April 4, 2013

Foreclosures on 2005 Vintage Mortgages by Ethnicity

Here's a graph created by Dr. Carolina Reid of the Federal Reserve Bank of San Francisco tracking foreclosure rates over time on mortgages originated in 2005. This is for the 50 largest metro areas, so it's reasonably representative of the bulk of the mortgage dollars in the U.S.

In thinking about the Great Recession and foreclosures, we need to conceptually distinguish between later foreclosures caused by the recession versus earlier foreclosures that, more than any other single factor in the U.S., caused the recession. (Obviously, the recession had multiple causes, which can be analyzed on multiple levels, just as World War I can be said to be caused (at the specific level) by both the assassination of the Archduke or (at an abstract level) the system of Great Power rivalries. But for historical events as important as the Great War and the Great Recession, it's worth taking the trouble to analyze multiple causes at multiple levels. The mortgage meltdown may not have been the ultimate cause of the recent economic unpleasantness, but it deserves close analysis, just as the assassination of the Archduke, the stock market crash of 1929, and the bombing of Pearl Harbor deserve the attention paid to them.)

The foreclosures rates in this graph are for January of each year. Keep in mind that foreclosures lag defaults by some number of months. 

Some recent history: The subprime crisis was first noticed in February 2007 with the failure of subprime lender New Century Financial in Orange County. So, the first two data points, 2006 and 2007, are both before subprime blew up. The Great Recession itself did not become a certainty until mid-September 2008, and unemployment rose in the wake of those memorable fall 2008 events. Not surprisingly, broad unemployment caused numerous foreclosures. 

But, what's of more interest in figuring out cause and effect are the foreclosures that happened before the country fell into a general recession. This study of 2005 vintage mortgages offers some interesting clues. Here's Reid's map of foreclosures as of January 2007:
As you can see, foreclosures were centered around Greater Detroit

Not surprisingly, in those first two years, while the price of houses was still high, blacks had the highest foreclosure rates. The financial cost of these mortgages defaults was low, however, because home prices in the Great Lakes area are not particularly high.

But, by 35 months later, at the end of 2010, the landscape was dominated by the red of the Sand States of California (the Big Kahuna of real estate values), Arizona, Nevada, and Florida, all of which had above-average priced-homes (California exceptionally so):
As the top graph demonstrates and the second map implies, the Hispanic rate skyrocketed between January 2007 and January 2009. By January 2009, the Hispanic foreclosure rate (about 6%) was roughly three times the white rate (about 2% rate), and the Hispanic rate was now significantly higher than the black rate. The Hispanic foreclosure rate accelerated from January 2009 to January 2010 (roughly the second map), reaching about 10.5%, before its rate of growth moderated from January 2010 to 2011.

More than any other ethnic group, Hispanics blew up and then popped the bubble.

Interestingly, the Asian rate grew sharply over the course of 2009, almost catching up to the black rate. The white foreclosure rate lagged the other ethnicities rates, finally closing some of the gap by January 2011, suggesting that white borrowers tended to be less cause than victim of the recession.

The more I look at the recent studies, the more I keep coming back to my initial reaction: Diversity, in the multiple meanings we assign that term, played a major role in the Recent Economic Unpleasantness. You might think that knowing this would be relevant to immigration policy, but that just shows you are a bad person.


Anonymous said...

Diversity, in the multiple meanings we assign that term, played a major role in the Recent Economic Unpleasantness.

And that's why it's our greatest strength.

Anonymous said...

If we can bring the argument around to 'productivity' rather than 'diversity' then we might be able to make some headway against the 'antis'.

Basically, the wealth of a nation is determined by productivity. Wages are also predicated on productivity. If I might be so bold as to venture to suggest that individuals with higher wages are less likely to default on loans, I'd most likely get raosted alive by the new breed of economists who will snap back that I'm stpid and don't 'fully understand' their tomes and tomes of self-justifying verbiage.
The number of houses a nation can build - and then sell profitably on the open market - is also a function of aggregate productivity.
If individuals simply don't have the financial clout and wherewithal to actually function in a high-price free market economy that takes no prisoners, this what you get, the problem was that the USA pretended with some mock Christian ethics that the loser class could participate in the good life 'god, guts, hardwork, Republican values, 1900 ethnic immigration' - all that emotional irrational shit.

The message of this debacle must be that the economically unavaluable (yes, I'm calling a spade a spade here), must be kept out, at all costs, out of a high income high price economy advanced economy such as the USA.
The USA has enough of its homegrown losers as it is.

Anonymous said...

As more Mexicans enter the USA, the USA will become more like Mexico, economically. Peoples are not fungible unless norming for ethnicity, IQ and other factors, homo economicus is otherwise a con.

Dahinda said...

The Asian rate probably has to do with Filipinos.

Anonymous said...

Well, conservative friends will agrue that Texas is doing good because of low taxes and regulation. Actually, Texas passed harshed lending laws during Ann Richardson governorship which prevented the lending to Mexicans like California. California is underregualted when it comes to lending money for houses.

chucho said...

It'd be interesting to compare the black/hispanic foreclosure rate after breaking out the mortgage type: first purchase vs. cash out/refinance. I imagine many blacks in the Detroit area already owned their homes and were tapping into equity, whereas many of the hispanics were (under-qualified) first time buyers.

Race notwithstanding, the great crime of the Narrative of the housing crisis is to ignore the importance of mortgage type. The guy who tapped into his equity to take vacations and buy clothes is seen as a 'victim' of the banks. The absurdity of this idea bears no further comment, yet these people are among the ones NPR asks us to cry tears for.

Anonymous said...

New Century Financial had good practice since its next to the heavily hispanic and illegal immirgant cities of Santa Ana and Anaheim.

Anonymous said...

New Century's bankruptcy was not that big a deal by itself, and mainly indicated that big dumb foreign money from Germany, Japan, and China was no longer flowing into subprime. The better event was the collapse of two giant Bear Stearns hedge funds, then the company itself, a few months later.

The most direct way Hispanic immigration caused the rise and fall of the bubble was by causing white flight and tax increases to pay for local services.

The other cause was the smashing of the middle class, who borrowed money to make up for their decline in income, then suddenly stopped when the recession started, switched to paying down debt, and caused private spending to collapse. For this you can blame people like Mitt Romney, who took over companies, stripped their assets and fired their workers, stiffed their suppliers, raided their pensions, then either declared bankruptcy or resold the leveraged remains. Romney in a speech called this "harvesting" companies and is a good way to describe his perversion of capitalism.

Aging Hag said...

Must say, I am surprised at the Asian foreclosure rate. I wonder if they were part of the victim group.

BUT...In my admittedly limited experience with Koreans and Chinese, they have two qualities: one, no respect for private property and two, no loyalty to the US. Thus if they get into trouble, they can always fly the coop back "home."

The Koreans in particular were total slobs.

This is not true of the Japanese I've know, who are scrupulously polite and careful people.


Aging Hag said...

Further to my previous comment, I am amazed that the ruling class allows these data to be broken down by race, and publicized.

The only reason for this is that they believe it fits into a narrative of minority victimhood. The evil white patriarchal capitalists purposely ensnared innocent minorities for their own gain and profit.

Luke Lea said...

OT but there is a big story in NYT on the Roma. Steve has written about them in the past. How about again?

Aging Hag said...

I believe Prospect.org is a lefty website. Well, they have some intelligent commenters.

Have a look at this sob-story account of Prince Georges county:


It's the comments here that are worth reading. Even on a left-leaning website, most people "know" that personal responsibility is at the core of this mess.

Finally, first time home-buyers are notoriously inept at knowing certain things - such as property taxes. I have known some very bright people who grew up in apartments, who did not understand the concept of property taxes. I know the Sailer-sphere well, so I expect that the response will be, "if they don't know about property taxes, then they are dumb."

This isn't true. There is an old-fashioned renter mentality that just doesn't take things into account.

So, they buy a home and when they learn that they have to pay thousands of dollars a year, in perpetuity, they scream, "I didn't order this!"

They bought a home so that they didn't have to pay rent anymore - and they don't realize that, in addition to the constant upkeep on the house (not cheap) they must pay "rent" to the city, or municipality, not to mention mortgage payments.

Anonymous said...

What is beyond the pale goes by who is behind the power.

Luke Lea said...

All else equal, a country with lower average cognitive abilities be will be less productive, have lower wages, a lower standard of living, a lower rate of return on investment, a higher rate of incarceration, more social dysfunction, poorer services, less efficient organizations, be less powerful militarily, and in general will have less political and cultural influence in the world.

nooffensebut said...

"Interestingly, the Asian rate grew sharply over the course of 2009, almost catching up to the black rate."

I believe the Asian rate is inflated by the tendency of Asians who can afford it to avoid mortgages altogether. I know Asians who paid cash for their home because they hate debt.

Anonymous said...


Anonymous said...

You say that "Hispanics blew up and then popped the bubble" and you make a good case, but I had trouble seeing it at first. It's critical that foreclosures lag defaults and that the data points in the line graph are from January of each year.

There's a slide in the slideshow you linked to in Dr. Reid's name where she attempts to disentangle secondary, unemployment-induced foreclosures from primary ones and the results she presents are a little messier than the clean, intuitive picture you draw. In general, though, they do back you up.

If you want to lay the specific-level blame on Hispanics, it would make your case stronger to show the absolute numbers of foreclosures by race, not just the percentages within racial groups. If you want to lay the abstract-level blame on Diversity (which I think you're well on your way to doing convincingly), absolute numbers of foreclosures for all races, ideally with an estimate of the extent to which government influence inflated the numbers for minorities, is going to be necessary.

Torn and Frayed said...

We need to calculate totals instead of looking at percentages to get a real feel for the numbers.

I have assumed home ownership rates for the various races as 66% white, 17% Latino, 12% Black and 5% Asian.

Using the chart on Steve’s post I used a 5.6% foreclosure rate for whites, 11.8% for Latinos, 8% for blacks, and 7.6% for Asians.

Assuming a town with 100,000 mortgages, you would get the following total defaults per race; White, 3696, Latinos, 2006, Blacks 960, and Asians 380.

Certainly Latinos are not helping here, nor are the other minorities draping themselves in glory, but blaming this financial crisis on the bottom four hitters in your line-up when the first five sluggers sucked pretty badly as well just isn’t cricket.

DPG said...

Any idea what caused the dark red patch in Eastern Colorado/Western Kansas in 2007?

I'm trying to think of a company/industry in that part of the country that was in trouble prior to the recession, but nothing comes to mind.

Anonymous said...


Salon RANTS that if you disagree with 'gay marriage' even in the most genteel and reasonable manner, you are 'ranting'. But no matter how rabid and virulent and obnoxious and pushy you are in promoting 'gay marriage', you are a perfect gentleman.

Anonymous said...

Diversity is bad. And its bad to say its bad.

So strange....

Anonymous said...

OT, but there appears to be another hate hoax.

Chesterfield County police had investigated the fires as a possible hate crime because a racial slur had been painted on the house. Police believe 41-year-old Olander D. Cuthrell, who is black, painted the slurs on his home before he set it on fire.

Anonymous said...


The Myth that Japan is broken:

The World’s Largest “Debtor” Is Now the World’s Largest Creditor

Superman said...

The Asian vs. White rate is interesting. I'm guessing Asians were much more likely to use strategic default, dispensing with morality and honor in favor of calculated pragmatism.

alexis said...

Thoughts on Ebert, fellow movie critic?

Steve Sailer said...

"California is underregualted when it comes to lending money for houses."

You can also see the effects of state-level regulation by comparing Ohio (lots of foreclosures) to Pennsylvania (not as many). Ohio had more pro-lender regulations, so it got hit hard by defaults, even before the Bubble burst.

Anonymous said...

How about a chart of:

Government securities regulators by race and even religion

Bank CEOs by race

Mortgage investors by race.

Steve Sailer said...

"The Asian vs. White rate is interesting."

A lot of it has to do with location. Asians were more concentrated in California and its spillover states: e.g., lots of California Filipinos moved to Vegas, where they got into trouble.

Steve Sailer said...

"Certainly Latinos are not helping here, nor are the other minorities draping themselves in glory, but blaming this financial crisis on the bottom four hitters in your line-up when the first five sluggers sucked pretty badly as well just isn’t cricket"

But who came up to bat first in this inning?

Steve Sailer said...

"The guy who tapped into his equity to take vacations and buy clothes is seen as a 'victim' of the banks. The absurdity of this idea bears no further comment, yet these people are among the ones NPR asks us to cry tears for."

Right. On the other hand, cash-out refis were more an effect than a cause of rising home prices. It was the new demand to buy homes that drove up prices that allowed the refis that paid for rims and bottle service at Vegas night clubs. So, on an individual ethical level, the refi foreclosures tend to be more ethically derisible, on a systemic level, it was the expansion of the number of buyers (what Bush called for at his Increasing Minority Homeownership Conference) that increased demand, which increased prices. So, we need to bear this paradox in mind.

DPG said...

@Tom and Frayed

That's a good start to the analysis, but you're missing a few things.

1) Foreclosures were concentrated in areas that were heavily Hispanic. For example, Wikipedia states that Hispanics were 34% of California circa 2005.

This document (http://www.ppic.org/content/pubs/jtf/JTF_HousingJTF.pdf) states that homeownership was 48% among Hispanics in 2007. 34% of the population * 48% gets us to 17% of the entire population (not homeowning population, the entire population) being Hispanic homeowners. Your estimate of 17% of mortgage holders being Hispanic is probably way, way too low for the areas where foreclosures were the worst.

2) You have to pay attention to the timing. Hispanic foreclosures go from 1% to 6% during 2007-2009. White foreclosures go from about .5% to 2% during the same time frame. It's apparent in the graph. The other races move in parallel to each other, while Hispanic foreclosures go parabolic.

There's two big patterns: the local community and the macroeconomy/financial system.

At the local level, it played out like this: Hispanics move into the sun states. Brokers start hawking things like negative amortization mortgages to Hispanics that they might be able to pay if the bubble continues. Hispanics take over former white suburbs using these mortgages. Whites take out jumbo mortgages to escape the Hispanic neighborhoods and bank on price appreciation/refinancing to pay it off. Bubble bursts. Hispanic day laborers default. House prices decline. Whites lose their home equity. Eventually, they default.

At the macro level, the financial system pushed these mortgages hard. Banks took way too much risk on their balance sheets. Hispanics start defaulting. Banks with lots of exposure go under. Other banks panic. Liquidity dries up; the velocity of money, i.e. nominal money supply and GDP gets reduced. Economy goes into recession.

The bubble has plenty of causes: banker excess, GSEs, minority lending, general manufacturing/middle class stagnation that gave us nothing to fall back on. However, foreclosures in the sun states are probably the proximate cause. And that means you know who.

JeremiahJohnbalaya said...

We need to calculate totals instead of looking at percentages to get a real feel for the numbers.

I don't understand what the graph is depicting at all. The y-axis label "Percent of Outstanding Mortgages" is ambiguous.

In 2011, did Hispanics make up 12% of ALL outstanding mortgage loans. Or were 12% of all Hispanic loans outstanding?

Cail Corishev said...

Blaming this financial crisis on the bottom four hitters in your line-up when the first five sluggers sucked pretty badly as well just isn’t cricket.

As I understand Steve's position, he's not blaming the .195 hitter who struck out in the eighth spot in the batting order to lose the game. He's blaming the coaches who put a bunch of .195 hitters in the heart of the order, using the excuse that it wasn't fair to keep making them bat at the bottom, and then acted surprised when the team's offensive output fell.

Steve Sailer said...

Or the manager took his four utility infielders and started them at DH, first base, left field, and right field, and batted them leadoff through clean-up.

Cail Corishev said...

To continue the baseball metaphor: it's as if a manager said, "I know these .195 hitters on the bench aren't really that bad. If they just got to play every day, they'd hit just as well as the big-name stars. All I have to do is start them high in the order, and they'll rise to the occasion. Anyone would, so it's only fair they get their chance."

Making sure everyone gets equal turns at bat and on the pitching mound might make sense for your neighborhood tee-ball league, but not for the majors, and not for passing out mortgages.

Pat Boyle said...

My guess is also that the Asians might mean SouthEast Asians (Thais, Filipenos, and Vietnamese) rather than East Asians (Chinese, Koreans and Japanese). It would be a reporting reform if these two groups could be separated.

There may be movement on the similar ethnic group/race reporting issue around Hispanics.

Yesterday I bought a rifle - not the one I wanted but the one they still had. In the massive paperwork I had to identify myself. There were two types of whites - Hispanic and non-Hispanic. I didn't check out if they have Hispanic and non-Hispanic blacks also.

I'm not quite sure why they gather racial data on gun purchases at all.

I don't expect the categories to ever become completely rational until the public terminology itself becomes more rational.

Nowadays I think the only people who check Amerindian are tribal members, many of whom live on reservations. Antonio Villaraigosa is predominantly Amerindian but I think he's classified as white - now maybe Hispanic White.

Almost all of the illegal alien workers I used to hire for yard work spoke Mayan. So why do we call them Hispanics at all? I took Spanish in high school - they didn't. I could probably speak Spanish as well as they do if I watched Spanish TV for a couple months. That's how they learned.


Anonymous said...

Notice that the curves for Hispanic and Asian rates parallel each other, just as the curves for Black and White rates. My take is that Hispanics and Asians mortgages were concentrated in the sand states, whereas the Black and White mortgages were more widely dispersed, which would imply bigger mortgages that were harder to maintain. That's why you the sharp increases towards the end.

Anonymous said...

In 2011, did Hispanics make up 12% of ALL outstanding mortgage loans. Or were 12% of all Hispanic loans outstanding?

It would have to mean the latter since the figures don't add up to anywhere near a 100. My question is percentage in number or dollar value?

fsascott said...

@ Aging Hag - you wrote: "Further to my previous comment, I am amazed that the ruling class allows these data to be broken down by race, and publicized."

The data are undoubtedly a byproduct of the Home Mortgage Disclosure Act (HMDA) which requires lenders to keep detailed records of all loan applications, whether approved or denied, including information on the race of each applicant. The intent of this recordkeeping is to enable compliance examiners to discern "disparate impact" in the treatment of applicants, for which the lender can be penalized.

It is, of course, purely an accidental consequence that the same data, when cross-referenced against loans that were approved, but have turned out to be non-performing, reveal these differing racial and ethnic patterns. That someone at a regional Federal Reserve Bank went to the trouble of analyzing the information for internal purposes is not particularly surprising. But that the results should be made public - one can only say "whoops!"

JeremiahJohnbalaya said...

[me]In 2011, did Hispanics make up 12% of ALL outstanding mortgage loans. Or were 12% of all Hispanic loans outstanding?

[anon]It would have to mean the latter since the figures don't add up to anywhere near a 100.

I guess I was blown away by the idea that almost 1 in 8 loans to Hispanics could really be in foreclosure.

Torn and Frayed said...


You make good points about refining the demographic mix. I took the simplest approach (demographics of the US as a whole) but your approach of concentrating on the bubble states is sound. I think the number could be rerun to bring the total defaults between white and Latinos to a very similar number. This fact could be used to argue against “Affirmative Finance” as Steve is doing, but what I worry about is the idea morphing into an argument that the high Latino rate caused the entire housing bubble to pop.

On the macro we have to examine why a bubble was blown in the first place. To me the explanation is clear. The process is Globalisation, the outsourcing of high-wage jobs to third world countries combined with the insourcing of low-wage third world labor to take the jobs that cannot be moved, is inherently deflationary to the Western world. The rupture in the relationship between production and consumption can only be a temporary one because without a paycheck, the average chump will be only be able to consume what his food stamps allow him to. But US global power is based in no small part in serving as the consumer of last resort for the world and besides, if the ill effects of globalisation were felt too directly then political movements might arise against the insanity of offshoring / inshoring pincer movement that is undermining the working and middle classes (as we see rising in Europe now).

And besides, China was sitting on a ton of cash. So the obvious answer is to replace those long-gone pay checks with easy credit. That way a chimerical wave of prosperity would coincide with the wave of vibrancy flowing over the borders and the more treasonous elite could claim to the less bright among the population that the two are related. The FIRE industries hugely benefitted from “churn” created in the housing market (which you described well) and low-achieving blacks were relieved from pressure to perform low-level service work and were freed up to live the thug’s life in da hood.

But the housing bubble was always going to collapse. In high-rise construction the controlling loads to constrain the height of a building are not the more obvious and constant gravity loads but instead are the more difficult to understand and sporadically occurring lateral (wind, seismic) loads. It is quite possible to build a tower much higher than it should be as long as those lateral loads do not occur. The tower can go higher and higher and everyone benefitting can look down from the 80th floor and laugh at the engineers who said they should stop at the 50th. But sooner or later the heavy winds come and the whole thing falls down. Now we can spend a lot of time analysing whether it was the Hispanic floors, or the Asian one, or even the White floors that collapsed first. But to me the more interesting discussion are the underlying conditions that created the insanity in the first place.

Anonymous said...


Anonymous said...

"Notice that the curves for Hispanic and Asian rates parallel each other, just as the curves for Black and White rates." Good observation.

Many of the commenters can't reconcile their unreal idea of Asians with what the statistics say so they do their best to wish them away. The largest Asian population in the US is Chinese.

Anonymous said...

Fellow readers might consider that the Asian rate seems counter -intuitively high. I believe this is not Asians defaulting on their homes, but on investment properties/speculation.

lelnet said...

When did they move Detroit to central Michigan?

(Seriously...the parts of Michigan that are darkest in that first map? There are basically no black people living there. Metro-Detroit's the green part in the lower right corner. The 2007 map does not make a persuasive case that this is about race.)

It's a handy narrative, but if one knows anything about the demographics of the Great Lakes region, that map just doesn't fit it. The dark areas aren't the ones where the underclass lives...they're the ones where the speculators were buying up real estate for more than any sane person could possibly have believed it was worth.