How the subprime crisis hit blacks hardest

By Felix Salmon
October 4, 2010

America’s minorities, it seems, can’t catch a break when it comes to housing. Before the subprime boom, they were much less likely than their white counterparts to be able to get a mortgage. Then, when the subprime boom started, they were much more likely to be sold a predatory mortgage.

A new study by Douglas Massey and Jacob Rugh of Princeton does a great job of quantifying this effect and nailing it down. My colleague Nick Carey has a story about it, but you should read the study yourself: I’ve uploaded it here and embedded it below.

The study is pretty clear. The authors have built a model which explains foreclosure rates, using a large number of variables, including things like overbuilding rates and house-price appreciation as well as demographics including credit scores. And it turns out, after crunching the numbers and doing the regressions, that living in a racially-segregated area is an important predictive factor in terms of how likely you are to experience foreclosure:

Whether measured in terms of residential dissimilarity or spatial isolation, segregation of African Americans is a powerful and highly significant predictor of the number and rate of foreclosures across U.S. metropolitan areas. For instance, a .1 unit increase in black dissimilarity is associated with 37 percent more foreclosure actions and a 34 percent increase in the foreclosure rate.

(“Black dissimilarity,” here, is a measure, ranging from 0 to 1, of how black a neighborhood is compared to the country as a whole.)

To put it another way, an increase of one standard deviation in a neighborhood’s black dissimilarity increases the foreclosure rate by 1.68 percentage points — which is a very large amount, given that the overall foreclosure rate is 4.14%. To put those numbers in perspective, a one-standard-deviation increase in factors like housing starts or house-price appreciation or even unemployment fails to increase the foreclosure rate by even 1 percentage point.

The authors conclude:

By concentrating foreclosures in metropolitan areas with large racial differentials in subprime lending, segregation structured the causes of the crisis, as well as the geographic and social distribution of its costs, on the basis of race. Segregation therefore racialized and intensified the consequences of the American housing bubble.

It’s hard to read this without being reminded of this chart:

det.jpg

Obviously, there’s more going on in Detroit than just racial segregation and discrimination. But it’s surely an exacerbating factor.

10ASR10_629-651_massey (2)

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Comments
42 comments so far

Living for two or three years with no money down in a much better home than I could otherwise have afforded meets my definition of “catching a break.”

Posted by maynardGkeynes | Report as abusive

It’s a lie. It’s not true, and I have to think that you know it. Lenders are not without fault, but the US government FORCED American banks to lend without prudence or face accusations of discriminatory lending and government intrusion on business decisions. Then Fannie Mae & Freddie Mac loosened guidelines to fuel the boom and enrich their reckless managers. Their managers fueled the campaigns of people like Christopher Dodd, Barney Frank, and Barack Hussein Obama (and some Republicans as well). As regulators and as other congresspeople saw the crisis looming in years such as 2005, Barney Frank said we did not have a “pwobwem.” Now he and his colleagues have turned on the banks that he blackmailed. BHO says capitalism failed, but government manipulated the system into failure and now wants to manipulate it further and got legislation passed which will facilitate that. But tough decisions about Fannie Mae and Freddie Mac continue to be avoided.

Posted by Tigers88 | Report as abusive

America is basically a predatory nation and this includes exploiting and preying on those least knowledgeable and able to protect themselves. Businesses use asymmetry of information to cheat and take advantage of their customers. The poor, women, and minorities have always been easy to exploit in a manner that any civilized and ethical society would consider criminal. The system is not only supported but advanced by those who benefit or hope to benefit. The denials reflect the true dark, ugly American character that long ago destroyed the soul of this country.

Posted by Greenspan2 | Report as abusive

All this “research” really tells me is that minorities were less likely to read the fine print, financially justify their applications, and reasonably budget for their mortgage payments in the future. No one forced them to purchase anything. This article is once again academic-elite leftist propaganda aimed to deflect the simple fact that as a whole Americans, minority or otherwise, became greedy and turned a blind eye to the fact they really did not have the financial means nor responsibility to own property.

Posted by Redone | Report as abusive

Was it only white people preying on minorities? In geographic locations made up of a predominantly minority population did white people infiltrate the area screaming “Buy this buy this!” then scurry away when all was said and done? Or is it possible minorities prey on each other also and it’s not all whiteys fault?

And I have to second Redone’s comment.

Posted by iflydaplanes | Report as abusive

You conservatives can’t be serious about laying the blame for this debacle on liberals or poor minorities. President Bush himself took credit for the historically high home ownership rates in 2006 (I remember the speech very well). The Republicans were all taking credit for it at the time. Greenspan pushed interest rates down and people were looking for other ways to make money. Besides, home ownership increases social stability, right?

And some of you people are missing an important factor of what it’s like to buy a house for the first time. I’m white and well-educated, but I must confess that doing the initial research on what kind of a loan to get was often daunting and sometimes confusing. One has to be highly literate, comfortable with numbers and the concept of interest rates, able to differentiate between a fixed and a variable rate mortgage, and understand that all of the responsibility for repairs, etc. would be yours. To be honest, before the bubble burst I couldn’t have told you what an interest only or a balloon loan was. Or why some lenders were pushing two mortgages on the same property. Or even that a home equity loan was actually a second mortgage and the bank was lending you money against against the fantasy of ever-increasing value. In the end you really can be at the mercy of the lender and its representatives. You assume the guy across the table knows what he is talking about and has your best interests at heart (surely he wouldn’t want you to default, would he?) They all say they’re professionals, right? Add to this confounding mix poorly educated blacks or Hispanics who don’t know a good interest rate from a loan shark rate and you can see how people could be snookered into buying more home than they could possibly afford. After all, wasn’t the mantra at the time that home values would always rise? People said you were foolish if you didn’t catch that train back in 2004.

Posted by IntoTheTardis | Report as abusive

Rich people, or peasants with money, use their power to advance their golf buddies and punish the people they hate.
Bigot is a better discriber than racist: money hates by color, class, age, religion, eye color or any other irrational criteria just to wield power over anyone they don’t understand.
No one forced lending to minorities. Bankers would not lend until they had a tool to get rich on someone else’s trauma.
bobby99

Posted by BOBBY99 | Report as abusive

I am a huge fan of your columns, Felix. This is the worst leader of yours that I’ve ever seen, by far.

As someone who worked in the subprime field, ANYONE who would buy a subprime mortgage was sold a subprime mortgage. It has nothing to do with civil rights. Nobody has “the right” to own a home in America. The fact of the matter is that there are many people in the US, of all shades of color (I originated far more loans for white people than I did for minorities), who do not conform to lending standards set forth by banks. It’s their money, they lend it as they see fit. The in/ability of one group of people to access credit is far more a question of how larger society views its varying constituencies, and individual greed, and less a question of “who deserves a break.” Nobody deserves this type of break. This type a break is earned through fastidious and wise use of your income. Anyone can do that. And we see, with 20/20 vision, what happens when credit is extended to those with little ability to pay, regardless of color. Of course it hit African Americans hardest, just as most negative economic events affect that group first, or hardest. I hope your next column is better.

Posted by Adam_S | Report as abusive

I read the comments to your column and I’m saddened. I worked in the subprime industry as well and I know that preying on ignorance and using high pressured sales tactics was the norm. In the end it really comes down to what type of society do we want to live in. To my chagrin, most of the larger banks owned these subprime entities. The loss of the job market accelerated the collapse of our economy. But lending to folks less sophisticated at 30% interest is just wrong.

Posted by kdsing1 | Report as abusive

That old conservative wive’s tail about the liberals and government regulations causing the mortgage melt down through the Community Reinvestment Act (CRA) always rears its ugly head whenever the melt-down topic comes up. It’s been disproved time and time again but brain dead ditto heads and neo-numbskulls keep bringing it up anyway.
The fact is that the vast majority of mortgage lenders who made the vast majority of subprime mortgage loans, were NOT subject to the CRA. They were NEVER mandated to make risky loans to minority borrowers, they made the loans because they were hugely profitable on the secondary market. If people like Tigers88 would take a moment to actually READ the reports they would know this. Unfortunately, these people are more interested in their political agenda than the truth.

Posted by ObjectivObsrvr | Report as abusive

Three words as to why this story exists. “Community Reinvestment Act.” The sub-prime markets were created to meet the requirements of the CRA, and the sub-prime markets were aimed primarily at one group of people – Blacks. Jimmy Carter, and Bill Clinton after him (skipping Reagan and Bush #1 of course), wanted the banks to make more money available to those living in areas that were deemed “undesirable” by the banks. There were even maps that banks used to “exclude” those areas, know as high-risk. The CRA ended that practice, but the only way the banks could comply was to create loans products they could bundle together with prime loans to sell to investors. Of course we all know what happened as a result. This is what happens when government interferes with free markets. Nothing good comes from commune”ism” — look around you, do you see it working anywhere?

Posted by OMG123 | Report as abusive

How accurate this is depends entirely on your point of view, whether Liberal or Conservative or independent.

In the 1990′s financial institutions were pushed HARD by the Clinton administration to lend more to minorities. This was especially strong on the quasi-government Fannie Mae and Freddie Mac. They bought sub-prime mortgages for the first time as a result of this mandate.

Is it really a surprise that sub-prime mortgages were issued in disproportionate number to minorities? Give me a break. The whole purpose of the “reform” was to do that. And it was intended to HELP minorities, not hurt them. The Clintons.

Now instead of blaming a wrong-headed Liberal program, researchers blame whites. But they blamed whites earlier for *NOT* issuing sub-prime mortgages to minorities. If you are white, you are bad. Why not just publish that assertion?? Saves time and is correctly bald in its racism.

Posted by txgadfly | Report as abusive

Addressing some of the comments above, can we really lay blame for this debacle at the feet of only one party? Of course not…no conservative myself, I would say that the Bush presidency simply carried forward the agenda begun by the Clinton administration. I reference the article below as support for this claim.

Quoting from a NYT article from September 1999:

“Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”

http://www.nytimes.com/1999/09/30/busine ss/fannie-mae-eases-credit-to-aid-mortga ge-lending.html

Posted by JamesCC | Report as abusive

In response to “ObjectivObsrvr:” The CRA wasn’t the only factor, it was the root cause. The agreement between the government and the banks was a lot more complicated than simply mandating loans to people with bad credit. Banks became investors, investor became banks, regulations were weakened or completely abolished, the Fed printed money with unchecked rigor and the banks they were having an orgy with it.

But the bottom line is this: If you sign your name to a contract worth hundreds of thousands of dollars, you get no sympathy from me if you did so without understanding the consequences. And I know far more white people than black or Hispanic, who did just that, so this story to me is just another example of using a selective population to create a statistical story to push a narrow and incomplete point of view, or as you say, an agenda.

Posted by OMG123 | Report as abusive

Good job, Felix. Thank you for your article and for posting the link to the actual data. And I can’t resist saying… Go, Princeton in the Nation’s Service!

Posted by joncarllewis | Report as abusive

The comments above referring to “these people” and “living for two or three years with no money down” also disproportionately shifts the anger to those who in some cases may not have understood the market risks, instead of towards those who understood full well what they were doing and to whom they were doing it — – predatory lenders, speculators (“flipping houses”), and others.

I’m not sure how many of you actually READ the report linked to Felix Salmon’s column, but some of the comments don’t reflect it. First of all, it states that segregation was a contributing cause of the foreclosure crisis, not the sole, or main cause. Other factors were risky lending practices, lax regulations and bursting of housing price bubble.

The report simply states that upon investigation, subprime mortgages were disproportionately sold within urban communities with large minority populations. The report also states those subprime mortages were sold to blacks at 3x the rate and to Hispanics at twice the rate they were sold to other groups. Those who did not go to college were disproportionately targeted. Even if your credit profile was eligible for a prime loan, you were still aggressively marketed a subprime loan.

I would like to posit this: If, as the report states, mortgage lenders who did not go bankrupt were also lenders who made prime loans to minorities on a fairly equal basis, as opposed to those who oversold subprime loans to minorities and did go bankrupt, then maybe we can agree that fair and equal lending practices might have lessened the effects on the mortgage crisis in minority communities. But this in no way erases the effect that subprime loans overall affected the economy. Perhaps the correct focus of the conversation could return to the fact that “brokers, lenders securitizrers and ratings agencies failed to foresee the perils of “default correlation” — interrelated risks bound upon in interconnected portfolios of troubled loans.” Targeting segregated communities just made it easier to sell the subprime loans; it doesn’t mean it still wouldn’t have happened.

Posted by Paine21 | Report as abusive

“I’m not a hunter but i am told,
that, uh, in places like in the arctic,
where indiginous people sometimes might, might, hunt a wolf,
they’ll take a double edged blade,
and they’ll put blood on the blade,
and they’ll melt the ice and stick the handle in the ice,
so that only the blade is protruding,
and that a wolf will smell the blood and wants to eat,
and it will come and lick the blade trying to eat,
and what happens is when the wolf licks the blade,
of course, he cuts his tongue, and he bleeds,
and he thinks he’s really having a good thing,
and he drinks and he licks and he licks,
and of course he is drinking his own blood and he kills himself,
thats what the Imperialists did with us with crack cocaine,
you have these young brothers out there who think they are getting something
they gonna make a living with,
they is getting something they can buy a car,
like the white people have cars, why can’t i have a car?
they getting something they can get a piece of gold,
white people have gold, why can’t i have gold?
they getting something to get a house,
white people have a house, why can’t i have a house?
and they actually think that theres something thats bringing resources to them,
but they’re killing themsleves just like the wolf was licking the blade,
and they’re slowly dying without knowing it.
thats whats happening to the community, you with me on that?
thats exactly, precisely what happens to the community,
and instead of blaming the hunter who put the damn handle and blade in the ice
for the wolf,
that what happens is the wolf gets the blame, gets the blame for trying to live,
thats what happens in our community,
you don’t blame the person, the victim,
you blame the oppressor, Imperialism, white power is the enemy,
was the enemy when it first came to Africa,
and snatched up the first African brothers here against our will,
isss the enemy today,
and thats the thing that we have to understand.”

Fishes. Most of you should realize, but do not, that white power, and white people are very different things. White power is the elite, the wealthy. Whites are just another race like any other, struggling to survive. The elite try to divide whites from other minorities so that the poor and middle classes are too busy fighting each other to realizes who is oppressing them.

It is not that the elites are smarter, they didn’t see the economic melt down coming either, but they have power. The power to get 700 billion dollars from the government. The poor have no power and they will most likely keep licking the blade.

Posted by Fishes | Report as abusive

@fishes…wow, quite a little ditty you gave us there… did you write this ‘epic’ yourself?

Posted by JamesCC | Report as abusive

There are many comments above which specify parts of the cause. As was pointed out by JamesCC, the Bush administration was carrying the agenda forward from the Clinton administration, however, the origin of the financial industry involvement begins with the Graham-Leach-Bliley Act signed into law in 1999 by President Clinton.
see http://en.wikipedia.org/wiki/Gramm-Leach -Bliley_Act
“The Gramm–Leach–Bliley Act also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act signed into law by President Bill Clinton which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.
The Gramm–Leach–Bliley Act allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate. For example, Citicorp (a commercial bank holding company) merged with Travelers Group (an insurance company) in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. This combination, announced in 1998, would have violated the Glass-Steagall Act and the Bank Holding Company Act of 1956 by combining securities, insurance, and banking, if not for a temporary waiver process. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the “financial services industry”.
What then followed was deliberate “redlining”
see http://en.wikipedia.org/wiki/Redlining -Redlining is the practice of denying, or increasing the cost of, services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term “redlining” was coined in the late 1960s by John McKnight, a Northwestern University sociologist and community organizer. The practice called “redlining” began with the National Housing Act of 1934, which established the Federal Housing Administration (FHA). The federal government, under the Progressive F.D. Roosevelt, continued the historical attack against minorities by the Progressive movement and contributed to the early decay of inner city neighborhoods by withholding mortgage capital and making it difficult for these neighborhoods to attract and retain families able to purchase homes. This was the FDR New Deal in practice and has been continued up to today. In 1935, the Federal Home Loan Bank Board (FHLBB) asked Home Owners’ Loan Corporation (HOLC) to look at 239 cities and create “residential security maps” to indicate the level of security for real-estate investments in each surveyed city.
In Must be remembered that racial discrimination has been a democrat party policy since the beginning of the party. For example, During the Reconstruction period of 1865–1877 federal law provided civil rights protection in the South for “freedmen” the African Americans who had formerly been slaves. In the 1870s, white Democrats gradually returned to power in southern states, sometimes as a result of elections in which paramilitary groups including the K.K.K. intimidated opponents, attacking blacks or preventing them from voting. White Democrats, which had voted to secede from the Union and for the Confederacy, had regained power in every Southern state. The white, Democratic Party government that followed the troop withdrawal legislated Jim Crow laws segregating black people from the state’s white population.
[Research the origin of Jim Crow laws enacted by southern democrats following the removal of Federal troops from the south.]
Following the misappropriations of more than 90 million dollars from Fannie Mae by Franklin Raines and the deliberate misdirecting of HUD by Andrew Cuomo. During Cuomo’s tenure as HUD Secretary, he called for an increase in home ownership. He also pushed government-sponsored lenders Fannie Mae and Freddie Mac to buy more home loans issued to poor homeowners, in an attempt to end discrimination against minorities. This helped lead to the current sub-prime mortgage crisis. Cuomo was pushing mortgage bankers to make loans and basically saying you have to offer a loan to everybody, even those with no provable ability to repay. In finance, sub-prime lending means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans. The standards for determining risk categories refer to the size of the loan, “traditional” or “nontraditional” structure of the loan, borrower credit rating, ratio of borrower debt to income or assets, ratio of loan to value or collateral, and documentation provided on those loans which do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages (are “non-conforming”). The Federal government required these new multi-national financial institutions to make these sub-prime loans and lost in the paperwork was more than 1,000,000,000. Franklin Raines is the only person so far alleged to have been involved but common sense indicates he has many accomplices.
In spite of all this, those who did not qualify for loans, were working hard, some held 2 and 3 jobs, in order to make their mortgage payments in the strong economy of 2002 through 2005. Enter the oil companies to this crisis by increasing the cost of gas and diesel until sub prime borrowers were forced into a choice. Buy fuel to go to work OR pay the mortgage. This was done deliberately by Republicans and Democrats. To date I have identified more than 20 billion dollars that cannot be accounted for AND no one but myself addresses the prosecution of these criminals. A President, if elected in 2012, I will find and prosecute each and every individual involved and I will restructure the financial industry to correct these deliberate acts to create a crisis.
I am
Cecil L Russell
cecilrussell2012

Posted by cecilrussell | Report as abusive

This article (and I suspect the study on which it is based) missed several important points.

First of all, the article never mentions the Community Reinvestment Act at all. The article mentions an increase in subprime lending between 1993 and 2009, but it never mentions the fact that the requirements on Banks to make CRA compliant loans increased in 1997 from 30% of all bank loans to 60% of all bank loans. CRA compliant loans are loans made in “low-moderate income neighborhoods”, which are the neighborhoods most often associated with minority communities. OF COURSE subprime lending to minorities increased… not because they were minorities, but rather because they were POOR and banks were required to lend to poor neighborhoods. There was nothing racially motivated about it.

Furthermore, this article fails to acknowledge that 89% of all subprime loans were originated by Fannie Mae and Freddie Mac… which means that these government-run entities were the ones mostly responsible for the subprime lending crisis. Furthermore, the Adjustible Rate Mortgage product itself was created by Fannie Mae and Freddie Mac and was deemed by these agencies to be both a valuable loan product and compliant with their regulations.

Are we prepared to argue that the same government that is responsible for “anti-redlining” laws like CRA is a racist government?

Again, this article confuses the OUTCOME with CAUSE-AND-EFFECT. The outcome was that minorities were most hurt by CRA practices. But it wasn’t because they were minorities. It was because they were POOR, and the regulations REQUIRED that lenders lend to them.

The cause was not descrimination… the cause was bad lending practices caused by bad regulation.

Posted by ETWolverine | Report as abusive

The world is becoming insane.

Banks are now blamed for whether they are lending to minorities or not, while at the same time they are not permitted to question or obtain information on whether someone is a minority or not.

WTF?

Posted by ETWolverine | Report as abusive

Cecil Russel,

Our national debt is somewhere between $60 trillion and $125 trillion, depending on who is doing the ccounting.

And you are worried about $20 billion? 0.033% of the low estimate of the national debt?

Perhaps that’s why none of the national parties will pick you up as a candidate. There’s nothing serious about you.

Posted by ETWolverine | Report as abusive

Only in America can a bank lend money to minorities without checking their income, job status, asset level or ability to repay the loan and then be blamed for being RACIST against minorities for having given those minorities what they asked for in the first place.

This is the very definition of insanity.

Posted by ETWolverine | Report as abusive

I don’t think it is only minorities that are abused by the real estate business. As a white male who has worked all my life with an excellent credit rating, it was a horrible and humiliating process buying a home. I was waiting for them to ask for blood for DNA analysis. Of course I had to go with a regular mortgage and purchase mortgage insurance as I can not qualify for any of the ‘special’ government programs. To top it off the real estate agents tried their hardest to sell me a house I really could not afford. They were not happy I chose a home within my budget. We are all victims of this greedy system, I hate them all.

Posted by BenL | Report as abusive

There is no evidence that the CRA “caused” the mortgage melt down.

The mortgage melt down resulted primarily from lax enforcement of regulations and the originating of high-priced subprime loans which were repackaged into security bundles. The price of the loan rather than the credit worthiness of the borrower is the greatest single predictor of foreclosure. And the vast majority of those loans were NOT made pursuant to CRA assessments practices. The reason these loans were sold so hard was because they made the originators a lot of money on the secondary market. CRA banks were half as likely to resale those loans than non-CRA banks.

Bernanke said in his testimony to congress about the melt down “ . . . originators who sell loans may have less incentive to undertake careful underwriting than if they kept the loans. Moreover, for some originators, fees tied to loan volume made loan sales a higher priority than loan quality. This misalignment of incentives, together with strong investor demand for securities with high yields, contributed to the weakening of underwriting standards.”

Overall CRA banks were 58% less likely to originate these high risk loans (high priced, subprime loans), than non-CRA banks. The CRA banks also retained about twice the number of their original loans than non-CRA lenders.

There is no evidence at all, that the rate of foreclosures for loans made pursuant to CRA assessments is any higher than non-CRA loans.

ALL OF THE CRA bank loans only account for less than 25% of all loan originations. The proportion of sub-prime loans originated by CRA banks account for about 6% of all subprime loans (according to the Federal Reserve). And the subprime CRA loans have about the same delinquency rate as non-CRA subprime loans. And (again according the Federal Reserve) the loans originated by CRA banks performed the same as those loans which originated from non-CRA banks.

It’s hard to imagine how 6% of subprime loans can account for the melt down of the other 94%, especially when those 6% have the same delinquency rate as the others.

Posted by ObjectivObsrvr | Report as abusive

California was ground zero for the subprime liar loans, not Detroit. This article is an absolute joke. The subprime mess started with congress wanting more “affordable housing”, Fanny Mae and Freddy Mac fueled the mess with money, California provided mortgages back to Wall Street based upon lies about the ability to pay the loans, Wall Street repackaged the subprime loans in to AAA securities and sold the packages to the world. To spin this on race is wrong; this is greed, lies and profits.

Posted by Alpha_Blogger | Report as abusive

ETWolverine – Fannie Mae and Freddie Mac do not originate ANY loans, they guarantee them. That 89% you’re talking about are loans made by PRIVATE lenders and guaranteed by Fannie Mae and Freddie Mac. Not the smartest thing they did, but they did it primarily because they thought they could make money off them first and increase the market share to low income borrowers second (according to Fannie chief D. H. Mudd)

Posted by ObjectivObsrvr | Report as abusive

What a bogus story. Full of lies. The Janet Reno Sub-Prime program is to blame for the entire mess. Sub-Prime applicants were the victim. Unqualified and ignorant.

Posted by MadCharles | Report as abusive

One thing no one ever mentions is how much the inflated costs of the homes in question contributed.

How it’s supposed to work: You get a loan and buy a house. If you can’t pay for it, the bank takes it, resells it and get’s their money back.

How it works now: You get a loan and buy a house. You can’t pay for it. The bank tries to take it and sell it, but it turns out the house is only worth some menial percentage of what the mortgage is for, so they sit on it hoping the value will go up so it can be sold without taking a huge loss.

Like some of the others said, this is not a single cause event. This is some sort of financial noreaster where all these forces came together and turned into something much more terrible than any single part could ever be alone.

Posted by brian1121 | Report as abusive

No responsibility in today’s society. It’s nobody’s fault, unless we can dump it on a faceless business, then it’s all their fault.

Count how many times people use “they” when speaking of things disliked. Kind of scary, especially when “they” can mean anyone who’s fiscally prudent.

Posted by dzoo35 | Report as abusive

Similar topic, same outcome, my comment there still pertains

http://blogs.reuters.com/felix-salmon/20 10/06/18/are-foreclosures-racist/

Some lending agencies were criminal operations, money launderers and many mortgage brokers were unlicensed. They are still being rounded up, but many are still in business… and Florida seems to have the most mortgage fraud or the best law enforcement. (and a high Hispanic population)

As Ab Dabs has said, the mortgage brokers were ’selling’ the loans to those in their neighbourhoods who were higher risk.

When there was no one who wanted a home, they were lied to and talked into buying them, knowing that they couldn’t read the fine print, to feed the risky CDO business. How much was deliberate, being they were literally designed to default.

There have been lots of little guys sent to jail, but most are still operating and so far none of the big guys have been caught.

If sub prime mortgages contributed to nearly half of the foreclosure in the 10 years before the crunch, how is it that they more then doubled in the last 2 years before the bubble burst.

The fact that mortgage brokers represented not the borrower, but the lender (and who knows how corrupt and how far up) and often neither as they literally used the lender that offered them the best ‘fees’ or incentives. So yes, in some respects it was racist in that non whites and the poor were targeted, so being almost half were destined to fail… the outcome of foreclosure has racist overtones indeed.

Posted by hsvkitty | Report as abusive

In 2003 in largely African-American areas of Detroit, when the peak in house prices was reached; who were the ones who sold the homes? Anglos? Hispanics? Arabs?

Did the geniuses who wrote this specious twaddle ever stop to consider that there are two parties to every sale, or that both sides of the sale may have involved minorities, or that minority owned banks may have been involved (are you reading this, Maxine Waters)?

What tigger88 wrote is correct, the home mortgage industry was indeed forced to cater to unqualified minority buyers, along with unqualified poor people in general. This actually was a demand made by the country’s so-called black leadership, much in the same way that black leaders originally demanded stiff prison sentences for crack dealers. Pseudo-intellectuals such as Jesse Jackson will never learn – be careful what you wish for, you may just get it.

This story is just another case of faux-researchers inventing “statistical proof” for their biased and specious ideas.

Posted by m5s | Report as abusive

What proof do you present for your ridiculous statement m5s? None! Why? Because there is none. You simply regurgitate the same “twaddle” you hear on talk radio.

Posted by ObjectivObsrvr | Report as abusive

http://www.federalreserve.gov/dcca/cra/ — for those of you who mistakenly belief the Community Reinvestment Act is the cause of the foreclosure crisis.

“The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.”

Please see this paragraph:

“Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.”

Again there were multiple causes for this crisis, but saying the article is a lie, or the report is one is what’s specious m5s. And your knee-jerk assumption that the article blames whites for selling the mortgages is not based on this article or the report. It doesn’t blame whites — it simply says that the research findings are that minorities in specific urban areas were targeted. And again, not all of them were unqualified.

As for blaming faceless businesses dzoo35 — ever hear of Countrywide Financial? You can Google a trail of articles on this company alone.

Willful ignorance isn’t going to change the facts. I’m as much a capitalist as anyone on this page, but these companies couldn’t and wouldn’t regulate themselves. They got greedy and the country is paying the price. Would you call that greedy? Selfish? Unpatriotic?

Posted by Paine21 | Report as abusive

As a former Mortgage Banker, I can tell you that fault should be placed on all parties. Banks got greedy, and people got greedy. Regulation needs to be placed to prevent another collapse like this from ever happening. But to say that one group was targeted over others is totally untrue. As an African American myself, I lend to anyone who qualified under the banks guidelines. I did not check to see what color or where they were from. People love to place blame on anything and everything.

Posted by KILADI | Report as abusive

There is an appalling lack of self-discipline in America today. Businesses, individuals – all are culpable and it will be our downfall. Just because you CAN do something doesn’t mean you SHOULD do something.

Posted by cdspider | Report as abusive

Author Salmon was paid by the word and still missed the point that both gullible fools and people with poor credit ratings pay more to borrow money than people with good credit ratings and smarts. Duh?

Posted by Whiteathame | Report as abusive

As a loan officer that started after the credit crunch I have spoken with borrowers of all races concerning their loans. I have worked with loan officers that have admitted that they targeted anyone who really wanted to purchase a home or refinance and pay off debts. I do believe greed from all played a significant roll in our mortgage crisis. Entitlement did as well. I do feel that some were not familiar with mortgage loans and became fair game for shady loan officers. I am a minority and will say that
Many that I have spoken to are of all kinds of racial backgrounds, education levels, and entitlements. I have spoken to a many of Caucasian individuals that foreclosed on many properties especially due to the fact that they took on more than they could chew with too many mortgages.Minorities too. We all as a country are responsible. There is some truth to the predatory lending. I unfortunately have come across many minorities with higher interest rates than they should have. Some with great credit in bad interest only loans. Greed and Entitlement is the end result and now we are having to all learn from our mistakes.

Posted by ahoygal23 | Report as abusive

As a loan officer that started after the credit crunch I have spoken with borrowers of all races concerning their loans. I have worked with loan officers that have admitted that they targeted anyone who really wanted to purchase a home or refinance and pay off debts. I do believe greed from all played a significant roll in our mortgage crisis. Entitlement did as well. I do feel that some were not familiar with mortgage loans and became fair game for shady loan officers. I am a minority and will say that
Many that I have spoken to are of all kinds of racial backgrounds, education levels, and entitlements. I have spoken to a many of Caucasian individuals that foreclosed on many properties especially due to the fact that they took on more than they could chew with too many mortgages.Minorities too. We all as a country are responsible. There is some truth to the predatory lending. I unfortunately have come across many minorities with higher interest rates than they should have. Some with great credit in bad interest only loans. Greed and Entitlement is the end result and now we are having to all learn from our mistakes.

Posted by ahoygal23 | Report as abusive

Some of you, are ignoring all logic and even sensible application of math in your contention that the CRA is to blame for the mortgage crisis. Case in point: Someone above (Wolverine) wrote this: “the fact that the requirements on Banks to make CRA compliant loans increased in 1997 from 30% of all bank loans to 60% of all bank loans.”
Does anyone here really believe that any U.S. bank was EVER required to make 60% of its loans in minority neighborhoods??? Really??? Black people are 13% of the population–and not all of them live in “minority neighborhoods”. So, you people are really arguing that 60% of all loans from regulated banks flowed into distressed urban neighborhoods. That makes no sense at all.

Posted by ijioh | Report as abusive

ya all have noticed this is not a uniquely American problem, right? Real estate was overvalued through a sizable part of the industrial world. Stupid mortgages were written for that overvalued real estate lots of places, and then the loans ‘securitized’.

Underlying cause was excess liquidity and lax credit standards, coupled with non-existent enforcement. All the rest, Freddie, Fannie, CRA, Clinton’s bizarre ego, Bush’s smug certitude, ‘just’ localized contributing factors.

Posted by ARJTurgot2 | Report as abusive

George Bush set and announced many times his determination to get 5.5 million minorities to become home owners. He told people this would be good for America.

On 9/2/04: “As part of the President’s plan to build an ownership society, he has focused on encouraging homeownership, particularly among minorities and low-income families. In 2003, the number of homeowners increased by 1.7 million as the number of renters declined in the United States by over one million families.”

Some details: “American Dream Downpayment Initiative. To help low-income families overcome the hurdle of a downpayment, the President proposed the American Dream Downpayment Initiative in June 2002 and signed the American Dream Downpayment Act into law on December 16, 2003.” …

“America’s Homeownership Challenge. In June 2002, President Bush issued America’s Homeownership Challenge to the real estate and mortgage finance industries – to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. Due to the President’s leadership, more than 2 dozen companies have made commitments to increase minority homeownership, including pledges to finance more than $1.1 trillion in mortgage purchases for minority homebuyers this decade.”

That was great leadership President Bush. And the salesmanship? Here’s the October 15, 2002 pitch:

“Owning something is freedom, as far as I’m concerned. It’s part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it’s safe or not. It brings pride to people, it’s a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It’s a part of — it’s of being a — it’s a part of — an important part of America.”

Bush used his friends, like Rev. Kirbyjon in his Faith Based programs to push this:

“People — low-income people are going to be able to more afford a home in Texas because of Kirbyjon’s vision and work. He’s answered the call of faith to help people help themselves and to help them realize dreams. The other thing Kirbyjon told me, which I really appreciate, is you don’t have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else.”

He lays out how He leaned on Fannie and Freddie to make more money available to meet his goal. Then — this next blows my mind:

And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that’s what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it’s important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they’re into their new home. It is a — it is a way to help us meet this dream of 5.5 million additional families owning their home.

I’m also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. These are some of the barriers that home owners face, potential home owners face, and this is what we intend to do about it.

This is insane. Section 8 help is for people who can’t even pay low market rent and Bush is shoving them into being home buyers.

These lengthy excerpts are from Bush White House press releases from Oct 15 2002 and 2003 and September 2004. They are in White House Archives. I downloaded them prior to January 2009. I quoted at length because otherwise this would be unbelievable. But there was more, tax credits to builders, money shoveled out for education on how to buy without any standards or oversight, pushing Fannie and Freddie to do more, deregulation, of course, keeping interest rates and tax rates too low. His theme song was “I’m Forever Blowing Bubbles …” He almost got out of office before the bubble burst.

Posted by Sam_Dobermann | Report as abusive
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