April 17, 2009

The Subprime Bubble in Living Color

We've been reading about the subprime mortgage crisis for a couple of years, but I'd never seen a graph of subprime mortgage originations by ethnicity showing exactly who got the subprime home purchase dollars.

So, I decided to create some graphs myself. After all, my tax dollars pay for the massive federal Home Mortgage Disclosure Act database (Table 11-3, to be precise). The government runs this system to make sure that minorities get enough mortgage money. I guess we can say:

Mission Accomplished!

Unfortunately, before 2004 the HMDA didn't break out subprime loans (which it cryptically calls "Reported Pricing Data"). But presumably the subprime dollars originating were much lower before 2004. We can more or less date the beginning of the subprime explosion to President Bush's October 15, 2002 White House Conference on Minority Homeownership, in which he gave a big wink to the mortgage industry to put the pedal to the metal on zero down and zero doc loans in the name of Bush's goal of adding 5.5 million minority homeowners.

Of course, plenty of white deadbeats got subprimes, too. This racial-equality-in-access-to-the-American-Dream stuff was just a cover story for debauching credit standards.

But, you've got to admit, invoking the sacred war against racist redlining was one hell of an effective cover story ... Who was going to be so racist as to publicly say that we shouldn't expand homeownership for minorities? Who would say that minorities didn't have equal creditworthiness?

It was such a fantastic cover story, that here it is, almost the middle of 2009, and you are just now seeing a graph of who got the money, even though the 2006 numbers have been available for free on the Web since September 2007!

We still don't know the subprime default rates nationally by ethnicity, but the recent Boston Fed study found that the default rates on black and Hispanic subprime loans in Massachusetts were about twice the rate of white subprime borrowers.

If that holds true for the whole country, then minorities appear to account for roughly two-thirds of defaulted subprime dollars.

Why haven't we been hearing this in the press? Well, it's just not the kind of thing that is talked about in polite society. I mean, really, we can spend all day going back and forth over who loaned whom hundreds of billions of dollars and who didn't it pay it back, but, in the final analysis, shouldn't we be proactively focusing upon hope and change? And the American Dream? And vibrancy? Never forget vibrancy.

To recap:

- In 2002, Bush, who was hoping to turn Hispanics into Republican voters by making them homeowners, stumped for eliminating down payments on home purchases and pesky paperwork on mortgages in order to close the racial gap between the white homeownership rate and the lower black and Hispanic rates.

- 2003 was the ramping-up year.

- In 2004, subprime lending exploded, with minorities getting 51% of the home purchase mortgages (not counting the negligible streams of FHA and VA money). All this new demand for homes from people who hadn't been able to qualify for loans previously drove home prices through the roof in some parts of the country.

- In 2005, subprime lending reached a bizarrely high plateau, with minorities getting 57% of the subprime money handed out that year.

- In 2006, subprime lending stayed high, but the mortgage industry was scraping even farther down to the bottom of the barrel to find all the people who couldn't qualify for a subprime loan even in 2005. Minorities got 58% of 2006's new subprime money.

- In 2007, the air started coming out of the bubble as our financial geniuses began to realize that the kind of people who got subprime loans in 2005 and especially in 2006 weren't terribly likely to ever earn enough to pay them back. Total subprime lending dropped, as did minority share (down to 50%).

Minorities also got about 44% of subprime refinancing and home improvement loans in 2006, although those had less effect on driving home prices up and tended to have not quite as insane Loan-to-Value numbers.

Interestingly, minorities averaged larger subprime home purchase mortgages in 2006 than white subprime borrowers got. The average white subprime loan originated in 2006 was $183,000, while the typical black subprime loan averaged $191k, Hispanic $242k, and Asian $326k. Presumably, this is because quite a few whites live in low cost rural areas, while blacks are concentrated in metropolitan areas, and Hispanics and Asians are most numerous in super-bubblicious California.

In California, where a majority of the country's defaulted mortgage money (prime and subprime) has been lost, minorities got a much higher percentage of subprime lending. In the five counties of Greater Los Angeles (LA, Orange, Ventura, San Bernardino, and Riverside), minorities got 79% of subprime dollars in 2006:

California's bubble pretty much drove the bubble in the adjoining states of Arizona and Nevada, which with Florida, covers the great majority of foreclosed upon mortgages when measured in dollars.

In Ground Zero of the Foreclosure Crisis, Southern California's Inland Empire of San Bernardino and Riverside Counties, home purchase lending to Hispanics increased from 1999 to 2006 by 782%.

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


none of the above said...


These graphs are wonderful. I assume you're using "non-hispanic blacks" as well as non-hispanic whites, since otherwise you might end up double-counting some people. (I guess that would be more of a problem on the East Coast, where there are a lot of black Puerto Ricans, rather than in the sand states, where hispanics are mostly Mestizo.)

Two nitpicks:

a. Is there any way to show, alongside these graphs, the fraction of total home loans that were subprime in those years? I have the sense that in 2005, a bigger fraction of all home loans were subprime than in, say, 2003. Showing that would make it easier to understand what was going on.

b. In the paragraph starting "in 2004," you say that minorities got 51% of home loans. Is that 51% of subprime loans, or 51% of all loans? From the graph, it looks like it's 51% of subprime loans. If so, you ought to fix the text to make that clear.

It seems to me that a whole bunch of hispanics were the last ones to the party--they saw and heard about other people getting rich buying homes, and managed to be the last folks buying into the bubble, with the worst prospects for paying it back when the bubble burst.

Anonymous said...

"in the name of Bush's goal of adding 5.5 million minority homeowners."That should have been:

in the name of Bush's goal of adding 5.5 million minority GOP voters.

Goota give it to the Dems: They are better than the GOP at courting the minority vote using tax dollars.

Anonymous said...

"Why haven't we been hearing this in the press? Well, it's just not the kind of thing that is talked about in polite society."Also, let’s not arrive at the right conclusions. We may have to start doing things which evil people like those racist Afrikaners in South Africa were doing. Let’s continue feeling good about ourselves for a little longer, even though the clock is ticking.

anony-mouse said...

While I'm sure people will notice the huge rise in Hispanic and Black subprime borrowing, it looks to my eyes that Asians and 'Others' had similar percentage increases. Of course it was large absolute numbers that lead to the crisis (and that if America was 100% White there would still have been a problem, albeit a smaller one).

On a glass half-full perspective it seems that this was largely a 2 year bubble and that the problem appears to be subsiding.

Lucius Vorenus said...

I think you're gonna get in trouble for painting the "Others" as red.

Remember, St John's University had to change their name from "The Redmen" and Stanford University had to change their name from "The Indians".

Although, maybe in a fit of underhanded passive-aggressive pique, St. John's teams now call themselves "The Red Storm", and Stanford teams now call themselves "The Cardinal".

Unknown said...

It would be very interesting to see, instead of total amount, dollars per capita of subprime mortgages by ethnicity and year.

And then taxes per capita, mean and median, by ethnicity. See how the money flowed.

rast said...

It took me a little while to figure out that the graphs were not referencing "New Hampshire Whites".

The whole "hispanic isn't a race, it's an ethnicity" thing is BS.

Anonymous said...

"On a glass half-full perspective it seems that this was largely a 2 year bubble and that the problem appears to be subsiding."

Don't you worry about that:


---Recreating Bubble

“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit.”

While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”---

See you in the streets...

Anonymous said...

The total value of these sub prime loans is much less than the $2 trillion in existance, of which Fannie and Freddie held $400 billion when the music stopped last year.

There are a lot of mortgage borrowers, myself included, that are "decline to state" on the race question. Presumably the shortfall here is caused by leaving
out the "decline to state" borrowers.

If you had default rate by race you could quantitatively demonstrate the total cost of Washingon's affirmative action - affordable housing debacle.

Ipso Facto evidence that Washington caused the housing bubble, not Wall Street.

Reg C├Žsar said...

It took me a little while to figure out that the graphs were not referencing "New Hampshire Whites". --Rast

"New Hampshire whites" is redundant.

Anonymous said...

i worked for ConquistAmerica for many months..many of the employees did not have legal papers and most of all had no knowledge of what they(we)were doing..we where forced to lie, forge signatures, and SALE. For what i hear now, besides doing loan mods;which they have over 1299 files untouched,they want to do Immigration Services..they are even doing Bankruptcys !!!WTF..can someone help put this out there?? Arturo Ochoa and Bill Cook are one of the biggest crroks in the MOrtgage Business.what a coincidence Bill Cook was one of the founders of AMERIQUEST,AND ENCORE CREDIT..BOTH WENT DOWNNNN..LOTS OF HOMEOWNERS ARE LOOSING THEIR HOMES BECAUSE OF THESE PEOPLE. BUT wait i cant forget about LARRY G. NOE AND LUIS SABROSO..THESE GUYS ARE ALSO CON-ARTIST WORKING TOGETHER UNDER WLC MORTGAGE SERVICES and conquistamerica. BASTARDS HAVENT PAID MANY OF HIS FORMER EMPLOYEES BECAUSE THEY HAVE BILLS TO PAY !!! PLEASE HELP US PUT THIS GUYS IN JAIL..AGAIN ;ARTURO (ART)OCHOA,BILL COOK,LUIS SABROSO, LARRY G. NOE, AND MARCELO AGUILAR BELONG IN JAIL..CAN SOMEONE HELP SPREAD THE WORD TO WASHINGTON DC OR SOMETHNG??ITS RIDICULOUS WHAT THEY ARE DOING..THEY ARE EVEN AVOIDING PAYING TAXES TO THE IRS, BY CLAIMING EMPLOYEES HAD BENEFITS, VACATIONS,SICK TIME, MEDICAL AND DENTAL in our paystubs and we didnt have anything..ALL ALONG WE WHERE PAYING FOR MEDICAL INSURANCE AND WE DIDNT HAVE ANY!!!!

Anonymous said...

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Eileen said...

'Racist US bankers' to blame for credit crisis