Why would minority communities get fewer mortgages than white communities since the financial crisis? What did you say? That couldn’t be true in our post-racial America. Well think again my white friends because that isn’t what Reuters is reporting this morning:
According to the study, prime lending in communities of color from 2006 when the foreclosure crisis began to 2008 — the most recent year for which data are available — decreased 60.3 percent compared to 28.4 percent in largely white areas.
“The financial crisis has led to significantly reduced access to mortgage credit for all borrowers and communities,” the report states. “In neighborhoods of color, however, where the foreclosure crisis has taken an especially severe toll, access to prime, conventional mortgage loans has declined precipitously — to a much greater degree than in predominantly white neighborhoods.”
The report also examines the lending patterns of America’s four top banks: Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, and Wells Fargo.
While all four banking groups increased their prime refinance lending to white neighborhoods from 2006 to 2008, the report found that only Citigroup increased lending to minority communities — though by far less than to white areas.
The study conducted by a collaboration among seven non-profit advocacy groups looked at the housing markets in “Boston, New York, Chicago, Los Angeles, Charlotte, North Carolina, Cleveland, Ohio and Rochester, New York” for the years 2006-2008 (ie., from the beginnings of the housing crisis through the last year, 2008,for which data is available). Isn’t it interesting that new mortgages in white communities declined by 28.4% but new mortgages in minority communities declined by more than twice as much: 60.3%. Gee, I wonder why?
What was even more striking was the fact that the four largest banks in the country and the largest recipients of the Federal Government’s bail out funds(Bank of America, Citibank, JP Morgan and Wells Fargo) actually increased their re-financing of mortgages in white communities during this time while decreasing refinancing to minority communities:
Between 2006 and 2008 the share of prime refinance loans made in communities of color dropped 35% whereas the share of these loans made in predominantly white communities increased 11%.
So there was a significant gap between refinanced mortgage loans if you were white versus non-white in these seven cities. The color of your skin clearly made a huge difference as to whether one of these “Too Big To Fail” banking institutions to which our Government in the waning days of the Bush administration handed out billions of dollars “no questions asked” to keep them from going under.
Let’s consider the implications of those statistics, shall we? When these big banks started cutting back on their loans for residential mortgages they cut off the “colored people” first, but kept lending to white folks.
And I think its a fair assumption that the number and amount of mortgages written to whites far outstrips the number and dollar amount of mortgages written to non-whites. That’s just a simple mathematical calculation: Demographically, whites are the majority of people in the US of A. According to the last US Census Bureau estimates for 2008, white Americans (of non-hispanic origin) constituted 65.6% out of a total population of roughly 307 million people. That’s just under 200 million white people.
Furthermore, according to US Census statistics from 2005 (the last year the US Census lists statistics for home ownership) 75% of non-Hispanic whites were homeowners. Compare that with only 48.2% of Blacks and 49.5% of Hispanic/Latinos who were homeowners. And these are figures fro the peak or near the peak of the housing boom.
So whites represent 65.6% of Americans as of 2009, blacks represent 12.8% of the US population and Hispanics represent 15.4%. I know this isn’t precise but those figures suggest that of the total number of American homeowners during this period, just less than 50% of homeowners were whites, while around 6% of blacks and nearly 8% of Hispanics were home owners. Yet somehow it was this 14% of minority homeowners who were considered the problem when the housing bubble started to lose air?*
* {To simplify matters I did not include data for Asians and Native Americans, but if you go to the links I cited you can find that information out for yourself. In short the Native American and Asian rate of home ownership is roughly 60%, while combined those two groups make up just under 6% of the overall population. Of the seven cities studied I doubt they make up a significant portion of the minority population}
Furthermore, one of the major drivers of the housing bubble were the number of multiple homes that were purchased not as principal residences but purely by people speculating on a continued rise in residential home prices.
Speculative borrowing in residential real estate has been cited as a contributing factor to the subprime mortgage crisis. During 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchases were not intended as primary residences. David Lereah, NAR’s chief economist at the time, stated that the 2006 decline in investment buying was expected: “Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market.” [footnotes deleted]
I’m just guessing here, but I would bet my house that the majority of those homes purchased strictly for investment purposes were not purchased by Blacks or Latinos. So what we had in 2006-2008 were banks that were beginning to write fewer mortgages, bit it was the smallest group of borrowers to whom they looked to reduce their new lending. And as for re-financing of existing mortgage loans, they actually increased that type of financing to whites while decreasing it for minorities.
Now some might (and many conservative columnists have) claimed that this was solely the effect of a logical and purely business justification: minorities, especially poor minorities (to whom the poor banks were forced to loan under the Community Reinvestment Act) were more likely to default on these loans. Therefore, why not decrease lending to them? As Michael Corleone once said: “It’s not personal; it’s strictly business.”
There’s only one problem with that “theory.” It’s not true. In fact it has little if any basis in fact:
The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.
Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.
Third, lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York’s outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project’s 3,900 homes. That’s a rate of 0.25 percent.
It wasn’t all those poor blacks and Latinos who caused the monumental real estate bubble we saw in the years 2000-2007 (there just weren’t enough of them to go around). So if white borrowers dominated the market for new mortgages and refinanced mortgages, why did these megalithic “TARP banks,” who took all our money to make up for their losses trading risky derivatives and pay their executives millions in bonuses while refusing to lend that money we gave them to ease the credit crunch and the recession it caused, decide to screw over the minorities and encourage others to blame them for the mess we find ourselves in?
I think you know the answer.
