More Evidence Lenders Were Bad Guys
I can’t remember what I did yesterday. But I can recall a scenario in which the Clinton administration and in its early stages the Bush White House promoting home ownership for all Americans.
Clinton got his folks in Congress to soften lending standards at Fannie Mae and Freddie Mac. A housing market bubble ballooned for several years, aided by Bush’s penchant for deregulation.
While everyone enjoyed the good times, the housing bubble burst as we now know because of subprime loans, default derivatives and other exotic financial leveraging devices.
Immediately, finger pointing began, led by the right-wing Bush apologists. The two main targets were Rep. Barney Frank of the House Financial Services Committee and Sen. Chris Dodd of the Senate Finance Committee for their close association with Fannie and Freddie.
But among the outcry from the more extremist critics were racial slurs that many new Hispanic and African-American homeowners had no business owning property they couldn’t afford and were the direct cause of the market collapse.
Of course, there was an element of truth on what the critics charged with little regard for all the facts.
Today we learn from the Pew Hispanic Research Center that the gains in home ownership since 1994 among minorities has reversed but not nearly as much as one would expect.
In fact, foreign-born Latinos, whose rate of home ownership, while low, has stalled in the downturn but not fallen.
Since 2004, home ownership for all Americans has declined to 67.8 percent from 69 percent. For African Americans it fell to 47.5 percent from 49.4 percent. Latinos had a longer period of growth, with home ownership rising until 2006, to 49.8 percent, before falling to 48.9 percent last year. Home ownership for native-born Latinos fell to 53.6 percent from a high of 56.2 percent in 2005.
For all immigrants, home ownership fell minimally, to 52.9 percent from 53.3 percent in 2006. Latino immigrants, who have the lowest rates of home ownership among the groups studied, did not lose any ground, remaining at the high of 44.7 percent that they reached in 2007.
The gaps between whites and minorities remain significant, with home ownership rates for Asians (59.1 percent), blacks (47.5 percent) and Latinos (48.9 percent) well below that for whites (74.9 percent).
Like previous studies, the report found that blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes. Only 10.5 percent of white home buyers took out high-cost loans in 2007, compared to 27.6 percent of Latinos and 33.5 percent of African Americans. These loans, which typically require little or no down payments and are meant for borrowers with low credit scores, made home ownership possible for many black and Hispanic families during the boom years, but also led to high rates of foreclosure.
“Basically that gap was closed on poor loans that never should have been made and wound up harming folks and their neighborhoods,” said Kevin Stein, associate director of the California Reinvestment Coalition, an organization of nonprofit housing groups.
African Americans and Latinos remain more likely than whites to be turned down for mortgages, with 26.7 percent of applications from Hispanics being rejected in 2007; 30.4 percent for blacks; and 12.1 percent for whites. These disparities held even for borrowers whose incomes were well above average for their area.
Though there are no data on the race or ethnicity of homeowners in foreclosure, the researchers found that counties with high concentrations of immigrants had high rates of foreclosure. This association was even stronger than that between the prevalence of subprime mortgages and the foreclosure rate.
But the research did not suggest that high rates of immigration cause high levels of foreclosure on their own, said Rakesh Kochhar, associate director of research for the Pew Hispanic Center. High unemployment, falling house prices, subprime loans and high ratios of debt to income all contributed to high foreclosure rates.
This is a lot of statistics thrown at us and one can twist them any which way.
It is apparent in my mind that predator lenders duped the low-income minorities into the home ownership dream by offering them something for nothing. Too good to be true. And, it was. The predators took the money and ran leaving the rest of us folks holding the bag.
Was the black janitor or Mexican farm laborer being responsible? No.
On the flip side, the lender who negotiated the loans was a criminal predator.
Don’t blame the guy with the dream.
Cross posted on The Remmers Report
Share This
Related Posts
-
Cheney vs. Clinton in 20xx?
Posted on Apr 9, 2013
-
The Newer Deal – Swords into Plowshares?
Posted on Feb 12, 2013
-
International Perceptions of Obama’s Second Term (Italy, Poland, The Netherlands, France, Switzerland, China, Brazil, Mexico)
Posted on Jan 28, 2013
-
Contemplating Lance Armstrong: Views from the Swiss and the Dutch
Posted on Jan 25, 2013
Blame both…everyone involved should be responsible for their actions. Having a dream doesn't excuse one from doing something stupid. I am sure the bad lenders had dreams of becoming rich, does that excuse them of their actions too?
This is liberal drivel that doesn't belong on a moderate views website.
Did we really need more evidence that that the professional financial advisors and institutions should have shown better judgement than lay people coming to them for loans? Might as well blame patients for letting a doctors misdiagnose them.
Jerry,
It’s just as easy (and tremendously more accurate) to say the predatory low-income minorities duped the lenders using false information.
They took the money and ran, initially leaving Freddie/Fanny/Bank/Investors holding the bag, but now it’s just the small, taxpaying portion of the citizenry that is stuck for money.
Lol yea, the fact that the institutions were no longer checking that information had nothing to do with it. The professionals abandoned good lending practices and the inevitable resulted. You start handing money out to anyone who asks, guess what? People are going to take you up on that offer.
It is the job of professionals to determine risk.
Of course, would there have been any low doc and no doc loans for these income brackets had not Fannie and Freddie said, “By all means, yes, we'd love to have them!”
jwest, I agree with you that “low-income minorities duped the lenders using false information”. But they don't have the bigger responsibility in the lending process. The lenders do. It is up to them to “vet” each and every loan application. Many on the Right feel very good blaming on the borrowers for everything. Many of the Left feel very good blaming the lenders for everything. It's more like 60% lenders/40% borrowers. The 20% extra is laid on the lenders because they are the gatekeepers to the loan. The gatekeepers (lenders) were reckless, which allowed many more reckless borrowers to get a loan. So slap all those gatekeepers up double time (Fannie, Freddie, Banks, etc) and send some of them to the slammer. As GeorgeSorwell said:
“It is the job of professionals to determine risk.”
As for those reckless borrowers, no matter what the Obama Administration proposes and/or implements, many of them will lose their homes and suffer large (and many times permanent) financial losses. And in all honesty, you have it coming.
As for those honest borrowers that have just lost jobs or had to deal with large medical bills, you deserve any and all help.
“Of course, would there have been any low doc and no doc loans for these income brackets had not Fannie and Freddie said, “By all means, yes, we'd love to have them!”"
That program that was initiated back in the 90's had its intended impact of increasing home ownership among lower income and minority families. It was a SUCCESSFUL program. The reason the other lenders started hopping on the band wagon was for a good deal of time the repayment rates were good. Turns out you can give a loan to handout taking socialist minorities(read: Democrats) and they will pay them back! At higher interest rates even. But even successful programs need maintenance and guidance and during the middle of this decade those organizations were sorely lacking in it. Once they smelled money they decided to throw caution to the wind in the rush to get it and non-gov't back lenders were just as quick to throw up their heels and say come get some. Again, someone should have been putting the breaks on and that somone should have been, could only have been, the lenders themselves.
It is the job of the individual to understand what they are signing their name to.
Both sides are equally to blame. In a perfect world, a lot of lenders should end up in jail and a lot of home owners should lose their homes.
shannonlee: In a perfect world, a lot of lenders should end up in jail and a lot of home owners should lose their homes.
Perhaps so. But in the practical world only the latter is happening. Thus far, at least. And it's not as if those people have lost just their homes — they've lost their credit for years to come. And in seriously afflicted areas (e.g., the Las Vegas area, much of Florida, and many of the inland areas of CA) their plight affect their neighbors who, to the best of their knowledge, did everything right. We could argue whether the responsibility associated with the initial decision should be equally shared, but clearly the resulting onus has not.
There were several elements that came together:
1. Greedy lenders whose main goal was to package the loan and sell it ASAP
2. Major banks and brokerages willing to buy the loans and turn a blind eye to their poor quality
3. Ratings agencies overrating these loans
4. Inadequate government oversight of said lenders and banks
5. Government encouragement of loans to high-risk lendees
6. Ignorant lendees buying more house than they could afford.
There is little point trying to assign blame when there is so much to spread around. I know it is popular to try and blame everything on just one aspect but to do so you ignore others that should share the blame. To quote Obama “There is plenty of blame to go around and many in Washington and on Wall Street who deserve it”.
Tom Friedman and his wife are victums of the credit crunch: how do they fit into the the minorities cheating the system?