Why would minority communities get fewer mortgages than white communities since the financial crisis? What did you say? That couldn’t be true in our post-racial America. Well think again my white friends because that isn’t what Reuters is reporting this morning:
According to the study, prime lending in communities of color from 2006 when the foreclosure crisis began to 2008 — the most recent year for which data are available — decreased 60.3 percent compared to 28.4 percent in largely white areas.
“The financial crisis has led to significantly reduced access to mortgage credit for all borrowers and communities,” the report states. “In neighborhoods of color, however, where the foreclosure crisis has taken an especially severe toll, access to prime, conventional mortgage loans has declined precipitously — to a much greater degree than in predominantly white neighborhoods.”
The report also examines the lending patterns of America’s four top banks: Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, and Wells Fargo.
While all four banking groups increased their prime refinance lending to white neighborhoods from 2006 to 2008, the report found that only Citigroup increased lending to minority communities — though by far less than to white areas.
The study conducted by a collaboration among seven non-profit advocacy groups looked at the housing markets in “Boston, New York, Chicago, Los Angeles, Charlotte, North Carolina, Cleveland, Ohio and Rochester, New York” for the years 2006-2008 (ie., from the beginnings of the housing crisis through the last year, 2008,for which data is available). Isn’t it interesting that new mortgages in white communities declined by 28.4% but new mortgages in minority communities declined by more than twice as much: 60.3%. Gee, I wonder why?
What was even more striking was the fact that the four largest banks in the country and the largest recipients of the Federal Government’s bail out funds(Bank of America, Citibank, JP Morgan and Wells Fargo) actually increased their re-financing of mortgages in white communities during this time while decreasing refinancing to minority communities:
Between 2006 and 2008 the share of prime refinance loans made in communities of color dropped 35% whereas the share of these loans made in predominantly white communities increased 11%.
So there was a significant gap between refinanced mortgage loans if you were white versus non-white in these seven cities. The color of your skin clearly made a huge difference as to whether one of these “Too Big To Fail” banking institutions to which our Government in the waning days of the Bush administration handed out billions of dollars “no questions asked” to keep them from going under.
Let’s consider the implications of those statistics, shall we? When these big banks started cutting back on their loans for residential mortgages they cut off the “colored people” first, but kept lending to white folks.
And I think its a fair assumption that the number and amount of mortgages written to whites far outstrips the number and dollar amount of mortgages written to non-whites. That’s just a simple mathematical calculation: Demographically, whites are the majority of people in the US of A. According to the last US Census Bureau estimates for 2008, white Americans (of non-hispanic origin) constituted 65.6% out of a total population of roughly 307 million people. That’s just under 200 million white people.
Furthermore, according to US Census statistics from 2005 (the last year the US Census lists statistics for home ownership) 75% of non-Hispanic whites were homeowners. Compare that with only 48.2% of Blacks and 49.5% of Hispanic/Latinos who were homeowners. And these are figures fro the peak or near the peak of the housing boom.
So whites represent 65.6% of Americans as of 2009, blacks represent 12.8% of the US population and Hispanics represent 15.4%. I know this isn’t precise but those figures suggest that of the total number of American homeowners during this period, just less than 50% of homeowners were whites, while around 6% of blacks and nearly 8% of Hispanics were home owners. Yet somehow it was this 14% of minority homeowners who were considered the problem when the housing bubble started to lose air?*
* {To simplify matters I did not include data for Asians and Native Americans, but if you go to the links I cited you can find that information out for yourself. In short the Native American and Asian rate of home ownership is roughly 60%, while combined those two groups make up just under 6% of the overall population. Of the seven cities studied I doubt they make up a significant portion of the minority population}
Furthermore, one of the major drivers of the housing bubble were the number of multiple homes that were purchased not as principal residences but purely by people speculating on a continued rise in residential home prices.
Speculative borrowing in residential real estate has been cited as a contributing factor to the subprime mortgage crisis. During 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchases were not intended as primary residences. David Lereah, NAR’s chief economist at the time, stated that the 2006 decline in investment buying was expected: “Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market.” [footnotes deleted]
I’m just guessing here, but I would bet my house that the majority of those homes purchased strictly for investment purposes were not purchased by Blacks or Latinos. So what we had in 2006-2008 were banks that were beginning to write fewer mortgages, bit it was the smallest group of borrowers to whom they looked to reduce their new lending. And as for re-financing of existing mortgage loans, they actually increased that type of financing to whites while decreasing it for minorities.
Now some might (and many conservative columnists have) claimed that this was solely the effect of a logical and purely business justification: minorities, especially poor minorities (to whom the poor banks were forced to loan under the Community Reinvestment Act) were more likely to default on these loans. Therefore, why not decrease lending to them? As Michael Corleone once said: “It’s not personal; it’s strictly business.”
There’s only one problem with that “theory.” It’s not true. In fact it has little if any basis in fact:
The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.
Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.
Third, lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York’s outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project’s 3,900 homes. That’s a rate of 0.25 percent.
It wasn’t all those poor blacks and Latinos who caused the monumental real estate bubble we saw in the years 2000-2007 (there just weren’t enough of them to go around). So if white borrowers dominated the market for new mortgages and refinanced mortgages, why did these megalithic “TARP banks,” who took all our money to make up for their losses trading risky derivatives and pay their executives millions in bonuses while refusing to lend that money we gave them to ease the credit crunch and the recession it caused, decide to screw over the minorities and encourage others to blame them for the mess we find ourselves in?
I think you know the answer.
There’s a major element missing from this post: class. Are these findings controlled for income or employment? If not (and it doesn’t seem like it), there’s no conclusion here. Not that racism isn’t an element, even an important one, even the determinative one. But what would tell me that is if, as banks reimposed stricter lending criteria, equally qualified borrowers from different races were being treated differently.
On average non-whites have lower incomes and higher levels of unemployment in this country than whites; that’s just fact. How does that apply to the housing market? Does it account for this study’s gap, or is there more at work? Not a clue. Didn’t know before this post, and still don’t. Wouldn’t surprise me, but without controlling for other factors in lending decisions these numbers are interesting but prove nothing regarding cause.
this study limited itself to looking at ‘prime’ mortgages, correct? That implies a degree of “equally qualified” that would not hold as true for the mortgage market as a whole.
Geov
I stand by the racism charge.
The increase in re-fis for whites (whose home values were probably vastly more underwater ) versus the refusal to re-fi blacks (whose homes probably lost less value in the collapse of the bubble since they didn’t rise in the first place) is pretty damning. They would have made their fees for a re-fi either way. They were borrowing money from the Fed at dirt cheap prices, and most of the black communities had homes which were originally purchased under the regulations and lending rules of the CRA, far more stringent that what non-regulated loans were subject to.
Take a look at Appendix II to the study.
For example, in Rochester NY where the real estate bubble was never as much a factor as in other communities cited, the break down in the chart shows that re-fi loans were 71% in 2006 and 75% in 2008 in communities less than 10% minority.
In the next category, communities which had a minority population of between 10% and 20% (i.e., still at least 89% white) the difference is astonishing: 21% in 2006 and 19% in 2008. And that is a community that is still at least 80% white!
That shows to me that even a small increase in minorities in a community causes banks to profoundly change their lending patterns.
Geov’s point is valid – and yours may be as well, which I think Geov concedes. He’s saying that to prove the point you would have to show the disparity between lending to the races by income bracket. I believe it is indeed implied, as you’ve noted, but there’s wiggle room for someone to say otherwise. Showing the correlation by income bracket would eliminate the wiggle room, and I believe that is Geov’s point.
Oscar, you;re the soul of reason. I would have like to see a better study but you go with what you have. The non-profit advocacy groups probably didn’t have the funds to do everything they would have liked to button it up either. But at least they weren’t just making crap up like Hannity, Coulter, and every right wing blogger I know.
Everybody knows that the crisis was caused by welfare queens, Willie Horton, and Nancy Pelosi. Why are you trying to blame victims like AIG, Goldman, and your friendly neighborhood mortgage broker? Why do you hate the American Dream?
I’m a race traitor I guess.
This isn’t new. It has always been this way.
And the banks were steering black folks into subprime (higher interest) loans even when they qualified for standard fix30’s. I.e., banks’ racism was another specific contributor to the foreclosure crisis.
All of this is known, has been known for years, and is not news. If white folks care, or even pay attention to such things, well, that would be news.
I’ve been in the banking industry in various ways since 1984. I am required to read the CRA every year and pass a test on it’s content, along with about a dozen other banking regs. The fantasy of the CRA having anything whatsoever to do with the housing crash is pure bullshit. But just try to explain it to all the Rush/Fox/CNBCbots out there and you’ll understand why I just keep my mouth shut. You cannot educate someone on anything if they willfully, with afore thought and malice, choose to be ignorant.
Amidst all the economic problems, people are still wishing that the economy will probably get better a lot fast than it’s going to. I think that those who have a great income are the people saying the financial system will get better because things appear to be bright for them. Once the economy dive bombs there is certainly people who reap some benefits. Frequently though it’s not those people who have the need for a monetary increase. An individual only has to look on the web to see a completely new bounty of lending sites that match every little scenario. You will discover loans nowadays to pay for bail bond agencies for getting persons out of jail, (See bailbondlenders). It really is ridiculous just how strange the world is turning out to be. Persons really should be watchful of anyone who is advising them to spend cash instead of save.