February 9, 2009

1990s FHA mortgage default rates by ethnicity

Thanks to reader Tino, who found this HUD document, here are the mortgage default rates by ethnicity for three vintages of 1990s FHA-insured mortgages. The sample size is 240,901 loans.

The Federal Housing Administration insures smaller-sized mortgages of low and moderate income folks upon appraisal, so this is roughly an apples to apples comparison of fairly similar borrowers. In other words, we're not comparing rich whites to poor minorities, at least not as much as if we were looking at the population as a whole.

Moreover, the FHA seems to have been somewhat more responsibly managed than most other sectors of the mortgage industry. And this data is from the 1990s when housing was a more boring sector of the economy than in the 2000s.

So, we're looking at representative, long term ethnic differences.

As you'll recall, late 1992 was when the Boston Fed, under the leadership of Richard Syron, published a warmly welcomed study claiming that mortgage lenders discriminated against minorities and should be loaning more to minorities. As Peter Brimelow asked in Forbes at the time, doesn't that mean minorities should have lower default rates?

But nobody in politics cared, and the study helped Syron get the top job at Freddie Mac, where he earned $38 million while piloting Freddie onto the rocks.

Default rates for 1992 vintage FHA-insured mortgages after 7 years:
White: 4.27%
Black: 10.81%
Hispanic: 13.18%

Default rates for 1994 vintage FHA-insured mortgages after 5 years:
White: 4.10%
Black: 9.14%
Hispanic: 9.47%

Default rates for 1996 vintage FHA-insured mortgages after 3 years:
White: 3.34%
Black: 6.93%
Hispanic: 6.99%

The source is
Analysis of FHA Single-Family Default and Loss Rates
Prepared for:
U.S. Department of Housing and Urban Development
Office of Policy Development and Research
Prepared by:
Robert F. Cotterman
Unicon Research Corporation
March 2004

Even when adjusted for FICO scores and other objective factors related to credit risk, minority default rates still look worse. Cotterman concludes:
Blacks, Hispanics, and those in judicial foreclosure states and underserved areas have higher conditional loss rates, other things the same.

So, the changes in policy and worldview that led to the gigantic increases in mortgage lending to minorities seen over the last decade (with total mortgage dollars written per year increasing 691% for Hispanics and 397% for blacks from 1999 to the peak of the Housing Bubble in 2006) unsurprisingly led to world-historical levels of mortgage defaults in 2007-2009. After all, blacks and Hispanics were still defaulting at very high levels when they weren't getting as much mortgage lending. The law of diminishing marginal returns suggests that throwing more mortgage money at them wasn't going to improve their credit worthiness.

In 2004-2007, minorities received half of subprime mortgage dollars handed out. A new 2008 Boston Fed study shows minorities in Massachusetts getting foreclosed on subprime loans at twice the race of whites, suggesting that minorities accounted for a sizable majority of subprime dollars defaulted.

To the extent that we've had a debate over minority mortgage lending policy in the 18 months since the cratering of the subprime market (which we've barely had at all), it's been along the ideological lines of More Regulation vs. Less Regulation.

And yet, when we look at the federal policy over the last four Presidential terms, what we see is more aptly explained by a different paradigm than Regulation vs. Deregulation:

Who? Whom?

The Clinton Administration both strengthened some mortgage regulations and loosened others, all in the name of increasing minority homeownership. In complete contrast, tThe Bush Administration loosened some regulations and strengthened others, all with the intention of closing the racial homeownership gap.

The results of all this "affordable housing" social engineering was to first make housing unaffordable, and then, when the world finally woke up to the fact that it wouldn't be getting paid back on its mortgage lending, to smash the global economy.

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


Anonymous said...

You need to write a book about this. And get it published so its out in the stores where all the yuppies like to go. Those that need to read it are NOT going to download it from Vdare, which they have never heard of. I'm sure it will be a bestseller if you package it properly, i.e. don't say anything about minorities on the cover, and hide it until the third chapter. Then the PC-lemmings don't have an excuse other than being boneheaded.

Bruce Charlton said...

"As Peter Brimelow asked in Forbes at the time, doesn't that mean minorities should have lower default rates?"

As Nobel-prizewinning economist Gary Becker showed 40 years ago, the evidence for discrimination is typically that the discriminated-against group has _better_ perfomance than average (they have to).

But the same point was made by baseball pitcher Jim Bouton in Ball Four - he noticed that evidence for negative prejudice was that the 1960s African-American Major League batters were all .300 plus average stars - they had to be (they were not allowed to be mediocre).

Since then, the sophists of PC have generated the exact opposite public perception - that _lower_ performance in the same job (or in obtaining the same benefits) is nowadays evidence of discrimination.

Errr - no. Lower performance in the same job (or to get benefits - like mortgages) is prima facie evidence of preferential treatment. (There could be other explanations - but that would need to be demonstrated.)

Anonymous said...

Yes, blacks and Hispanics are not the sharpest pencils in the national pencil-case. Who doesn't know this? Even the nay-sayers know it. But the global meltdown was not simply due to ethnic forfeiting on bad mortgages. And bad mortgages were packaged for blacks and Hispanics (amongst others) not just because of Democratic pandering. There's a much larger domestic and global context here that SS is ignoring from a lack of imagination and a racially reductive worldview.

Ron Guhname said...

There have got to be some iSteve fans/race realists/investors out there who saw this coming and made a boatload of money, some of which they could use to start The Race Realism Institute!

Anonymous said...

"The Clinton Administration both strengthened some mortgage regulations and loosened others, all in the name of increasing minority homeownership. In complete contrast, tThe Bush Administration loosened some regulations and strengthened others, all with the intention of closing the racial homeownership gap."

Not sure what you're trying to say, unless you are being sarcastic with the words "In complete contrast", since what you describe seems the same for both administrations. Unless your reflexive blame it all on Chimpus II attitude just took over. How about a mention of Frank, Dodd and Hud Secretary Andrew Cuomo and their contributions to the Diversity Recession?

Anonymous said...

There is really only one solution to allowing bureaucrats and the political classes from accumulating power in our system.

Term limits for all politicians and civil servants.

Also, no pensions. They should be in those positions for love of country and a belief in their civil duty.

Anonymous said...

Please, help me find the tables this data was pulled from.

I can't locate it/them.

Anonymous said...

Someone should send this data to Michael Barone. Yep, them Hispanic immigrants - they're just like the Italians!

Anonymous said...

Steve, those graphs say it all. And interesting about Richard Syron at the Boston Fed - I didn't know that, but it just shows if you want to get ahead, you've got to play along.

Anonymous said...

In the book, don't forget to include helpful graphs that show the proportions, by ethnicity, of the people who leveraged those risky loans, repackaged them, insured them, then insured the insurance-- profiting handsomely from each step of the process and pocketing the cash.

Anonymous said...

You made a typo
"Default rates for 1992 vintage FHA-insured mortgages after 5 years:"
1992 should be 1994 here.

Anonymous said...

Anonymous said...

Those that need to read it are NOT going to download it from Vdare,...

A lot of narrow minded bigots on the left have heard of Vdare, even if they won't download the book. I posted a nice comment here and had a liberal get angry that I posted a link to a racist site, even though the article I linked to is very relevant to the post.

Anonymous said...

Yeah, write a book about this. And get it distributed in bookstores where yuppies like to go. That'll mean, of course, using a pseudonym, since no self-respecting commie bookstore or multiculti yuppie would sell or buy, respectively, a book by Steve Sailer. I suggest using the name "Malcolm Gladwell."

Anonymous said...

What strikes me about those charts is that time widens the racial gaps. That is: whites only default quickly; hispanics have a constant default rate; and blacks are somewhere in between. The black pattern is what I'd expect; the other two seem pretty weird.

Statsquatch said...

A key point in the report is that even after accounting for FICO scores, income, and other factors blacks, but not Hispanics, still had a higher default rate. So if you want to have equal default rates you have to hold blacks to higher lending standards. That is, discriminate.

Anonymous said...

Of course there are other possible nuances to consider to explain the phenomenon. Although blacks and hispanics have higher default rates with the same FICO and income - it is well known that there is a huge wealth disparity between whites and non whites. In other words income may be the same, but available resources to rely on in the event of hard times are way less. Secondly, even though income and Fico may be the same, access to and ease of getting employment are vastly different. In the event of a job loss, the blacks and hispanics are at a distinct disadvantage in getting a new one at the same or higher salary. Third, you have not looked into the actual interest rates received by the three groups - the studies are clear that blacks and hispanics, even with the same income and FICO consistenly pay higher mortgage rates than whites. Although all three may be getting subprime rates - within those rates the black and hispanics will be getting higher rates. So, what you have is a situation where those with similar income and FICO, but with much lower overall household wealth, and less access to the workforce, paying higher rates. In the event of any minute disruption in the economy or personal situation, their default rates will be higher - much higher. So why do the minorities have less overall household wealth ??? Historic past discrimination where their parents or grand parents or great grandparents could not get a mortgage for any rate regardless of creditworthiness - hence the inability to buy property, start businesses, and build up intergenerational wealth. Plus past discrimination where they were not allowed into the workforce or if let in not allowed to earn commensurate with ability - until very recently (1980s?? - Affirmative Action). And finally, why do they pay - even today- higher rates of interest ?? Discrimination - where they live banks simply refuse to give decent rates of interest - so redlining has been made illegal - but the minorities are still not getting the interest rate a similarly situated white person would get.

The bottom line you guys are refusing to acknowledge is the destructive power that Past and Present racism continues to play - then you ridicule and attack even the most minute measures to attempt to remedy it. Sailer's little snap shot captures little of the real story. The effort to get minorities into homes was a remedial effort - to address the centuries of persistent and chronic discrimination and racism. Is it a perfect solution ...no, but its clearly better than doing nothing. The next generation of blacks and hispanics will at least have some wealth built up - despite the high default rates of some at the present.

Steve Sailer said...

I believe FHA-insured loans are more or less all prime, so they make a better apples-to-apples comparison than mortgages in general.

But, your general points are correct: NAMs have fewer resources with which to pay back mortgages (e.g., they have fewer relatives with spare cash to help out in a crisis), so they default more. And, indeed, history is unfair.

The catch turns out to be, however, that the easy, bipartisan solution to this vast problem -- just get financial institutions to lend more money to NAMs -- has led to financial catastrophe for the exact reasons you outline.

Anonymous said...

Anonymous said

to address the centuries of persistent and chronic discrimination and racism

Universal justice (e.g., across the centuries) is not for human beings to administer. You the individual can be just to other individuals. You can be part of a community based on covenants that respect the rights of individuals right now. You cannot adjudicate the globe or universe, past, present, and future, because you are not God, despite your feeling that you have the knowledge and righteousness of God.

Ronduck said

racism against who?

I ask, "Racism by whom?" Not me. Am I a receiver of stolen goods? No. Of stolen opportunities? Stolen from whom, by whom? The victims and criminals are long dead. Like the parties to the original English and Irish conflict. Reviving old conflicts when the actors are dead, to be acted all over again by their distant descendents, is simply starting the conflict again. It's barbaric, a nightmare out of the Hatfields-McCoys legend, a blood feud. Blood feuds are what passes for "social justice" among the race hustlers. Keeps them in cash, I guess. No wonder the West is in decline - the laws of universal justice are at best a fairy tale, at worst an excuse for an eruption of despotism in the midst of peace, for in the long view or God's-eye view no situation is just. Think about that.

Fighting long-dead injustices is a way of avoiding the crying need to address current ones. For example, slavery no longer exists in the United States - but it still exists in Africa and other places around the globe. We're still talking about the one, we are not talking about the other. We pass laws addressed to one, we ignore the present.

This is why "civil rights" and the "centuries of racism" bullshit are no more than a stench of barbarism, despotism, and hypocrisy in the nostrils of civilized men.

Anonymous said...

David said...

...for in the long view or God's-eye view no situation is just.

I see your point. Intervening to stop slavery in Africa is just an invitation for more "refugees" to come to America. Besides, intervening to stop slavery in Africa was part of the motivation of the British Empire in its' early years. Despite years of British rule many of those parts of Africa still have slavery. Ignoring slavery in Africa is really a wise choice, a choice I wish we had made in the 1960's about the civil rights of US Blacks.

Anonymous said...

Ignoring slavery in Africa is really a wise choice

Well, now everything's about curing or reducing AIDS, which won't happen either.