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From the Orange County [CA] Register:

Hispennials? Hispanic millennials called the future of home buying

By MARGOT ROOSEVELT | | Orange County Register
PUBLISHED: December 22, 2017 at 5:45 am | UPDATED: December 29, 2017 at 12:23 pm

… Real estate professionals call them “Hispennials.” The label, a mash-up of Hispanics and millennials, defines a group of consumers, aged 20 to 36, which the housing industry is eagerly courting.

“If you look at the Latino population, their demographic is younger and they are just starting to buy homes,” said Rick Arvielo, CEO of Tustin-based New American Funding, a fast-growing lender with 35 offices in Southern California.

“Millennials and Hispennials are the biggest waves in home buying.”

Today, just 45 percent of Latinos in the U.S. own homes, 20 percentage points lower than the home ownership rate of non-Hispanic whites.

But that’s changing quickly. Last year, Latinos accounted for 75 percent of the net growth in overall home ownership. Their numbers grew by 209,000 to a total of 7.3 million, according to the National Association of Hispanic Real Estate Professionals.

“The Hispanic market has outgrown the ‘niche’ segment designation,” the San Diego-based trade group asserted in its annual report.

And a study by the Housing Policy Finance Center of the Urban Institute, a Washington, D.C.-based think tank, makes this prediction: By 2030, Latino families will comprise 56 percent of all new homeowners.

For Hispennials, who generally have lower credit scores than non-Hispanic whites, and less help from prosperous relatives for down payments, buying a home is far from easy. And the Urban Institute warns that for the overall housing market to remain prosperous, Latinos must gain more access to credit.

“The face of the nation is changing, and our housing market will inevitably change with it,” they wrote.

“It will either do so by contracting, because it cannot accommodate a larger and larger percentage of our citizens, or it will do so by becoming more inclusive because we have found ways to bring a more diverse profile of borrower into the system.”

Big banks are stepping up.

In 2015, Wells Fargo, the nation’s largest mortgage originator, pledged to lend $125 billion to Latinos over 10 years and grow the number of Hispanics on its sales teams.

This is exactly what George W. Bush, Henry Cisneros, Angelo Mozilo of Countrywide Financial, and Kerry Killinger of Washington Mutual were exulting about Hispanics and homebuying fifteen years ago.

How’d that work out anyway?

But who can remember back that far?

Remembering is racist.

• Tags: Mortgage, Real Estate 
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From the CBS station in Richmond, VA:

Millions will be spent to help black homeowners after investigation revealed inequity
POSTED 12:32 PM, JULY 17, 2017, BY SCOTT WISE,

Millions will be spent to help black homeowners after investigation revealed inequity

RICHMOND, Va. — Millions of dollars will soon be spent in Richmond to help increase the number of African-Americans homeowners. A newly announced partnership between Housing Opportunities Made Equal of Virginia, Inc. (HOME) and Wells Fargo will provide $4 million to help close the racial home ownership gap.

“Differences in homeownership between African Americans and white Americans are the foundation of wealth inequality in Richmond and across the country,” HOME president and CEO Heather Crislip said. “HOME is committed to rooting out these differences in opportunity to reduce racial gaps and inequities and build a strong middle class.”

The partnership between HOME and Wells Fargo was created after HOME investigated mortgage lending activity and had concerns about under-service in minority communities by Wells Fargo in Richmond.

A 2015 study HOME did on lending discrimination for the City of Richmond found the following:

1. White borrowers comprised the largest segment of home purchase and refinance loan activity in the city.

Between 2010 and 2013, white borrowers accounted for 1,243 home purchase loan originations; black borrowers accounted for 112 loan originations; and Hispanic borrowers of any race accounted for just 24 home purchase loan originations.

White borrowers also comprised the largest share of the refinance loan market, accounting for 2,720 loan originations.

Black borrowers accounted for 382 refinance loan originations, and Hispanic borrowers accounted for 46 originations.

The vast majority (1,464) of refinance loans went to upperincome white borrowers; this group accounted for 53.8 percent of all loan originations to white borrowers.

2. Significant disparities exist in the origination and denial rates of all loan types based on the race/ethnicity of the applicant. For home purchase loans, white borrowers exhibited a 48.2 percent origination and 13.7 percent denial rate, while black borrowers exhibited a 25.8 percent origination rate and 34.6 percent denial rate.

For refinance loans, white borrowers exhibited an origination rate of 40 percent and denial rate of 32 percent. The rates for African-American borrowers were the inverse; the origination rate was 24 percent and denial rate 52 percent.

3. Borrower income does not account for the disparities in loan outcomes exhibited by applicant race/ethnicity. The disparity in home purchase loan origination rates between black and white applicants increased from 9.9 points for low-income borrowers to 27.5 points for upper-income borrowers.

Black applicants, regardless of income, were less likely to receive a home purchase loan.

The disparity in origination rates for refinance loans between black and white borrowers increased from 9.3 percentage points to 23.9 percentage points among upper-income borrowers. Black applicants, regardless of income, were less likely to receive a refinance loan.

Hence, disparate impact.

Of course, blacks and Hispanics have, all else being equal, much higher default rates during crises. But you aren’t supposed to know that.

Some things I discovered back in 2008:

- There are a gigantic number of these type of “fair housing” NGOs across the country. One national association of them had over 600 organizations as members.

- A lot of these NGOs fighting white racism in mortgage lending are run by white people like Ms. Crislip.

- A $4 million payoff is a lot to an NGO, but is a minor cost of doing business to one of the Four Big Banks like Wells Fargo. The mortgage market is so big that the word “trillions” comes up: for example, in January 2005, Countrywide Financial launched the metastasization of the Housing Bubble when Angelo Mozillo, having attained agreement from Fannie Mae to buy his dubious mortgages, announced his plan to lend One … Trillion … Dollars to minority and lower income borrowers by 2010.

- The Obama Administration had lots of schemes to rake off mortgage money to its allies in these kind of NGOs that search out examples of disparate impact and trumpet them until they get paid off.

- Of course, the real problem is when all the control systems in society are set up to nudge lender decisionmaking to the left by blocking any errors or even corrections to the right. Eventually, as happened during the housing bubble, years of prodding by the Bush Administration, the NGOs, the media, etc. to lend more to blacks and Hispanics left a lending industry that actually believed that it could Get Rich Quick by cutting traditional down payment and documentation standards that had disparate impact on blacks and Hispanics.

- The long term problem is that because Diversity is our Sacredest Cow, nobody can allow themselves to even notice what happened a decade ago. How many Americans are conceptually equipped so that they can make sense of what is behind this kind of article?

• Tags: Mortgage, Real Estate 
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Economist Robert J. Shiller writes in the NYT:

How Tales of ‘Flippers’ Led to a Housing Bubble
Economic View

There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.

But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through “flipping” houses and shares of initial public offerings — that constitute the shifting mentality of the era.

I don’t doubt that shows on TV about flipping houses played a role. But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11, and yet Dr. Shiller himself, perhaps the leading housing economist, is still pretty hazy on how it happened.

I would suggest that one reason economists are still so baffled by what happened is because one obvious partial contributor to the fiasco — immigration / diversity — is a Sacred Cow. So without grappling with things like the Bush Administration’s Ownership Society and anti-downpayment, anti-documentation Increasing Minority Homeownership initiatives, you can’t get close to the full story.

But it’s safer, careerwise, to remain puzzled, so they do.

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Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” But what if you haven’t forgotten because you never had a clue?

From the MSNBC-Telemundo Town Hall this evening in Las Vegas, here’s Hillary sounding much like George W. Bush in 2002-2004:

TODD: Secretary Clinton, we’re going to talk about housing. You brought it up, it’s been brought up, it’s a big problem here in Nevada here. This was the top state in the country for foreclosures during the crisis. Francisco Morales here has a question for you.

QUESTION: First of all, I’d like to thank you for your lifelong commitment to the Democratic party, and comprehensive immigration reform.


CLINTON: Thank you, thank you, thank you.

QUESTION: But, as you know, many hispanics, for many hispanics, achieving home ownership is synonymous to achieving the American Dream. Many of our families were hit particularly hard during the great recession and housing bust. What would a Clinton administration do to ease the fears of home ownership among our community?

CLINTON: Well. I know how hard hit Nevada was. I think the highest rate of foreclosures? You still have a lot of houses underwater, meaning that, you know, the value is not equal to what you had to pay for it, and what the mortgage principal and interest are.

I take that very seriously, so here’s what I want to do. I want us to move in any way we can in the federal government to help relieve the burden of already existing homeowners. I don’t want the kind of wave of foreclosures that struck this state ever again to happen.

Secondly, we want to provide more help so that more homeowners, hispanic homeowners, African American homeowners, those who want to be, have access to better credit, and better support.

You know, credit has tightened up in ways that are just not fair, you know? You are three times more likely to be able to get a mortgage if you’re a white applicant than if you’re black or hispanic, even if you have the same credentials, and you’re presenting it to the people who are looking at it.

That has to end. I will go after that kind of discrimination and bigotry with everything I’ve got using every housing authority, the Justice Department, the U.S. attorney. We’re not going to have this kind of bigotry.

You know, I’m running to knock down all the barriers that stand in the way of people getting ahead. So we’re going to make that possible.

And, of course, we’ve got to get incomes up so you have more of a chance to save for that down payment, and you have got a better chance to actually get in a home and stay there.

That last sentence isn’t as bad as the rest.

So I’m going to use every tool at my disposal to make that dream a reality again.

QUESTION: I actually purchased a home six months ago and I can relate because the amount of hoops that I had to jump as a 24-year-old Hispanic were just unprecedented. So thank you for that.

Can you rent a car at age 24?

CLINTON: Yes. And I’m telling you, if you were not Hispanic, you would not have had as many hoops. That has to end. It’s not right and fair.


DIAZ-BALART: Thank you very much.

And here’s George W. Bush at the White House Conference on Increasing Minority Homeownership, October 15, 2002:

How’d Bush’s plan to add 5.5 million minority homeowners by loosening up on down payments and documentation work out anyway?

By the way, one consistent pattern when you read up on the history of the Housing Bubble is how central Las Vegas was to what I called in 2008 “The Vegas Decade.”

• Tags: Mortgage 
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Here’s a reasonably even-handed news article from the Wall Street Journal by Bob Davis with some interesting if not wholly reliable statistics:

The Thorny Economics of Illegal Immigration
Arizona’s economy took a hit when many illegal immigrants left, but benefits also materialized

Updated Feb. 9, 2016 10:49 a.m. ET

MARICOPA, Ariz.—After Arizona passed a series of tough anti-immigration laws, Rob Knorr couldn’t find enough Mexican field hands to pick his jalapeño peppers. He sharply reduced his acreage and invested $2 million developing a machine to remove pepper stems. His goal was to cut the number of laborers he needed by 90% and to hire higher-paid U.S. machinists instead.

“We used to have many migrant families. They aren’t coming back,” says Mr. Knorr, who owns RK Farms LLC, an hour’s drive from Phoenix.

Few issues in the presidential campaign are more explosive than whether and how much to crack down on illegal immigration, which some Republican candidates in particular blame for America’s economic woes. Arizona is a test case of what happens to an economy when such migrants leave, and it illustrates the economic tensions fueling the immigration debate.

Economists of opposing political views agree the state’s economy took a hit when large numbers of illegal immigrants left for Mexico and other border states, following a broad crackdown. But they also say the reduced competition for low-skilled jobs was a boon for some native-born construction and agricultural workers who got jobs or raises, and that the departures also saved the state money on education and health care. Whether those gains are worth the economic pain is the crux of the debate. …

Between 2007 and 2012, Arizona’s population of undocumented workers dropped by 40%—by far the biggest percentage decline of any state—according to the Pew Research Center, a nonpartisan think tank whose numbers are cited by pro and anti-immigration groups.

I am agnostic about all estimates of the size of the illegal alien population. I simply don’t know how to estimate these numbers reliably, and I’m not persuaded Pew does either.

Moreover, the size of the anchor baby population is the real concern, but that seldom gets counted when the number of “undocumented workers” (many of whom don’t work) is guesstimated.

California, the biggest border state, lost just 12.5% of its illegal immigrants during that time period. Since 2012, Arizona’s illegal-immigrant population hasn’t grown much, if at all, according to state economists and employers and preliminary data from Pew. Since 2007, about 200,000 undocumented immigrants have left the state, which has a population of 6.7 million.

The cost of illegal immigration has been a big political issue in Arizona for years. But pinning down exactly how much it costs the state, and how much is collected from illegal immigrants through taxation, is surprisingly hard to do. The state doesn’t count it. Estimates vary widely, depending in part on debatable issues such as whether to include the cost of educating U.S.-born children of illegal immigrants.

Why not?

Moody’s Analytics looked at Arizona’s economic output for The Wall Street Journal, with an eye toward distinguishing between the effects of the mass departures of illegal immigrants and the recession that hit the state hard beginning in 2008. It concluded that the departures alone had reduced Arizona’s gross domestic product by an average of 2% a year between 2008 and 2015. Because of the departures, total employment in the state was 2.5% lower, on average, than it otherwise would have been between 2008 and 2015, according to Moody’s.

According to Michael Lewis’s The Big Short, Arizona was one of the four “Sand States” (along with Nevada, California, and Florida, to use the collective noun devised by Wall Street wits), where the Housing Bubble of 2003-2006 was centered. Is it just a coincidence that the vast majority of price declines in the value of housing before unemployment rose nationally in response to the popping of the bubble were in the four Sand States?

A huge question is: how much did immigration, current or recent, contribute to the Housing Bubble, which happened to be centered in four states with huge Hispanic immigration numbers and limited land for development? My impression from a wide variety of data sources, such as federal Home Mortgage Disclosure Act data and about a dozen studies of default rates by ethnicity, was that the Sand State Housing Bubble was based in significant measure on the circular reasoning that importing lots of cheap illegal aliens to build houses for people trying to get their kids away from having to go to school with the children of illegal aliens was a sustainable economic proposition.

But that’s not a popular opinion.

The recession, of course, also hurt the state’s economy. Mr. Hanson, the immigration economist, said the economic downturn led many migrants to leave.

Sure, but if the Sand State Housing Bubble of 2003-2006 was in sizable measure also an Immigration Bubble, then the Housing Bubble is what had previously caused many migrants to come. Yes, this is circular reasoning, but circular reason is one big way you get bubbles.

Economic activity produced by immigrants—what economists call the “immigration surplus”—shrank because there were fewer immigrants around to buy clothing and groceries, to work and to start businesses.

These days, construction, landscaping and agriculture industries, long dependent on migrants, complain of worker shortages. While competition for some jobs eased, there were fewer job openings overall for U.S.-born workers or legal immigrants.

According to the Moody’s analysis, low-skilled U.S. natives and legal Hispanic immigrants since 2008 picked up less than 10% of the jobs once held by undocumented immigrants. In a separate analysis, economists Sarah Bohn and Magnus Lofstrom of the Public Policy Institute of California and Steven Raphael of the University of California at Berkeley conclude that employment declined for low-skilled white native workers in Arizona during 2008 and 2009, the height of the out-migration. One bright spot: the median income of low-skilled whites who did manage to get jobs rose about 6% during that period, the economists estimate.

Arizona’s population of illegal immigrants grew nearly fivefold between 1990 and 2005, to about 450,000, according to Pew Research. Starting around 2004, the state approved a series of measures, either by ballot initiatives or legislation, aimed at discouraging illegal immigration. Undocumented immigrants in Arizona, about 85% of whom came from Mexico, are barred from receiving government benefits, including nonemergency hospital care. They can’t receive punitive damages in civil lawsuits. Many can’t get drivers’ licenses and aren’t eligible for in-state tuition rates. Arizona developed a national reputation for tough enforcement of the rules.

Some current Republican presidential contenders also take a tough line on immigration. GOP front-runner Donald Trump backs a “deportation force” to send home those here illegally, and he wants to build a wall on the Mexican border to keep out others. Texas Sen. Ted Cruz also wants a wall and would end Obama administration measures that have halted deportations of many undocumented workers.

On the Democratic side, former Secretary of State Hillary Clinton and Vermont Sen. Bernie Sanders would allow illegal immigrants already here to become citizens, and would continue the Obama administration policies.

Arizona’s immigration flow started to reverse in 2008 after the state became the first to require all employers to use the federal government’s E-Verify system, which searches Social Security records to check whether hires are authorized to work in the U.S. That law coincided with the collapse of the construction industry and the recession.

The first subprime lender failures (e.g., New Century Financial in Orange County, CA) were in the late winter of 2007. It would be interesting to determine if democratic action in Arizona had any effect on the financial markets opinion of the viability of subprime lenders like New Century.

In summary, if you are measuring Arizona’s economic performance, if you use 2007 as your baseline, you start with numbers inflated by the Great Housing/Immigration Bubble.

The combination persuaded many illegal immigrants to leave for neighboring states or Mexico.

In 2010, as the state economy began to recover, the Legislature stepped up pressure. Under a new law, SB 1070, police could use traffic stops to check immigration status. Another section of the law, later struck down by the Supreme Court, made it illegal for day laborers to stand on city streets and sign up for work on construction crews.

“It was like, ‘Where did everybody go?’ ” says Teresa Acuna, a Phoenix real-estate agent who works in Latino neighborhoods. Real-estate agent Patti Gorski says her sales records show that prices of homes owned by Spanish-speaking customers fell by 63% between 2007 and 2010, compared with a 44% drop for English-speaking customers, a difference she attributes partly to financial pressure on owners who had been renting homes to immigrants who departed.

Over the years, I’ve posted quite a few academic studies of default rates by ethnicity, all showing that Hispanics had much higher foreclosure rates.

… On the other side of the economic ledger, government spending on immigrants fell. State and local officials don’t track total spending on undocumented migrants or how many of their children attend public schools. But the number of students enrolled in intensive English courses in Arizona public schools fell from 150,000 in 2008 to 70,000 in 2012 and has remained constant since. Schooling 80,000 fewer students would save the state roughly $350 million a year, by one measure.

During that same period, annual emergency-room spending on noncitizens fell 37% to $106 million, from $167 million. And between 2010 and 2014, the annual cost to state prisons of incarcerating noncitizens convicted of felonies fell 11% to $180 million, from $202 million.

“The economic factor is huge in terms of what it saves Arizona taxpayers,” primarily on reduced education costs, says Russell Pearce, who as a state senator sponsored SB 1070.

Worker shortage

As the Arizona economy recovered, a worker shortage began surfacing in industries relying on immigrants, documented or not. Wages rose about 15% for Arizona farmworkers and about 10% for construction between 2010 and 2014, according to the Bureau of Labor Statistics. Some employers say their need for workers has increased since then, leading them to boost wages more rapidly and crimping their ability to expand.

Before the immigration crackdown, Precise Drywall Inc., of Phoenix, would deploy 50 people for jobs building luxury homes.

What percentage of these “luxury homes” buyers defaulted on their mortgages?

“I could pull out phone books where I had 300 or 400 guys’ numbers” to fill out crews, recalls company President Jeremy Barbosa. No longer. Many immigrants left and haven’t returned, while other workers moved on to other industries. …

The labor shortage has caused some wages to rise. Carlos Avelar, a placement officer at Phoenix Job Corps, a federal job-training center, says graduates now often mull two or three jobs offers from construction firms and occasionally start at $14.65 an hour instead of $10.

At DTR Landscape Development LLC, the firm’s president, Dick Roberts, says he has increased his starting wage by 60% to $14.50 an hour because he is having trouble finding reliable workers.

Is it really all that terrible that Americans with no academic skills can now scrape out a living by the sweat of their brows?

• Tags: Mortgage 
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This Super Bowl Rocket Mortgage commercial seemed to be aimed at regulators and politicians as much as borrowers. It was vaguely reminiscent of George W. Bush’s speech at the 2002 White House Conference on Increasing Minority Homeownership and Angelo Mozilo’s 2003 Harvard address about how Bush’s regulators should get the message that old-fashioned standards on down payments and documentation are old-fashioned downers.

Still, it was interesting that 13-years ago, Bush and Mozilo played the race card a lot harder in arguing for hog-wild lending as necessary for racial equality, while this time Quicken used old postwar Keynesian “Good for the Economy” rhetoric in arguing for 8-minute mortgages.

On the other hand: the fact that a side effect of the White Death is constipation didn’t seem to cause the makers of a pill for opioid-induced constipation any worries about political reaction:

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From my movie review in Taki’s Magazine:

The Bubble, Hollywood-Style
by Steve Sailer

December 16, 2015

The Big Short, a comedy starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt as finance-industry renegades betting against the Housing Bubble in 2005–08, is another in the rather improbable new genre of nonfiction feature films that display the business world with more complexity than Hollywood dared before this decade. Based on the 2010 best-seller by Michael Lewis, the king of Frequent Flyer books (e.g., Moneyball and The Blind Side), The Big Short pushes the envelope of just how many acronyms for abstract financial instruments (such as MBS and CDO) a popcorn-eating audience can digest.

Read the whole thing there.

• Tags: Mortgage, Movies, Real Estate 
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From the Business Section of the New York Times:

Study Strongly Links Baltimore Mortgage Denials to Race
By PETER EAVIS NOV. 16, 2015

The black population of Baltimore is double that of the white population. Yet in 2013, banks made more than twice as many mortgage loans to whites in the city as they did to blacks.

Baltimore blacks were long dogged by malicious stereotypes spread by The Wire, but their behavior in 2015 — first rioting, then murdering each other in large numbers — has demonstrated their financial trustworthiness. How delusionally racist are lenders to not see that houses in Baltimore black neighborhoods are sure bets?

The stark difference in mortgage lending, derived from the most recent government mortgage data, is the focus of a new study that will be released on Tuesday by the National Community Reinvestment Coalition, a consumer advocacy group.

Given that the government does not collect certain important types of data on borrowers, researchers have long found it difficult to determine the degree to which race affects mortgage lending.

Still, the coalition says its analysis shows that the racial makeup of a neighborhood — and not income, for instance — is the most significant predictor of whether a loan gets made in Baltimore.

Exploring the causes of the economic differences between blacks and whites in Baltimore has taken on an added urgency after the protests and riots in the city this year. The unrest followed the death in April of Freddie Gray, who died after suffering a spinal cord injury in police custody. Unemployment is higher than the national average in Baltimore, and particularly so among younger blacks in the city.

“If lenders are not making loans in a community, the opportunities for people to work their way out of poverty is pretty slim,” said John Taylor, the coalition’s president. “In Baltimore, the prevailing factor behind who gets a mortgage is the racial composition of the neighborhood.”

… Still, it has long been the case that the rate at which blacks get denied a mortgage is higher than that for whites. In 2013, for instance, blacks were denied on 25.5 percent of their applications for mortgages to purchase a home, compared with 12.2 percent for whites, according to an analysis of the government mortgage data by the Federal Reserve. The higher denial rate for blacks might, for instance, be explained by differences in credit history and the amount of money that borrowers can put down as a deposit.

Indeed, according to the Fed’s analysis of the government mortgage data from 2013, banks said credit history was the reason behind 30 percent of their denials of black borrowers. For whites, banks said it was the cause in 22.5 percent of the cases.

Still, the reasons for the high rate of denials remain murky.

Here’s a suggestion: the high rate of defaults by blacks.

As a result, questions will continue to hang over the high denial rate for blacks and the low level of lending in neighborhoods where blacks or other minorities are the majority. And these questions were in part behind the coalition’s analysis of Baltimore, a city that has in the past suffered from redlining — the term given to policies and practices that made it very difficult for blacks to obtain mortgages or take out home loans at the same terms as whites.

I’m fascinated by the lack of cognitive integration apparent these days. For example, like everybody else who reads the NYT, I watched The Wire. One obvious implication of the celebrated TV show is that you ought to be very cautious about lending money to homebuyers in that violent place. But nobody seems anymore able to perform elementary acts of mental integration of knowledge.

Likewise, everybody knows that the Foreclosure Crisis was hard on blacks. But nobody seems to know that that’s just another way of saying blacks defaulted on their debts a lot.

• Tags: Mortgage, Real Estate 
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In the last few years, New Deal era “redlining” has come to be seen as one of America’s most horrific historic sins, on par with slavery, due to the profound research of America’s foremost public intellectual, Genius T. Coates, who made FHA redlining central to his argument for massive reparations to blacks.

Not surprisingly, there exists a symbiotic relationship between the obsessions of the Obama Administration and of Coates.

From the New York Times:

‘Redlining’ Home Loan Discrimination Re-emerges as Concern for Regulators

NEWARK — The green welcome sign hangs in the front door of the downtown branch of Hudson City Savings Bank, New Jersey’s largest savings bank. But for years, federal regulators said, its executives did what they could to keep certain customers out.

They steered clear of black and Hispanic neighborhoods as they opened branches across New York and Connecticut, federal officials said. They focused on marketing mortgages in predominantly white sections of suburban New Jersey and Long Island, not here or in Bridgeport, Conn.

Screenshot 2015-10-30 14.32.49

Apple Stores

In complete contrast to, say, Apple Stores, which can be found all over the South Bronx and the ungentrified parts of Brooklyn.

Oh, wait, sorry, no, Apple Stores can’t actually be found in poor neighborhoods in New York. It’s fine for Apple, the richest company in the world with something like $200 billion in unused cash sitting around, to do business where it thinks best, but banks are subject to federal regulatory oversight.

(By the way, it looks as if there are seven Apple Stores in Manhattan south of 76th street and about two or three in the Outer Boroughs, even though the Outer Boroughs have about 80% of NYC’s population. That’s actually a sizable convenience issue since Apple customers typically get their products serviced under warranty by taking them to the “Genius Bar” at the Apple Store. No doubt there are people mulling over right now how they can get their hands on some Apple Store Diversity rake-off, but Apple is smart, so it’s not that easy.)

Seriously, the moral theory of the 1977 Community Reinvestment Act was that banks that open branches in black neighborhoods to take deposits should also lend in the same neighborhoods. It wasn’t about forcing banks to lend in geographical areas where they don’t do business.

(One unexpected side effect of the CRA was that it hurt small black-owned banks, which traditionally tended to diversify their risks by taking deposits in black neighborhoods and lending in white neighborhoods.)

The results were stark. In 2014, Hudson approved 1,886 mortgages in the market that includes New Jersey and sections of New York and Connecticut, federal mortgage data show. Only 25 of those loans went to black borrowers.

Hudson, while denying wrongdoing, agreed last month to pay nearly $33 million to settle a lawsuit filed by the Consumer Financial Protection Bureau and the Justice Department. Federal officials said it was the largest settlement in the history of both departments for redlining, the practice in which banks choke off lending to minority communities.

Outlawed decades ago, redlining has re-emerged as a serious concern among regulators as banks have sharply retreated from providing home loans to African-Americans in the wake of the financial crisis.

Over just the past 12 months, federal, state and city officials have successfully required banks to expand minority lending programs and, in some instances, to pay penalties as part of redlining settlements in Buffalo; Milwaukee; Providence, R.I.; Rochester; and St. Louis. And more banks are facing scrutiny. The Justice Department now has more active redlining investigations underway than at any other time in the past seven years, officials said.

“Redlining is not a vestige of the past,” Vanita Gupta, the principal deputy assistant attorney general of the Justice Department’s civil rights division, said last month in a conference call with reporters.

The effect on minority communities can be profound. Homeownership is a cornerstone of economic mobility, and without a stable group of homeowners, neighborhoods can be left vulnerable to blight and disrepair.

The recent cases illustrate how redlining has evolved. Bankers no longer talk openly about denying loans to black people. Instead, officials said, some banks have quietly institutionalized bias in their operations, deliberately placing branches, brokers and mortgage services outside minority communities, even as other banks find and serve borrowers in those neighborhoods.

The intent of such management decisions is typically left unspoken, officials said. But in interviews with federal bank examiners, Hudson executives made their reluctance to venture into minority neighborhoods plain.

It is “like a whole other world,” one lending executive told examiners from the Consumer Financial Protection Bureau, explaining why the bank failed to generate any mortgage applications from a minority neighborhood here.

Fallout from the excesses of the subprime era in mortgage lending has, in some ways, set the stage for the discriminatory practices of today. As banks have tightened their credit lending standards to avoid risky loans, the percentage of blacks and Hispanics getting approved for mortgages has plunged.

Grappling with foreclosures, job losses and battered credit scores, many minority borrowers have found it difficult to qualify for mortgages under the more stringent rules.

Banks normally try to avoid borrowers who seem likely to default on their loans, but some stepped over the line, officials say, excluding entire communities and the creditworthy people who live in them.

In 2014, black people held 5.2 percent of the nation’s home loans, compared with 8.7 percent in 2006, according to the Federal Reserve Bank. Hispanics have struggled to regain lost ground as well, accounting for 7.9 percent of home loans in 2014, compared with 11.7 percent in 2006.

Obviously, 2006 should stand as our benchmark of prudent lending.

Federal and state officials said it was impossible to determine how widespread discriminatory lending had become. They believe a vast majority of banks are operating legally, but recent lawsuits have revealed striking disparities.

In Missouri, where Eagle Bank settled a redlining lawsuit with the Justice Department last month, the bank’s competitors generated five times as many mortgage applications from predominantly black neighborhoods in the St. Louis area as Eagle did, Justice Department officials said. The bank, which said it disagreed with the government’s findings, promised to set aside $975,000 to provide services for black residents and businesses.

And in Buffalo, Evans Bancorp settled a redlining lawsuit filed by Eric T. Schneiderman, the attorney general of New York, last month. The suit alleged that the bank focused its mortgage lending in communities that appeared on its “trade area” map, which excluded the predominantly black neighborhoods on the city’s East Side. Evans, which described the allegations as “unsubstantiated,” agreed to pay nearly $1 million to settle the suit. …

The issue is also achingly familiar. Until the 1960s, banks openly starved minority communities of home loans with the full backing of the federal government.

And the 1960s were only, what, five or ten years ago?

For decades, the Federal Housing Administration relied on so-called residential security maps to help decide which mortgages it would insure. The maps ranked and color-coded neighborhoods in cities across the country according to their perceived investment risk.

Affluent white neighborhoods that were “in demand” were typically shaded green. Black neighborhoods were shaded red and shut out of the conventional loan market. Here in Newark, for instance, every black neighborhood was deemed “hazardous” for investment in 1939, according to Kenneth T. Jackson, a historian at Columbia University.

And 1939 was, I don’t know, only 20 years ago.

With conventional loans so difficult to secure, many black people found themselves sidelined from the homeownership boom after World War II. Others were forced to turn to an underground economy that offered overpriced, predatory loans.

Even after the passage of laws that banned discriminatory lending in the late 1960s and ’70s, redlining persisted. Its modern-day form, though, is far less overt.

New Jersey banks no longer respond explicitly, as some did in the late 1930s, when asked, “Are there any areas in which loans will not be made?” (“Newark,” some said.)

Most of Hudson’s customers would have had no idea that the bank was excluding blacks and Hispanics, officials said.

A spokeswoman for Hudson did not respond to several requests for comment. But in a statement, Denis J. Salamone, the chief executive, said the bank believed it was meeting its fair lending obligations by buying loans originating in minority communities on the secondary market …

Founded by immigrants in 1868, Hudson was a darling of Wall Street for a time in the 2000s. Forbes magazine called it the “best managed bank of 2007” for steering clear of the subprime loans that sank other financial institutions.

Now the nation’s seventh-largest savings bank, it built its business on traditional mortgages and prided itself on its old-fashioned feel.

All the while, federal officials said, the bank was systematically avoiding minority communities as it expanded beyond its New Jersey roots into New York and Connecticut.

Of the 54 branches that Hudson acquired or opened from 2004 to 2010, only three were in predominantly black or Hispanic neighborhoods, according to the lawsuit filed by the Consumer Financial Protection Bureau and the Justice Department.

Okay, but wasn’t a resistance to dive into the minority lending business in 2004-2007 a key to Hudson not going bankrupt in 2008?

Predominantly black and Hispanic communities accounted for more than a third of its market in the region that included North Jersey and parts of New York, but the bank stationed only 12 of its 162 mortgage brokers in those communities. Last year, blacks accounted for just over 1 percent of Hudson’s mortgage approvals in the market that includes New Jersey and sections of New York and Connecticut; Hispanics accounted for 4 percent.

The government’s analysis of the bank’s lending data shows that Hudson’s competitors generated nearly three times as many home loan applications from predominantly black and Hispanic communities as Hudson did in a region that includes New York City, Westchester County and North Jersey, and more than 10 times as many home loan applications from black and Hispanic communities in the market that includes Camden, N.J. …

As part of the redlining settlement, Mr. Salamone, the bank’s current chief executive, has agreed to open two full-service branches in minority neighborhoods, to increase outreach to those neighborhoods, and to invest $25 million in a loan-subsidy fund to increase the amount of credit extended to black and Hispanic borrowers.

Hudson, which is expected to merge in November with M&T Bank Corporation, the nation’s 25th-largest bank, also agreed to pay a $5.5 million penalty. M&T recently settled its own federal lawsuit relating to accusations that it steered black borrowers to higher-cost mortgages than their white counterparts, among other concerns. In his statement, Mr. Salamone said M&T had reviewed and consented to Hudson’s agreement with the federal government.

This is actually the feds’ chokehold: approval of mergers and acquisitions. The fines are chump change, but the federal government’s ability to block lenders from mergers and acquisitions if the feds don’t like their level of minority lending is a key selection effect that determines who can get big and who must stay small.

Consider Washington Mutual and its CEO Kerry Killinger, which became the biggest mortgage lender bank in the 2000s and then went bottoms-up in the fall of 2008. Killinger got federal approval for acquisitions of 29 competitors over a couple of decades, including two historically catastrophic acquisitions in Southern California in which WaMu outbid rival suitors for federal approval by topping the other bidders’ promises of lower income and minority lending.

Back in 2009 in VDARE I figured out how the CRA’s chokehold on M&A approvals has a selection effect on the entire culture of the mortgage industry. Almost nobody else has figured this out, so it’s worth repeating at length. The following analysis helps explain one of the huge economic events of the prior decade, but it’s almost totally off the intellectual radar in 2015.

Consider Washington Mutual’s promise in 2001 that if it got federal permission to buy Dime Bank it would lend $375 billion to lower income and minority homebuyers. I asked in VDARE:

“How could the government hold a gun to the financial institutions’ heads and force them to make hundreds of billions in stupid loans? Sure, giving out $375 million in stupid loans to get the government off your back, that would make sense. $3.75 billion, maybe. $37.5 billion, conceivably. But $375 billion, no way. Nobody would promise to give away $375 billion to dubious borrowers unless they thought it was a great idea. They’d leave the industry before they’d promise to hand out $375 billion to people whom they doubted would pay it back.”

… Okay–but how does a bank get more market share and revenue growth?

One major way: by buying other banks. And to do that, you have to pass through the CRA gauntlet. If you aren’t willing to lend to people the government wanted you to lend to, then you were out of luck at mergers and acquisitions game.

So, the CRA implicitly selected for Kool-Aid Drinkers, such as WaMu’s Killinger. They’re the ones whom the government allows to build empires. …

I missed understanding the impact of the CRA because I kept asking myself: “How could the CRA force a banker who thinks lending more to minorities is a bad idea to lend more to minorities?” I kept trying to imagine the CRA’s effect on the already crazy-stupid WaMu, and how that couldn’t have been all that significant.

But I should have been thinking about the other side of the coin: all the sane-smart banks that didn’t get to get big like WaMu did because the government rigged the acquisition process so that crazy-stupid banks were more likely to get merger approval. WaMu got permission from the government to make 29 acquisitions from 1990 onward. A smart-sane bank wouldn’t.

That WaMu sincerely believed that it was going to make a fortune handing big mortgages to mariachi singers, illegal immigrants, and Department of Motor Vehicle clerks etc. etc. seems clear. After all, WaMu not only originated about one out of every eight mortgages in the U.S., but it also held on to a fair number of them instead of securitizing them and dumping them on Wall Street.

WaMu explained its minority-oriented strategy over and over again.

Why was WaMu, with its derisible strategy, able to buy out so many big lenders? To understand it, think about it the other way around: why didn’t more prudent financial institutions outbid WaMu for acquisitions?

Say there are two banks, WaMu and Scrooge-Potter BanCorp. The latter is owned by Ebenezer Scrooge of Charles Dickens’ A Christmas Carol and Mister Potter of Frank Capra’s It’s a Wonderful Life. While WaMu is beloved for lending to anybody with a pulse, Scrooge-Potter BanCorp is widely loathed for taking a dim view of lending money to likely deadbeats.

They both would like to buy George Bailey’s Bailey Building and Loan Association. ACORN and the National Community Reinvestment Coalition announce they will protest vociferously against regulatory approval of the merger unless the winner pledges to make $50 billion in minority and low income loans.

Fearing a debacle of defaults, Scrooge-Potter BanCorp issues a two-word press release: “Bah, humbug”. And it drops out of the bidding.

WaMu announces: “Well, heck, we’ll promise to lend $55 billion.”

In fact, because Scrooge-Potter realized its quest was hopeless, WaMu got Bailey Building and Loan for less than it would have paid if the government wasn’t biased in favor of imprudent bankers. This gives WaMu more money to pursue more targets.

Lather, rinse, and repeat. The CRA means that WaMu gets big while Scrooge-Potter stays small.

Consider the indirect effects on Scrooge-Potter BanCorp. Who would want to go to work for a bank that can’t make acquisitions because it won’t play nice with the government on CRA? Scrooge-Potter can’t buy anybody, it can only be bought. So, how’s your job security at Scrooge-Potter looking? Wouldn’t it make more sense to go work for WaMu instead?

The CRA drives the climate of opinion in the entire mortgage industry. If you wanted to be able to buy other banks, you had to play ball.

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I like to collect academic studies documenting the interaction of America’s love affair with Diversity and Immigration with the Housing Bubble/Bust of the 2000s. From the The Annals of the American Academy of Political and Social Science, July 2015:

Variations in Housing Foreclosures by Race and Place, 2005–2012

Matthew Hall
Kyle Crowder
Amy Spring


This study describes the spatial and racial variations in housing foreclosure during the recent housing crisis. Using data on the 9.5 million visible foreclosures (public auctions and bank repossessions) occurring between 2005 and 2012, we show that the timing and depth of the foreclosure crisis differed considerably across regions and metropolitan areas, with those located in the Mountain and Pacific West regions experiencing the highest foreclosure risks. The crisis was patterned sharply along racial/ethnic lines, with metros and neighborhoods with large black and Latino populations—as well as racially mixed neighborhoods—having high rates of foreclosure. Our analysis also highlights the particular vulnerability of Latino households, who not only had very high individual risk of foreclosures but tended to reside in areas hit hardest by the crisis. The race-stratified geographic patterns of foreclosure revealed here are substantially more complicated than a narrative that depicts only the unique disadvantage of black households during the crisis, and likely reflect some level of specific targeting of minority populations and neighborhoods by predatory and subprime lenders.

I haven’t been able to find a copy of this for less than $30, so I haven’t read more than the abstract, but it appears to fit in closely with virtually every detailed study published in the last half year, along with my arguments in 2007-2008.

But what percentage, say, of 2016 Presidential candidates are aware of this connection?

Update: thanks to readers, here are some quotes from the paper:

The popular story of the crisis often includes narratives of foreclosures in white western suburbs (Economist 2011) and minority-heavy central cities in the Midwest (Haughney and Roberts 2009). … while black concentrations were mostly unrelated to average foreclosure rates in cities and suburbs, they were strongly conditioned by Hispanic shares. In both cities and suburbs, foreclosure rates were considerably higher in areas with larger Hispanic populations, with the highest rates being observed in suburban areas that were more than one-fifth Hispanic. …

Average foreclosure rates, however, varied sub- stantially by neighborhood racial composition. In all-white and Asian neighbor- hoods, there were fewer than 5 foreclosures for every 100 homes, and just 1 in 8 of such neighborhoods had foreclosure rates over 10 (“very high”). by contrast, mostly black and mostly Hispanic neighborhoods had foreclosures over 12.9 and 11.4, respectively, and nearly half of these neighborhoods had very high rates. For the most part, most neighborhood types, including a mix of whites and minority groups, fell somewhere between all-white and all-minority neighbor- hoods. the exceptions are Hispanic-white and integrated neighborhoods, which experienced especially high rates of foreclosure (14.0 and 15.1) and were very likely to fall in the “high” or “very high” foreclosure classification. …

Thus, despite media accounts of the crisis primarily targeting suburban white and urban minority neighborhoods, the descriptive patterns in table 3 sug- gest that white neighborhoods were mostly shielded from the worst of the fore- closure crisis, while black, racially mixed, and especially Hispanic neighborhoods were hit especially hard.3

Specifically, in all divisions, the lowest average foreclosure rates are observed in all-white or Asian neighbor- hoods. by contrast, racially mixed and solidly minority neighborhoods—e.g., mostly black and all-minority areas—consistently recorded some of the highest rates. Foreclosure rates among black-white and white-mixed neighborhoods in the Mountain division were in excess of one in four homes over the 2005 to 2012 period. the highest average rates were observed in Southern Atlantic integrated neighborhoods where one foreclosure for every three homes was logged. In all but one division where there were a sufficient number of block groups, mostly black neighborhoods had the highest or second-highest average foreclosure rate, followed by black-white neighborhoods, which ranked second-highest in four divisions. Mostly Hispanic and Hispanic-white neighborhoods also recorded exceptionally high rates of foreclosure in several divisions, including the Mountain west and South. A central point to take away from this analysis is that in each region, neighborhoods containing sizable shares of African American and Latino populations tended to be the most heavily burdened by foreclosures in almost every division of the country.

Basically, this 2015 statistical analysis comes up with a picture of the Bubble/Bust that looks an awful lot like the one I depicted in my 2008 short story “Unreal Estate” about two white brothers-in-law speculating on houses in the high desert exurbs of north Los Angeles County: the big losses tended to be in integrated neighborhoods where people were trying to buy their way out of diversity-related problems elsewhere. It turned out, though, as Buckaroo Banzai liked to say, “Wherever you go, there you are.”

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With Jeb Bush and Donald Trump arguing over whether George W. Bush failed to stop 9/11, it’s worth going to the videotape (47:28) of the second Presidential debate of 2000. On 10/11/2000, the Texas governor denounced heightened scrutiny of Arab airline passengers by airport security. Bush said on national TV:

Secondly, there is other forms of racial profiling that goes on in America. Arab-Americans are racially profiled in what is called secret evidence. People are stopped, and we have to do something about that. My friend, Senator Spencer Abraham of Michigan, is pushing a law to make sure that Arab-Americans are treated with respect. So racial profiling isn’t just an issue at local police forces. It’s an issue throughout our society. And as we become a diverse society, we’re going to have to deal with it more and more. I believe, though — I believe, as sure as I’m sitting here, that most Americans really care. They’re tolerant people. They’re good, tolerant people. It’s the very few that create most of the crises, and we just have to find them and deal with them.

Note that when the future President said “we just have to find them and deal with them,” the “them” he was referring to as having to be dealt with were not Arab skyjackers but airline and airport employees worried about stopping Arab skyjackers.

In accordance with this statement, Bush appointed Democrat Norman Mineta Secretary of Transportation and directed him to root out profiling of Arabs at the airport.

In 2005, airport counter clerk Michael Tuohey told Oprah Winfrey of his encounter early on 9/11/2001 with the leader of the terrorists:

“I got an instant chill when I looked at [Atta]. I got this grip in my stomach and then, of course, I gave myself a political correct slap…I thought, ‘My God, Michael, these are just a couple of Arab businessmen.’”

By the way, on a personal note, this may have been when I started to realize I was the world’s least viral journalist. I’m not sure if the word “viral” had that meaning on 9/11/2001, but if it did, I was sure that the President’s 11-month-old denunciation of anti-terrorism efforts would soon go viral. I vividly recalled watching Bush say this to a huge television audience less than a year before. Back then you couldn’t post video, but it was easy to find a transcript. So I stayed up late that night writing up “Bush had called for laxer airport security” so I wouldn’t get scooped too badly by all the other pundits.

In all the rush, it didn’t get published for about a week. Yet by then, nobody else had brought it up. When my piece didn’t get any attention, well, lots of stuff was happening.

Every few years since then, I’ve brought up Bush’s statement, but it never seems to register on anybody other than my core readers. It’s an interesting example of the Sapir-Whorf effect in action. We are given categories to file facts away in: e.g., Republicans Are Racist; Bush Protected Us from Terrorism, etc. It’s very hard to remember anything that doesn’t fit in the right slots.

This is the first time I’ve posted video of Bush saying this. We’ll see if this makes any difference in the impact, although by now, after 14 years, I doubt it.

Similarly, the big Bush Push of 2002-2004 to ease traditional credit standards, such as down payments and documentation, that have disparate impact on black and Hispanic mortgage-seekers is practically impossible for most people to remember because it doesn’t fit in the categories: Republicans Are Racist; Bush Protected Us from Liberalism, etc.

Here’s a video of Bush telling his federal regulators that down payment requirements are keeping minorities from achieving the American Dream:

But I’ve posted this before with negligible impact.

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For the last seven years, academics have been quietly compiling a mountain of evidence that the Housing Bubble and Bust was, like I’ve been saying since 2007, intertwined with contemporary America’s sacred cow of Diversity. For example, from a 2015 issue of Real Estate Economics:

Immigrants and Mortgage Delinquency

Zhenguo Lin
Department of Finance
Mihaylo College of Business and Economics
California State University, Fullerton,

Yingchun Liu
California State University, Fullerton,

Jia Xie
Bank of Canada

… Through the years, administrations touted home owning as a way to put immigrant and low-income families on a path to social and financial stability by promoting a more involved citizenry.1

1Clinton and Bush administrations launched ambitious programs to promote home ownership, especially for low-income households. For instance, President Clinton’s National Homeownership Strategy set a goal of allowing millions of families to own homes, in part by making financing more available, affordable, and flexible. President George W. Bush famously said in 2002 that “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home,” and in a 2004 speech he said again that “We’re creating … an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.”

Actually, I don’t think Bush’s speeches on Increasing Minority Homeownership are all that famous unless you were in the mortgage industry or read iSteve.

Increased home ownership may not only build wealth for immigrant households, but perhaps equally important, it is a signal of assimilation and achievement of the “American Dream.” As a result, the expansion of housing credit in the United States from the mid-1990s to the mid-2000s was largely cheered, and home ownership by households of immigrants and others reached record-high rates in the mid-2000s. According to the Census, the home ownership rate among immigrant households increased from 46.5 percent in 1995 to 53.3 percent in 2006. Meanwhile, the home ownership rate among native-born Americans increased from 66.1 percent in 1995 to 68.8 percent in 2006. In other words, the gap in home ownership between immigrant and native households dropped from 19.6 percent in 1995 to 15.5 percent in 2006.

As the housing and economic crises developed in 2007-2009, however, immigrants were blamed by the media for the large increase in delinquencies, defaults, and foreclosures in the housing market that helped to trigger the housing crisis and ultimately facilitated the bankruptcies or near-bankruptcies of multiple financial institutions (Malkin, 2008).2

The citation is to a Michelle Malkin column.

Should immigrants really be blamed for the current housing crisis? In particular, are immigrants more likely to be delinquent on mortgages than natives and, if so, why?

Personally, I think those are great questions to ask; but, to be honest, the total number of people in the media who are interested in them consists pretty much of Michelle Malkin, me, and a handful of other disreputable sorts.

To shed light on these and related questions, we investigate the mortgage delinquency behavior of immigrant households by using the 2009 Panel Study of Income Dynamics (PSID) data.

… We use the 2009 wave of the Panel Study of Income Dynamics (PSID), that is collected by the University of Michigan Survey Center. PSID is a longitudinal household survey which started in 1968, with a sample of over 18,000 individuals living in over 5,000 families in the U.S. Individuals in each household were followed annually from 1968 to 1997, and biannually after 1997. …

We should note that all of the immigrant households in the PSID came to the U.S. before 1999. Hence, the duration of their stays ranges from 10 to 40 years …

We restrict the data used in the current study as follows: the sample includes only mortgage-indebted households, i.e., those who own (rather than rent) their primary residences and who have at least one mortgage on their primary residence. After omitting observations with missing values, the final data include information on 2,383 households. Around 6.7 percent (159) of the households are immigrant households, and around 5.6 percent (125) of native-born households are second generation households.

… The difference in the mortgage delinquency rates between immigrants (15.7%) and natives (4.4%) is significant.

It’s also big: the 20th Century immigrants’ self-admitted delinquency rate of 15.7% is over 3.5 times the size of the natives’ rate of 4.4%.

Screenshot 2015-10-12 23.56.28

We find that immigrants are more likely to be delinquent on mortgages than natives, even after controlling for a rich set of household demographic and socioeconomic status and mortgage characteristics. This finding is unlikely to be driven by unobservable financial constraints, local housing market conditions or unobservable characteristics of the metropolitan areas where immigrants tend to cluster. There is evidence of imperfect immigrant integration: the relatively high delinquency rate of immigrants is mainly driven by the relatively recent immigrants who have been in the U.S. for 10 to 20 years.

The paper doesn’t give the raw delinquency rate for the 25% of the immigrants in the sample who arrived from 1989-1999 (keep in mind that no immigrants arriving after 1999 were included in the sample, so these are the most recent ones we’ve got). But I’d guesstimate the delinquency rate for the most recent immigrants in the sample was six to nine times as high as the natives’ delinquency rate.

And the delinquency rate in 2009 for immigrants arriving from 2000 onward was likely even higher than for the highly delinquent cohort that arrived in 1989-1999. My guess would be that immigrant mortgage-holders who arrived in 1989-2009 would have been delinquent about an order of magnitude more often than white native mortgage-holders.

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Screenshot 2015-02-14 21.56.55

Total U.S. data; Key: Green=Hispanic neighborhoods, purple=Asian, orange=black, blue=white

I may have pointed out once or twice that the disastrous home price bubble of a decade ago was closely intertwined, via numerous causal pathways, with decades of Hispanic immigration and diversity ideology. Here’s a new graph from a report by Zillow on different ethnic neighborhoods that makes my point for me: the green line represents the median home value in Hispanic neighborhoods and the blue line white neighborhoods across the country. The green line soared out of control before dropping 46.3% (and still being down 24.2%):

Screenshot 2015-02-14 22.02.44

It’s widely assumed that the Hispanic Tidal Wave we are always hearing about regarding elections couldn’t possibly have had any impact on home prices because Hispanics are so few in number and so poor, but during the bubble, the median home prices in Hispanic neighborhoods was higher than in white neighborhoods, nationally. Here’s median home values in thousands of dollars:

Screenshot 2015-02-14 22.24.44

Total U.S. data; Key: Green=Hispanic, purple=Asian, orange=black, blue=white

You can see the on-going Chinese Money Laundering boom in the purple (Asian) line.

You can look up your own metropolis on Zillow’s handy page.

Here’s the enormous Los Angeles metropolitan area indexed to 2000=100. Versus their peak, white neighborhoods in Greater L.A are currently down 1.6% in median home price, while Hispanic and black neighborhoods are still down over 20%:

Screenshot 2015-02-14 22.36.32

For example, from the Boston Globe, here’s a report on Boston:

Hispanic areas lag in housing recovery

By Katie Johnston GLOBE STAFF FEBRUARY 09, 2015

Hispanic communities were particularly vulnerable to unscrupulous lenders during the last housing boom and the hardest hit by the bust, experiencing the sharpest drop and slowest recovery in home values, according to a study to be released Monday.

The study, by the online real estate company Zillow, found that … Nationwide, Hispanic areas also suffered the biggest declines, with home values still down 24 percent from their peak nearly a decade ago, according to the study.

Hispanic neighborhoods tend to have higher populations of immigrants who were first-time home buyers and were put at risk by lenders who waived credit checks and minimum-income levels, housing specialists said.

Many of these subprime loans were for multifamily homes, which are popular among low-income residents because they can rent out units to generate income.

All of this activity led to an increase in home sales and skyrocketing prices in lower-income neighborhoods. But then the housing bubble burst in the middle of the last decade, the financial crisis followed, and many workers lost jobs.

The result: People who were barely making mortgage payments before the recession went into foreclosure, causing home prices around them to plummet. …

“It’s the old story of what goes up fastest falls fastest,” said Barry Bluestone, director of the Dukakis Center for Urban and Regional Policy at Northeastern University.

Yanko Matias, a native of the Dominican Republic, wanted a house where he and his wife could raise their two young children. So they bought a single-family home in Lynn in 2007, taking out a loan for the entire purchase price of $232,000.

But in early 2009, Matias lost his landscaping job. He found another job at a rental company, but was making considerably less money and called the bank about modifying his loan to reduce the payments. The bank refused, telling him his house was worth only $180,000, less than what he owed on his mortgage.

By the end of the year, he was in foreclosure.

Matias, 39, who now works as a taxi driver and still lives in the house, has been fighting the bank ever since. But he has little hope his home will regain its value and fears he will eventually lose it.

“I worry every day about it,” he said.

To analyze housing values, Zillow used Census data to categorize ZIP codes by racial or ethnic groups that make up a plurality of the population and estimated the median home value within each area. …

Many housing specialists, however, see the uneven housing recovery breaking down not by race, but by immigrant status.

“They were basically the most innocent consumers on the marketplace,” said Eloise Lawrence, a staff attorney at Harvard Legal Aid Bureau who works with struggling Lynn tenants and homeowners. “They knew the least about what was happening, and they were the most eager to climb onto the first rung of the American dream.” …

As disconcerting as it is that Hispanic homeowners were hurt so much by sagging home values, Lawrence, of the Harvard Legal Aid Bureau, said the recovery of home values in white and black communities is almost as worrisome: “We may be in another speculative bubble.”

• Tags: Mortgage, Real Estate 
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From the Washington Post, a story of an African immigrant family who have racked up $1.3 million in debt, even while not paying their mortgage for over six years.

Swamped by an underwater home

After the housing collapse derails the American Dream, a cloud of uncertainty hangs over the Boateng family

Story by Kimbriell Kelly

Published on January 26, 2015

DASHED DREAMS: This is the third part in a series looking at the plight of the black middle class, particularly in Maryland’s Prince George’s County.

Part 1: Residents of Prince George’s, the nation’s highest-income majority-black county, lost far more wealth during the financial crisis than families in neighboring, majority-white suburbs.

Part 2: Half of the loans on newly constructed homes in one Prince George’s County subdivision during the housing boom in 2006 and 2007 wound up in foreclosure.

… A decade ago, Comfort and Kofi [Boateng] were at the apex of an astonishing journey they had made from Ghana in 1997, when they had won a visa lottery to come to America. They did not know it at the time, but they were also at the midpoint in their odyssey from American Dream to American Nightmare.

Today, they struggle under nearly $1 million in debt that they will never be able to repay on the 3,292-square-foot, six-bedroom, red-brick Colonial they bought for $617,055 in 2005. The Boatengs have not made a mortgage payment in 2,322 days — more than six years — according to their most recent mortgage statement. Their plight illustrates how some of the people swallowed up by the easy credit era of the previous decade have yet to reemerge years later.

Is plight exactly the right word to describe somebody who has not had to pay to live in a new 3,292 square foot house for the last six years? And who owns a second home?

When they moved into the house in November 2005, Kofi was earning $82,740 as an IT consultant for a government contractor, and Comfort, then 43, was making $30,000 as an administrative assistant. But in the overheated mortgage market of the time, they said everyone told them that they could buy a $600,000 house.

They made a $60,000 down payment and all their mortgage payments for more than 2½ years — through September 2008. But the house was financed with subprime loans, which reset to higher rates after short time periods, creating what are known as “shock payments.” The Boatengs said they could not make their new higher payment, and, in the middle of the 2008 mortgage crisis, they could not refinance.

“I think the hardest part was the beginning,” said Kofi, now 55. “It was when I realized we really lost something. . . . Initially, we were arguing. But I guess it was because we were blaming each other for a mistake we both made.”

They came from a Ghanaian culture where credit is scarce and people built their houses with cash and lived in them for generations. Deeply religious, they found their real estate agent and mortgage broker at their church, Agape Life Ministries in Laurel.

Research has suggested that the subprime bubble looked in part like an Affinity Group Scam. A lot of the worst loans were made to minorities by co-ethnics who had gotten into the mortgage business as part of the financial world’s enthusiastic Drive for Diversity.

When their money got tight, they borrowed more and refinanced to take on more debt. Caught up in the mind-set of the time, they said, they thought they would be able to continue to refinance.

Prince George’s County had the highest foreclosure rate of any county in Maryland, and Fairwood, despite its $173,000 median income, was the fourth-hardest-hit neighborhood in the county. Fifty percent of the loans made there in 2006 and 2007 went bad, according to an analysis by The Washington Post. Nearly one-third of the foreclosures were among African immigrants such as the Boatengs, even though they made up only 5 percent of the county’s black population.

Wow. About 30% of the foreclosures were on immigrants from Africa. (Is that in the overall county or just the Fairwood neighborhood? Probably the latter, I would guess.)

But it’s fascinating that African immigrants had so much worse default rates than African-Americans.

(I wonder if that’s also true in Houston, another destination for African immigrants. Overall, default were less frequent in Houston because home prices are cheap.)

By the way, Hispanics (mostly immigrants, presumably) had worse foreclosure rates in Prince George’s County than did blacks overall. From a study of foreclosures in Prince George’s County by Katrin B. Anacker, James H. Carr, and Archana Pradhan:

White: 1.91% (372 foreclosures)
Hispanic: 6.42% (3.4X the white rate, 1,091 foreclosures)
Black: 3.62% (1.9X the white rate, 4,219 foreclosures)

That implies that being an immigrant is a risk factor for default. If you head back to the Old Country, can B of A garnish your wages in Africa?

Back to the Post story:

The Boatengs opened up their financial records and provided The Post with hundreds of pages of bank, credit and mortgage documents for review.

Sidebar: A growing debt

How one family went from no debt to owing more than $1 million.
*Debt does not include interest or other fees
July 1997
The Boatengs arrived in the United States
DEBT: $0

Purchased a used Toyota Corolla for $2,000
CARS: $2,000
DEBT: $2,000

May 2000
Took out a mortgage on a three-bedroom town home in Germantown.
CARS: $2,000
MORTGAGE: $128,900
DEBT: $130,900

Purchased a new Nissan Altima for $12,000.
CARS: $14,000
MORTGAGE: $128,900
DEBT: $142,900

Comfort began to take out student loans.
Refinanced their Germantown home several times to fund improvements and to pay off some debt, including the cars.
MORTGAGE: $128,900
CASHOUTS: $95,000
DEBT: $223,900

July 2004
Refinanced their Germantown home to borrow $60,000 for the down payment on a new house in Fairwood, outside of Bowie.
CARS: $14,000
MORTGAGE: $128,900
CASHOUTS: $155,000
DEBT: $283,900

November 2005
Took out two loans to buy the new home in Fairwood.
DEBT: $838,583

September 2006
Refinanced to consolidate the two loans on Fairwood home and some debt.
DEBT: $896,176

Took out personal loans after their tenant in Germantown failed to pay rent. Comfort obtained two $20,000 business loans.
DEBT: $951,176

August 2011
Bank valued the home in Fairwood at $378,216. This was $238,839 less than what they paid.
Comfort completed a master’s degree after taking out roughly $60,000 in student loans.
DEBT: $1,011,176

January 2015
The Boatengs are still living in the Fairwood home. They have not made a mortgage payment in more than six years.

Sources: Post analysis of financial records

Every 90 days since May 31, 2010, they have received a letter threatening to foreclose on their home. They have been able to stay in the house through a confluence of factors: banks wading through a glut of foreclosures, the slow gears of the legal process, bureaucratic negotiations for mortgage modifications and an aversion by lenders to empty homes.

… Seeking better opportunities, they applied online for a lottery administered by the State Department to receive a U.S. permanent resident card.

Everybody knows that a great way to select people is through a random lottery. That’s why Harvard lets in 500 applicants per year at random. Goldman Sachs annually puts all the resumes they receive in a spinning drum and hires the first 200 they grab. Bill Belichick always makes one of his annual NFL draft picks by throwing darts at a list of all the college football players in America.

It was a long shot. Annually, less than 5 percent of the 1 million immigrants granted permanent residency enter the United States through the lottery, according to federal data.

… The Boatengs became citizens in 2003,

Because they love us for our freedoms!

allowing Comfort’s mother to get a green card and move in, eliminating the $300 weekly child-care costs.

Oh, wait, no, it sounds like they had self-interested reasons. But that must be very rare.

But with three bedrooms and two full bathrooms for six people, they needed more room.

Thanks to a booming housing market, their townhouse was worth $355,000. It was time to buy a bigger home.

For advice on neighborhoods, the couple turned to their 300-member church, where Kofi directed the choir. Most of the congregation is from Ghana or Nigeria. The church members suggested Prince George’s County.

… Fairwood had drawn other Ghanaians, as well as Nigerians and Cameroonians who were part of a general influx of West African immigrants into the Washington area, particularly into Prince George’s. The county has the second-highest rate of African immigrants per capita nationwide, behind only Baltimore County, according to recent census estimates.

In 2005, Kofi and Comfort met with one of the home builders in Fairwood, which sits in an unincorporated area of Prince George’s outside of Bowie, and they decided to build a house for a little more than $600,000.

This was more house than they were expecting to buy, but they believed it would be a good investment. They said they thought it would go up in value, like their Germantown house, and they could use that equity to finance their children’s college educations.

“The purpose of getting the house was to get our kids through college,” Comfort said.

Uh …

Their real estate agent told them they could afford it by refinancing the mortgage on the Germantown house — which they were going to keep — and cashing out the $60,000 in equity. That could serve as the down payment for the Fairwood house. At the time, Kofi’s credit score was 748, a superior rating that indicated that they were good at managing their debt.

Working through a mortgage broker, they applied for a loan, which they received from Lehman Brothers Bank under Kofi’s name. They said they were told that, based on their income, they could qualify for an interest-only, adjustable-rate mortgage. They would pay only the interest for the first five years, after which they would be required to make payments on the principal and interest. Such loans are riskier, and borrowers and have been shown to default at higher rates than a traditional 30-year fixed rate mortgage.

The Boatengs ended up borrowing $493,600 from Lehman Brothers, at an initial loan rate of 6.1 percent. In five years, it would reset to at least 8.3 percent. Their payments would start at $3,662 and go up to $4,336.

An 18% increase. In other words, that’s not really the full story of why they’ve gotten six years of free rent in a big new house out of America.

They thought they would be able to refinance to a better rate in the future. In those days, refinancing was easy to get, and the Boatengs went with the tide.

“I don’t think we really understood everything,” Comfort said. “It’s very difficult to deal with everything, especially when you’re dealing with this huge document that you don’t really understand. We didn’t take it too hard that this was going to be a problem. We thought we’d be able to manage it.”

Workers started building the house in June 2005, and the closing was set for October. But in August, Kofi was laid off after his company lost its lucrative government contract with the Army. “The company said, ‘We have no job for you,’ ” Kofi said.

Now, the Boatengs faced a dilemma. Their home was nearly finished, and they had become emotionally attached to it. They were worried they would lose their $20,000 deposit, and they weren’t even sure they could back out of the deal.

“At that time, it’s not like we wanted to back out, too,” Comfort said. “We had already done everything for the house.”

They did not tell the bank that Kofi lost his job.

Details, details, who can keep track of little things like a job loss?

Banks are supposed to verify employment and income prior to approving a loan. Nevertheless, the loan closed, and the Boatengs also received a second loan to complete the financing through their broker’s company, a 30-year fixed-rate mortgage of $61,700 at 8.5 percent. They paid $29,000 in closing costs and put down a total of $73,000 in cash at the closing.

On Nov. 25, 2005, the family moved into their new home in Fairwood. …

Kofi looked for a job and the couple sought a renter for their Germantown home. Their payments on the two houses amounted to $5,550 each month.

“We wanted to sell it,” Comfort said of the townhouse. “But some church members also have rental properties. So they said we shouldn’t, that we should rent it out. And we did it.”

So now they own two houses: the American Double Dream!

In December, they found a tenant, whose rent check would cover the Germantown mortgage. And Kofi was hired by a tech company in Fairfax County, earning $82,000 a year.

But February and March came and went with no rent check. Soon they were in court asking a judge to evict the tenant, a process that takes months. “They couldn’t pay their rent,” Comfort said. “We couldn’t kick them out.”

Kofi went to Bank of America and took out a $5,000 personal loan to cover their mortgages for a month. When the case dragged on, Comfort went to Bank of America and received a personal loan for $10,000.

In subsequent months, with Kofi’s consent, she took out a $20,000 personal loan from Federal Credit Union in Montgomery County to start a home business selling Mary Kay products. The loan carried a 15 percent interest rate over a 10-year term.

That sounds like a plan!

She didn’t see the loan as a risk but as a way to help the family, and she says she believed that she could earn up to $7,000 a month with Mary Kay. …

She said she quickly earned director status and was given the choice of a leased car, a Pontiac Vibe, or the money in cash, $700 a month. The family decided to take the money.

To grow her Mary Kay business, Comfort said she took out another $20,000 loan from the same credit union, under the same terms, but this time she did not tell Kofi. She was sure she would be successful. But now she was juggling selling cosmetics and recruiting people for Mary Kay with a job search in her own field. She fell behind. Cases of merchandise sat in their home.

In late 2006, the couple decided to refinance their Fairwood mortgage and consolidate their debt, including the personal loans and some auto and student loans. They met with another mortgage broker, also a church member.

They eventually took out a $620,000 refinancing loan from Countrywide Home Loans.

You know, if you read any iSteve post long enough, Angelo Mozilo will show up.

It was also an interest-only subprime loan, carrying a 6.29 percent interest rate and adjusting in two years instead of five. Their payment on the Fairwood house would rise to about $5,230 by November 2008.

As the broker walked them through their credit report, Kofi learned about the second $20,000 loan taken out by Comfort.

… The Boatengs made their last Fairwood mortgage payment on Sept. 18, 2008.

… The Boatengs received their first notice of Bank of America’s intent to foreclose on their home on May 31, 2010. The mortgage was 606 days past due.

… Two weeks later, on Aug. 31, 2011, Bank of America sent an unsolicited “short sale agreement” to the Boatengs, which would require the couple to sell their home. The bank offered them $3,000 to assist with moving expenses and told them they had to agree to sell by Christmas Day.

The bank valued the house at $378,216.

… The couple said someone — they do not remember who — referred them to the Brooklyn-based Litvin Law Firm, which specializes in foreclosure defense. The Boatengs said they started paying Litvin $750 monthly. This continued for two years, for a total of $15,000, they said. But then they got a call from an ex-Litvin employee who said the Boatengs should stop paying because the firm was not licensed to conduct business in Maryland.

“After Litvin, we realized we don’t have anybody,” Comfort said.

On Nov. 18, the Litvin Law Firm settled a complaint with the Maryland attorney general’s office that it had charged hundreds of consumers large fees but often did not help them avoid foreclosure or modify their loans.

… During much of this time, Comfort was unemployed or not working full time. In October 2010, she lost her administrative assistant job at Family Health International in Virginia. Her unemployment benefits ran out after eight months.

Beginning in 2003, she had been a part-time student in health-care administration at University of Maryland University College, with a goal of getting a bachelor’s degree and eventually a master’s. To help pay for the schooling, she took out student loans. She had earned two bachelor’s degrees, one in health-care administration in 2009 and another in organizational management in 2010, but by the time she completed her master’s in health-care administration in 2013, the debt had reached $90,000, including interest.

She said she went to school and took out the loans because she thought that was the American way to get ahead and earn more for her family.

“In my country, there’s a proverb that says we use fish to catch fish,” she said. “So before you can catch the fish, you have to use the fish. Before I can get to the money or level where I want to be, it takes money.”

With $257,776 owed on the Germantown house, $969,037 owed on the Fairwood house, $55,000 in personal loans and the student loan debt, the couple who had never owned a credit card before moving to the United States now owe more than $1.3 million.

They currently earn about $100,000 a year.

The couple are also working with Housing Initiative Partnership, a HUD-certified housing counseling agency, for help in getting a loan modification. Their housing counselor, Lee Oliver, said their downfall began with the idea of buying a second home for more than $600,000. They were stunned they could own something like that, she said. “Then they just took a leap of faith,” she said. “Where I’m from, these houses were only for white people.”

Comfort’s mother died last January. Comfort had been working part time at a temporary agency in the home-health-care field but is now looking for full-time work.

“At a point, I was so frustrated that recently I said, ‘Why do I have to keep staying in America then? Why don’t I go back to my country and look for a job there?’ ” Comfort said.

That would be self-deporting and that’s the most evil concept ever. So, please continue to envibrate us with your diversity.

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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.

(Republished from iSteve by permission of author or representative)
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Lately, I’ve been posting summaries of academic research into the true nature of the mortgage meltdown of a half decade ago. I realize that sounds like ancient history of no relevance, but from today’s Washington Post:

Obama administration pushes banks to make home loans to people with weaker credit 

By Zachary A. Goldfarb, Updated: Tuesday, April 2, 5:48 PM 

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. …

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. 

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. 

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. …

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”

“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrot, who until January was the senior adviser on housing for the White House’s National Economic Council.

The effort to provide more certainty to banks is just one of several policies the administration is undertaking. The FHA is also urging lenders to take what officials call “compensating factors” into account and use more subjective judgment when deciding whether to make a loan — such as looking at a borrower’s overall savings. 

“My view is that there are lots of creditworthy borrowers that are below 720 or 700 — all the way down the credit score spectrum,” Galante said. “It’s important you look at the totality of that borrower’s ability to pay.”

It sounds like we need to know what actually happened in the 2000s.

(Republished from iSteve by permission of author or representative)
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With the city of Stockton, CA in the news as its municipal bankruptcy winds its way through the courts, I was struck by this 2010 San Francisco Federal Reserve paper on the kitchen table dynamics of how so many people in Stockton and Oakland wound up with mortgages they couldn’t afford. One short answer: minorities trusted co-ethnic mortgage brokers to treat them fairly out of racial solidarity.

Sought or Sold? Social Embeddedness and Consumer Decisions in the Mortgage Market 

Carolina Reid,  

Federal Reserve Bank of San Francisco 

Working Paper, December 2010

Stockton is a Central Valley exurb of the San Francisco Bay Area. In the 2000s, new developments went up all over Stockton, but then around 2007, it became one of the foreclosure sore spots of the country, helping set off the Great Recession of 2008.

My theory of the mortgage meltdown has been that it was inextricably tied up with “diversity.”

But, what do I mean by “diversity?” I use the word to signify:

- a demographic reality;
- an ideology or attitude (“Diversity is our strength,” as Dan Quayle said);
- government, activist, corporate, and media projects intended to operationalize that ideology and intimidate skeptics into silence;
- and to signify what many, from the highest to the lowest in our society, view as a get-rich-quick opportunity.

Dr. Reid’s little study of mortgagees in Stockton and Oakland is important for understanding the Who? Whom? aspects of the Minority Mortgage Meltdown. 

Since almost nobody in our culture publicly dissents from Diversity, or really even notices anymore how much it keeps us from noticing what is in front of our noses, we are left with only two ideologies:

Double Down on Diversity

The Randians have the problem that while a lot of government programs exacerbated the mortgage meltdown, good old hog-stomping greed played a huge role as well.

The Double Down on Diversity conventional wisdom about how the problem is, as always, Rich Old White Men blocks us from noticing that the Rich Old White Men who were up to their elbows in this debacle (e.g., Angelo Mozilo, George W. Bush) were outspoken enthusiasts for Double Down on Diversity themselves. Indeed, the Double Down on Diversity view prevents us from noticing the High-Low coalition in which elites use designated victim groups as mascots to get more of what they want, even though it is central to understanding the way of the world in the 21st Century.

If we drop both sets of ideological blinders, one thing we notice is that an overlooked aspect of the fiasco was the role of minority mortgage brokers in putting their co-ethnics into terrible loans. This isn’t a huge aspect to the story, but it’s an enlightening one.

Since 1968, the government had built a system based around the notion that the problem was white people denying loans to people of color. Over time, the more optimistic and/or aggressive industry participants became true believers. There had been a big push over the years to diversify the mortgage broker profession, both from the government for diversity reasons and from private interests for profit-seeking reasons. It seemed a happy illustration of the virtues of MultiCulti Capitalism.

Not surprisingly, with everybody — regulators and regulatees — in vociferous public agreement that the solution was to Double Down on Diversity – hire more minority mortgage brokers so minorities can get more mortgages – the real problem turned out to be the opposite: the minority mortgage brokers pocketed big commissions putting minorities who should never have gotten a mortgage at all into a mortgage, and pocketed bigger commissions by putting creditworthy minorities who should have gotten a prime interest mortgage into a higher commission subprime one. 

Dr. Reid’s paper is based on interviews with 33 people in Stockton and 47 in Oakland. In this little study, 66 of the 80 homebuyers were nonwhite. Interestingly, 84% of the respondents enjoyed the services of a mortgage broker of the same race/ethnicity as themselves.

The anecdotes also provide insight into why so many borrowers ended up in loans that they could not afford over the long term, and why borrowers with prime credits cores—particularly among Hispanic and Black borrowers—received a subprime loan. Did borrowers actively “seek” out subprime loans, or were they “sold” loans by unscrupulous brokers and lenders?

In the interviews, three key themes related to social embeddedness emerged. … social networks to help them identify mortgage brokers and lenders, and particularly for the immigrant and African?American respondents, revealed a strong preference for brokers who were part of the local community [i.e., racial community, not geographical community). This preference was driven by perceptions that outsiders would not treat them fairly, and that a broker who “understood” their situation would be more likely to result in a positive outcome.

Keep in mind here that “positive outcome” to most of these minority borrowers means getting your hands on the front door key, and “treat them fairly” means letting them get a house, not making sure it’s a mortgage they can afford. Reid provides numerous examples of get rich quick greed among her interviewees. A lot of people in Stockton and Oakland figured they’d flip the house for big money right away, so few read their contracts, even if they were literate in English.

The shared identity that borrowers felt with their brokers, coupled with the broker’s perceived expertise about the mortgage process, led borrowers to trust their advice and not seek external validation of the information provided. As I show using the quantitative data, this led to mortgage outcome sthat were not necessarily in their best economic interest.  

One of the strong themes that emerged from the interviews was the extent to which respondents of color expressed their desire to work with a broker from their own community or background, and that they turned to friends and family members to identify a broker or lender that had a history of serving other families in the community.  

In, numerous interviews, borrowers said that they turned to their social networks and relations in the neighborhood to identify a local mortgage broker who would be willing to “work with someone like me.” Part of this was driven by a lack of trust in traditional lenders, and several respondents in Oakland noted a historical distrust of banks in the community. 

By lack of trust, they mean, I suspect, resentment that banks in the community didn’t trust them to pay back loans. Of course, that it turned out the the bad old banks were right about them won’t make them like the bad old banks more.

….Empirical research studies, however, have revealed that during the subprime boom, yield spread premiums coupled with a push for a greater volume of loan originations provided a financial incentive for brokers to work against the interests of the borrower(e.g. Ernst, Bocia and Li 2008). In addition, since there was no statutory employer?employee relationship between lending institutions and brokers, there were few legal protections to ensure that brokers provide borrowers with fair and balanced information. This aligns with the “trust” that social relations engender. … 

In both Stockton and Oakland, respondents did not seem to be aware of the potential for perverse incentives on the part of brokers, and instead trusted them fully to actin their best interests.

… The quantitative data, however, shows that the decision to “trust” a broker often worked against the best financial interests of the borrower, especially for minority borrowers. Research has shown that regardless of their FICO score, Blacks and Hispanics were much more likely to receive a high?cost loan, especially when that loan was facilitated by a mortgage broker. This hold strue even when we control for other factors, such as local housing and mortgage market conditions, fico score, and loan to value and debt to income ratio. 

Indeed, in a multivariate model that controls for the majority of underwriting variables, we find that origination by a mortgage broker has a large statistically significant effect on the likelihood of getting a high cost loan for certain borrowers, and that this effect is greater for Hispanics and Blacks. (Figure 5) The marginal effect of using a broker is 22 percent for Hispanics, and 18 percent for Blacks. While it may not seem like an extremely large effect, it is approximately equivalent to a 200 point decrease in a borrower’s FICO score. In contrast, white borrowers who used the services of a mortgage broker were 4 percent less likely to get a high cost loan, suggesting that in their case, on average, brokers helped them to navigate a better mortgage product based on their risk characteristics. 

So, were these loans “sold” or “sought”? While certainly not conclusive, the interviews suggest both are true. First, mortgage brokers in Oakland and Stockton were specifically targeting their services to borrowers with lower FICO scores, and much of the marketing focused on reaching borrowers with poor credit records. (Figure 6) Second, borrowers with lower credit scores actively sought out mortgage brokers who they had heard would help them wade through the paperwork and get a mortgage approved. What was less clear from the interviews was whether or not brokers had intentionally duped borrowers into taking on irresponsible loan products.

In Reid’s sample, four of her 80 interviewees were also mortgage brokers themselves. They all felt fine about what they did, and few of her other minority interviewees blasted their brokers. Most felt pretty warmly about their brokers still. The affinity part of affinity fraud really works.

Affinity scams in which people are duped into trusting that a promoter has their best interests in heart because he’s a fellow whatever are sadly common. Affinity fraud and Ponzi schemes (which the Housing Bubble was a variant of) frequently go together.

Yet, I’m not sure if anybody has previously pointed out how the government, media, activist, and social pressure to diversify the mortgage industry turned places like Stockton into a government-endorsed affinity fraud Ponzi scheme?
(Republished from iSteve by permission of author or representative)
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Since 1975, the federal government has been collecting data to make sure that minorities get enough mortgages, but nobody set up a system to see if minorities were paying back their mortgages. Thus, when the mortgage market collapsed in 2007-08, there wasn’t much data readily available on who was defaulting on their loans. I started pointing out in 2007 that the circumstantial evidence pointed to this being heavily “diversity-driven.” After all, the government and the media had been making a huge effort to keep minorities from getting too few mortgages, so the most likely mistake was they had gotten too many.

Slowly, academic studies are emerging of who exactly defaulted, and it turns out … I was right. For example:

Analyzing Foreclosures Among High-income Black/African American and Hispanic/Latino Borrowers in Prince George’s County, Maryland 

Katrin B. Anacker, James H. Carr, and Archana Pradhan 


Although Prince George’s County, Maryland, is the wealthiest Black/African American county in the nation, the national foreclosure crisis has had a profound effect on it. Using a merged data set consisting of Home Mortgage Disclosure Act (HMDA), U.S. Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyzed the likelihood of foreclosure in Prince George’s County in the Washington, DC metropolitan area. We found that the borrowers in Black/African American neighborhoods with high-income were 42% more likely and Hispanic/Latino neighborhoods with high income were 159% more likely than the borrowers in non-Hispanic White neighborhoods to go into foreclosure, controlling for key demographic, socioeconomic, and financial variables.

These race differences are after they statistically adjust the heck out of everything. I think it’s also useful to highlight the raw foreclosure rates in Prince George’s County, Maryland:

White: 1.91% (372 foreclosures)
Hispanic: 6.42% (3.4X the white rate, 1,091 foreclosures)
Black: 3.62% (1.9X the white rate, 4,219 foreclosures)

That’s a lot of Hispanic foreclosures for a county famous for its black population.

One thing to keep in mind about these studies is that the national racial gaps might turn out to be even bigger than the regional ones because the studies are typically done of places with a lot of foreclosures, which tend to be pretty vibrant. I haven’t seen anybody yet do a study of defaults in, say, the Dakotas.

(Republished from iSteve by permission of author or representative)
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Here’s another paper on the role of diversity in the mortgage meltdown:

Analyzing Determinants of Foreclosure of Middle-Income Borrowers of Color in the Atlanta, GA Metropolitan Area 

Katrin B. Anacker
George Mason University – School of Public Policy 

James H. Carr
Federal National Mortgage Association (Fannie Mae) 

Archana Pradhan
National Community Reinvestment Coalition (NCRC) 

July 14, 2012
GMU School of Public Policy Research Paper No. 2013-01  

Foreclosures have disproportionately affected borrowers and communities of color. Many studies have concentrated on the nation and specific metropolitan areas, but few academic studies have focused on Atlanta. Using a merged data set consisting of Home Mortgage Disclosure Act (HMDA), U.S. Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyze the likelihood of foreclosure in the Atlanta, GA metropolitan area. We find that African American borrowers are 52 percent and Hispanic borrowers 159 percent more likely to go into foreclosure, controlling for key financial variables. We also find that African American middle-income borrowers are 35 percent more likely to go into foreclosure. Moreover, we find that exotic mortgage products, such as balloon mortgages, adjustable rate mortgages (ARMs) and mortgages with a prepayment penalty have a higher likelihood of foreclosure than standard 30-year fixed rate mortgages.

The raw, unadjusted results for the large Atlanta metropolitan area are that foreclosure percentages were:

White: 1.74% (5,692 homes in foreclosure)
Hispanic: 4.65% (2.7X white rate — 395 homes in foreclosure)
Black: 5.82%  (3.3X white rate – 8,271 homes in foreclosure)

(Republished from iSteve by permission of author or representative)
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Going on a half dozen years after the mortgage meltdown that began in 2007, the evidence continues to trickle in about the key role of diversity in the disaster. Granted, there’s very little demand for hard-headed analyses. Here, for example, is a paper finished in 2011 that has, according to Google, been cited once:

Mortgage Default by 2009: Effects of Race, Ethnicity and Economic Standing During the Boom Years  

Heather Luea
Vanderbilt University  

Adam Reichenberger
Bureau of Labor Statistics  

Tracy Turner
Kansas State University 

Abstract: This paper examines the determinants of 2009 mortgage delinquency by race and ethnicity using new household-level data on mortgage distress from the Panel Study of Income Dynamics. Controlling for homeowner and loan characteristics as well as residence in a nonrecourse state, we find startling differences in mortgage delinquency rates that cannot be explained by observables. The unexplained black/white gap corresponds to a 44% higher likelihood that black homeowners will be delinquent on their mortgages relative to non-Hispanic white homeowners. The unexplained difference in Hispanic mortgage delinquency relative to non-Hispanic white homeowners is even greater, at double the black/white delinquency gap.

… The economic decline that began in 2007 was preceded by nearly two decades of government-aided, rapidly rising homeownership rates among minority households (Bostic and Lee, 2007). Given this and the severity of the recent economic crisis, it is important to understand the extent to which minority households have weathered the crisis as well as non-Hispanic white households, all else equal. Indeed, the recent and historical role played by the US government and nonprofit agencies in boosting access to homeownership by underrepresented groups makes understanding these groups’ outcomes particularly relevant.4 

Footnote 4: As recently as June 2002, President Bush announced a goal of closing the homeownership gap for minority households by 5.5 million households by the end of 2010 through innovatiosn such as zero-down-payment loans. That administration’s efforts followed more than a decade of housing market interventions, including President Clinton’s National Homeownership Strategy, a trillion dollar commitment by Fannie Mae, the Campaign for Homeownership of the Neighborhood Reinvestment Corporation, and expanded lending to low-income and minority households in part as a result of the implications of the Community Reinvestment Act (Turner and Smith, 2009). 

… As a preview of our findings, we find that black and Hispanic households that own their housing in 2005 are significantly more likely to become delinquent on their home loans by 2009 than non-Hispanic white homeowners. We find an unconditional, weighted likelihood of delinquency of 11.3%, 16% and 3.4% for black, Hispanic, and non-Hispanic white homeowners, respectively, making black homeowners 7.9 and Hispanic homeowners 12.6 percentage points more likely to be delinquent than non-Hispanic white homeowners. 

Let’s break those delinquency-by-2009 rates out:

Whites: 3.4%
Blacks: 11.3% (3.3X the white rate)
Hispanics: 16.0% (4.7X the white rate)

The sample sizes of 2005 homeowers in the PSID are not huge: 2344 for whites, 810 for blacks and 263 for Hispanics (the number of Hispanics in a long-running longitudinal study naturally lags behind their number in the population). Also this study design excludes the 2006-07 vintage of new mortgages, which were the bottom of the barrel. However:

While the sample size of the PSID may be considered small compared to loan-based samples (for example, in the 2009 survey, there are roughly 8,000 households), the PSID has a number of advantages over larger samples that are either not household-based or not longitudinal. First, importantly, the unit of observation is the household, and the PSID collects extensive household-level data on employment, income, wealth, and housing costs and characteristics. In 2009, for the first time in the history of the PSID, survey respondents were also asked questions regarding mortgage delinquency and foreclosure, making this a dataset well suited for our study. Second, the PSID is a longitudinal dataset following families from as early as 1968 to present. Using the PSID, we have borrower and loan characteristics overtime, which to our knowledge are data not available in any other single dataset. Third, once sample weights are applied, the PSID is a nationally representative sample of the US population.

Statistically adjusting for all the info in the PSID, it turns out that there are still substantial racial gaps in staying current on mortgages:

Conditioning on extensive borrower and particularly loan characteristics reduces the race and ethnicity gaps in mortgage sustainability considerably, but does not entirely eliminate these gaps. In the full specification, we find that black and Hispanic homeowners remain 1.5 and 3 percentage points more likely to be delinquent than non Hispanic white homeowners, respectively. These unexplained effects are  large relative to the underlying mortgage delinquency rate of 3.4% for non-Hispanic white households.

In other words, statistically adjusting for everything they can come up with (e.g., income), there are still unexplained racial gaps:

Whites: 3.4%
Blacks: 4.9% (1.44X the white rate even after adjustment)
Hispanics: 6.4% (1.88X the white rate after adjustment)

In many ways, the first set of numbers is the more important. As the population shifts from whites to Hispanics, the delinquency rate would tend to get worse. 

But the second table can help explain why money-hungry but politically true-believing lenders like Angelo Mozilo of Countrywide could mess up so badly. You are not allowed to use race/ethnicity in credit modeling, but it turns out that race/ethnicity still matters a lot even in cases where the facts you are allowed to look at are all the same. During the 1990s, Mozilo became convinced that it was sheer racism to worry that Hispanics could default at higher rates than the model predicts.

We find startling differences by race and ethnicity in mortgage delinquency rates that cannot be fully explained by observables …

The homeownership rates of black and Hispanic households have been and remain substantially below that of non-Hispanic white households. That certain groups experience low homeownership rates is cause for concern particularly to the extent that these gaps are involuntary and in light of the possibility that homeownership generates private and community benefits (i.e., Turner and Luea, 2009; Haurin, Dietz, and Weinberg, 2002). Belief in the positive externalities of homeownership has motivated substantial efforts in the past two decades to boost the homeownership attainment of underrepresented groups, and these efforts have generated relative gains in minority homeownership (Bostic and Lee, 2007). Evidence is mounting that the Great Recession has adversely impacted minorities to a greater extent than non-Hispanic white households. It is likely that the economically disadvantaged households that are losing their homes are some of the same households propelled into homeownership through federal assistance to begin with. If there is a silver lining, it may be that, according to recent work by Molloy and Shan (2011), post-foreclosure households on average do not end up in either less desirable neighborhoods or more crowded living conditions than what they experienced as homeowners. Determining the extent to which housing policy may have fueled the 2009 differential delinquency rates by minority status and why, and whether these households are nonetheless better off for their homeownership stint, would be valuable information for future policy design.

This might also be valuable information for current immigration policy design.

(Republished from iSteve by permission of author or representative)
• Tags: Mortgage, Real Estate 
Steve Sailer
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Steve Sailer is a journalist, movie critic for Taki's Magazine, columnist, and founder of the Human Biodiversity discussion group for top scientists and public intellectuals.

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