves often came with terms that increased borrowers' probability of default -- upfront teaser rates followed by unaffordable reset payment adjustments, no required documentation of applicants' incomes or assets, plus hefty prepayment penalties -- African Americans with subprime mortgages are projected to lose $71 billion to $92 billion through foreclosures, while Latinos are projected to lose $75 billion to $98 billion, according to one study cited in the complaint.

"Had subprime loans been distributed equitably," the complaint estimates, "losses for whites would be 44.5% higher and losses for people of color would be about 24% lower."

Minorities got half of the subprime mortgage dollars (home purchase and refinance) in 2004-2007. My guess is that when somebody finally bothers to look, they will account for over half of the unexpected defaulted dollars.
... The NCRC filed its complaint with the Department of Housing and Urban Development's fair housing and equal opportunity unit. After a review, HUD could either dismiss the allegations or refer the case to the Justice Department of the incoming Obama administration for litigation next year. If HUD fails to respond adequately, the NCRC says it may file a federal civil lawsuit.

Of course, HUD saw its mission as getting more mortgage dollars into the hands of minorities, not less. The boilerplate at the end of HUD press releases said:
HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation’s fair housing laws.

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

39 comments:

rightsaidfred said...

>>>>African Americans with subprime mortgages are projected to lose $71 billion to $92 billion through foreclosures, while Latinos are projected to lose $75 billion to $98 billion

I like this bit of gratuity. It assumes they were fully vested in the houses at the time of foreclosure. Kind of like the guy who gripes that he lost millions because he didn't buy Microsoft stock back in "85.

I suspect if you add up the opportunity cost of renting, subtract the mortgage payments made, and add the money taken out from refinancing, it might not have been a bad deal for said minorities.

headache said...

I guess whitey is badgered either way. It’s either due to copious chutzpah on the part of the AA community, or they are just manipulating every opportunity along the way without considering the larger picture. Since white pols will be grovelling at their feet from now on, expect more tax dollars down the drain. Mortgage Crisis 2.0.

Anonymous said...

i would say that this will backfire and mainstream media will be forced to expose the real roots of the 'diversity recession' but that's holding out too much hope.

hcl said...

I don't like how iSteve and Vdare incorrectly make this out as a "Minority Recession" when the banksters and other Bigs are at sole fault.

Foreclosure is life-ruinous. Imagine a 35-49y.o. losing everything in foreclosure, and starting from zero, except with bad credit.

When someone uncreditworthy receives a mortgage, the government *isn't* doing them a favor. It's the opposite: setting them up for a fall.

Eric said...

So when they don't get loans there's a complaint about "redlining", and when they do get loans we get a complaint about shady ratings.

I'm starting to think people who work and pay their taxes are just suckers.

Truth said...

Are we still doing this story Steve? How about a fresh write-up on the Manson murders.

Anonymous said...

Racism if you do, racism if you don't.

Classic Catch-22.

Jacob Y. said...

How dare you give us what we asked for!

Henry Canaday said...

I keep thinking that, if the financial crisis of autumn 2008 was like the stock market crash of 1929, the 2008 election was the equivalent of electing the Smoot- Hawley ticket in 1932. Only in the America of the Third Millenium would Smoot and Hawley get to sue for damages.

simon said...

HUD & co's encouraging reckless lending practices did hurt minorities (though they hurt buyers of derivatives a lot more) - they deserve to get hit. But the biggest villain, of course, is W Bush.

Wade Nichols said...

This case reminds me of that lawsuit a couple years ago by one of the royal guards in England, who also happened to be black. I think he was either discharged, suspended, or reprimanded for something or other. He then sued, claiming that he was only promoted to royal guard because he was black, and that the reason he was disciplined was because he wasn't fully qualified. Go figure. The alternate univese does exist, we're living in it!

Anonymous said...

"Are we still doing this story Steve? How about a fresh write-up on the Manson murders."

I was hoping for something on the Natalie Wood death conspiracy...But that is your department.

Anonymous said...

What's the ebonic word for chutzpah?

David said...

Redlining is bad.

The opposite of redlining is equally bad.

Everything lenders do is bad.

Nothing blacks do is bad - they are the innocent victims of the existence of everyone and everything else.

You almost get the idea that the bad element in the picture is not being (explicitly) identified.

Chic Noir said...

EricSo when they don't get loans there's a complaint about "redlining", and when they do get loans we get a complaint about shady ratings
A few years ago their was a study which showed that Black Americans received much higher interest rates on mortgages than whites even when the two had equal pay, credit scores, and assets. From my understanding, Jessie Jackson and the like wanted to make it so that Blacks who could afford and qualified for mortgages would be treated equally with whites. I doubt Rev. Jackson wanted POC with credit scores of 550 and incomes of 15k to purchase homes 200k.

Giving mortgages to people(blk,azn,wht,his) who could not afford them was a very dumb move. The reason it went on for so long is because many people made a lot of money. There are people of all races who are foreclosing and in underwater mortgages who took the equity out of their homes. Many people who took a line of credit used the money to buy wasteful things (boats, motor homes, fancy vacations, clothes). Bottom line, no one is innocent, tunnel vision profit concerned Wall St execs, greedy mortgage lenders, or ignorant borrowers(home buying for dummies would’ve helped many people ) all share part of the blame.

Chic Noir said...

DavidNothing blacks do is bad - they are the innocent victims of the existence of everyone and everything else
I don't know any Blacks who believe this^^^. I find it interesting that you do.

Chic Noir said...

simon said...
HUD & co's encouraging reckless lending practices did hurt minorities (though they hurt buyers of derivatives a lot more) - they deserve to get hit. But the biggest villain, of course, is W Bush
good point simon.

One anonymous *analyst* recently said that expect the shit to hit the fan when the London market gets a cleaning. Allegedly, London firms are far less transparent than in the states.

Anonymous said...

hcl, the term more often put out by Steve and Vdare is the "Diversity Recession" (not "Minority Recession"). The reason I point that out is that blame for the recession is distinguishable. It's not lying on minorities per se, who took what opportunities were offered at the time. The federal Government (both Dems in Congress aiming to fight "redlining" and the Bush Administration promoting the "ownership society") took affirmative steps to pressure the financial industry to discard sound underwriting and credit rating practices. The financial industry rode along, funding the whole thing (or rather, not funding it) with a mountain of paper wealth and speculation. Everything was going gangbusters so long as either real estate prices would continue appreciating forever or else all those subprime borrowers would suddenly develop earning capabilities belied by their lack of creditworthiness.

In short, it wasn't the minorities, it was our cultural inability to face reality about divergent outcomes between racial groups that led to this whole mess. Everyone just kept pretending that the Emperor really did have clothes.

Anonymous said...

Steve did you get this story from the Onion?

Anonymous said...

Foreclosure is life-ruinous. Imagine a 35-49y.o. losing everything in foreclosure, and starting from zero, except with bad credit.

The folks mentioned in the post in many cases have lost nothing except (the few) repayments they made. They never owned the houses, they paid no money down. Seems some were even lent money for a deposit.

Anonymous said...

hic Noir:

You said:
I doubt Rev. Jackson wanted POC with credit scores of 550 and incomes of 15k to purchase homes 200k.

I didn't hear the Rev. doing any squawking about it, warning blacks away, when it counted.

Anonymous said...

We might be better served if we went back to loan applicants having to come up with 3-to-5% down on a mortgage before they can get the loan to buy a house.


In this way, the buyer would be vested in the house, and could perhaps sell it and have at least 'some' equity therein if it did not fall in value too much.


Real Estate bubbles are really only good for speculators and people who just happened to sell (cash out) and relocate to an area with more reasonable prices. This is hurting everybody.



M

Anonymous said...

What's the ebonic word for chutzpah?

"President Obama"

or

"The Audacity of Hopenchange"

Svigor said...

Are we still doing this story Steve? How about a fresh write-up on the Manson murders.

Just wondering, do you and Evil Neocon get together for drinks afterwards, or what?

Poll Testing Now! said...

What's really funny-maddening-ironic-stupid-revealing is how the advocates for low-income blacks and hispanics complain how their charges can't make decisions for themselves, but insist on corralling as many of them as possible into voting booths to have a say in how people more responsible than they are governed.

Democracy is the belief that society should be run by those with the poorest birth control.

Svigor said...

Bottom line, no one is innocent, tunnel vision profit concerned Wall St execs, greedy mortgage lenders, or ignorant borrowers(home buying for dummies would’ve helped many people ) all share part of the blame.

The people who had nothing to do with the bad loans are innocent. The people not showing their asses are innocent.

The people who said "lowering standards in the name of anti-racism is a horrible idea, like everything done in the name of anti-racism, don't you get it, anti-racism != good?" are innocent.

The kids likely to be paying the interest on all this when they grow up are innocent.

malcolm said...

Chic noir: A few years ago their was a study which showed that Black Americans received much higher interest rates on mortgages than whites even when the two had equal pay, credit scores, and assets.

Link? citation?
Jessie Jackson and the like wanted to make it so that Blacks ....would be treated equally with whites.
I have never seen anyone seriously use Jessie Jackson and blacks treated equally' in the same sentence
equally? Like real equally or affirmative action 'equal' like 1 +1 =2 equally or 'some animals are more equal than others' equally?

Anonymous said...

one word comes to mind:

SHAMELESS.

That's the formula for success these days. American/western culture seems mighty susceptible to it. We need a new culture of calling "bullshit."

Rationality, thoughtfulness, introspection and consistency are too easily manipulated.

Polite has no response to the power of a blatant refusal to acknowledge reality or accept responsibility.

Mr. Anon said...

"Truth said...

Are we still doing this story Steve? How about a fresh write-up on the Manson murders."

Well, it's not the Manson Murders, but here's some recent true-crime stories for you:

http://wcbstv.com/breakingnewsalerts/nyc.bus.driver.2.877183.html

http://www.ktbs.com/news/Anchor-murder-suspect-could-face-death-penalty-20821/

http://www.nydailynews.com/ny_local/2008/11/28/2008-11-28_worker_dies_at_long_island_walmart_after.html

I think some white guys were the perps. At least, that's how it'll be portrayed on "Law and Order".

Ben Franklin said...

Chic Noir has a point here. The comic actor Eddie Murphy produced a documentary on the widespread white conspiracy in white banking (as well as other matters). Unfortunately, Murphy was not taken seriously so he had to settle for his documentary being broadcast on Saturday Night Live.

You can see a YouTube of the Murphy documentary at the link below, where Murphy disguised himself as a white man to receive the preferential treatment that white bankers deny to equally worthy blacks. Among those benefits are loans that don’t have to be repaid, free goods from stores that pretend to be “retail” stores requiring actual payment for things, and the fact that schools don’t actually grade the exams and papers of white students but merely assign them high grades in contrast to the artificially low grades assigned to blacks in a practice termed “race norming.”

Few other than Murphy and Chic Noir and those millions like Chic Noir are aware of this situation.

Here is the link to the Murphy SNL documentary:

http://www.hulu.com/watch/10356/saturday-night-live-white-like-me

Anonymous said...

I'm curious. How can the subprime mortgagee lose billions with no money in the property, and no other assets??

Michael T said...

When someone uncreditworthy receives a mortgage, the government *isn't* doing them a favor. It's the opposite: setting them up for a fall.


But the government assumption was that they are creditworthy. A race-realist government would never have made such a blunder. (It wouldn't have even let the immigrants in without exceptionally good reason in the first place. Beat that.)

David said...

I don't know any Blacks who believe this^^^.

Re-read the story, sweetie.

Ben Franklin,

The concept behind credit is creditworthiness. Creditworthiness is based on innumerable observations, from which patterns are identifiable. A general example of a pattern was alluded to by Jesse Jackson (scroll down for quote). Relevant to creditworthiness HERE. Big spending HERE.

The rationality of statistical discrimination is a major theme of this blog.

(Heh. Here's one I missed. Steve tackles Obama's platform.)

Anonymous said...

The recession is caused by a metaphysical problem unlike most and is why it is, and will continue to be, so painful.

"Diversity recession" is less about the poor minorities themselves, whose behavior has been or should have been predictable, and more about our elites and how their views on the nature of their fellow man led to this crisis.

Manias will always be with us, per Anna Jacobson Schwartz, but this current one is far worse than the usual one because unlike tulip bulbs, stocks, etc. it is due to entrenched beliefs regarding some of our most fundamental issues of being that happen to be false.

Michael T said...

I'm curious. How can the subprime mortgagee lose billions with no money in the property, and no other assets??



The mortgagee is the lending party.

Assuming you meant the borrower, he loses the payments he made, but what the bleeding hearts focus on is his losing "his" house. Typical tearjerking nonsense. You can't "lose" what you never owned. It really does get wearisome having to listen through countless sob stories of poor, "downtrodden," greedy little sh*tbags "losing" homes they never had a prayer of paying for in the first place. To hell with sensitivity: I get a veritable kick out watching these arrogant, border-jumping, entitlement-addled, priviliged-beyond-belief greedy-gutses wash out.

Truth said...

"I was hoping for something on the Natalie Wood death conspiracy...But that is your department."

Hey, that's pretty funny: But seriously, I have to give credit where credit is due, and you guys were totally accurate when you predicted riots after the Obama election!

http://www.youtube.com/watch?v=
EkHOM96wiA4

Ben Franklin said...

DAVID:

That post was sarcastic. Or did satire die along with irony?

none of the above said...

Distinguish between the people who carried out intentional fraud (some non-negligible number of mortgages apparently never received even one payment) and the people who were just following the advice of *everyone* in the whole damned society and buying the most house they could get. Everyone from the president to the cleaning lady to your boss to your parents was telling you, five years ago, to stretch and buy the most house you could, that buying a house was the key to having enough money to retire on, that housing prices might go flat but simply would never go down, etc.

Lots of people just followed the advice of their whole society, which in this case turned out to be disastrously bad advice. The lawsuit seems silly to me, but it's worth remembering that while the intentional fraudsters probably didn't lose much money (they were never planning to pay), people who just got in over their heads on a mortgage are in the process of being screwed to the wall--they'll end up bankrupt, with ruined credit, maybe having wrecked their marriage from the strain of the financial disaster. They're way worse off than they'd have been if nobody had offered them a mortgage they couldn't repay, with lots of fast talk and incomprehensible legalese about adjustable-rates and baloon payments and interest-only mortgages and refinancing to keep their rates low.

One of the big themes of this blog is IQ differences. I'm guessing this is one of those places where the higher-IQ mortgage brokers, realters, developers, and financial industry types (the low-level guys buying shit mortgages to bundle with the good ones in their MBS) managed to use the credit and limited resources of a lot of less intelligent people to make themselves rich. And, of course, the people who got screwed will get little help, because nobody among the elites in our country gives a damn for the left half of the bell curve, regardless of skin color.

Mr. Anon said...

"Truth said...

Hey, that's pretty funny: But seriously, I have to give credit where credit is due, and you guys were totally accurate when you predicted riots after the Obama election!"

"Truth" is a mendacious liar. Nobody here predicted any such thing. They predicted black riots if Obama were to lose the election.

There will indeed be post-win riots, a year or two down the road, when blacks lose on some issue or another, and blame any and all opposition to Obama on racism.