2008 September 28 Sunday
Looking At Diversity Recession Argument
Steve Sailer has made the argument that the real estate bubble and subsequent collapse was caused the pressure from the diversity cultists on the political Left to issue more mortgages to lower performing (Non-Asian or NAM) minorities. A correspondent of Steve's has argued that surely blacks and Hispanics had too little money to play an important role in the housing price bubble and Steve asked for reader comments on that argument. Reader "tommy" points to a Dallas Federal Reserve document that shows the huge growth in subprime and other non-prime mortgage lending during the bubble.
Some 80 percent of outstanding
U.S. mortgages are prime, while 14
percent are subprime and 6 percent
fall into the near-prime category.
These numbers, however, mask the
explosive growth of nonprime mortgages.
Subprime and near-prime loans
shot up from 9 percent of newly originated
securitized mortgages in 2001 to
40 percent in 2006.1
Lower lending standards made this disaster possible.
These new practices opened
the housing market to millions of
Americans, pushing the homeownership
rate from 63.8 percent in 1994
to a record 69.2 percent in 2004.
Although low interest rates bolstered
homebuying early in the decade, the
expansion of nonprime mortgages
clearly played a role in the surge of
The mortgage industry threw background checking out the window.
Another form of easing facilitated
the rapid rise of mortgages that didn’t
require borrowers to fully document
their incomes. In 2006, these low- or
no-doc loans comprised 81 percent of
near-prime, 55 percent of jumbo, 50
percent of subprime and 36 percent of
prime securitized mortgages.
I want more mortgage companies to go bankrupt.
So an explosion of low quality lending obviously played a very big role in the bubble. There's still a key piece of the puzzle needed: What was the ethnic make-up of these recipients of subprime and Alt-A mortgages? Were they the NAM (Non-Asian Minority) borrowers that the Democrats pressured the financial institutions to lend to?
Also, did whites find subprime and Alt-A mortgages easier to get because the banks had to lower standards for everyone in order to be able to lower standards for blacks and Hispanics?
Another question: How much of the run-up in housing prices in the bubble was caused by the growth in the rate of home ownership? That rate grew from 64% to just under 70%. The suggests a huge growth in the number of potential buyers competing for the existing housing stock.
What I'd also like to know: On a state level what was the change in rates of home ownership? A small number of states experienced the biggest bubble popping action. Here are the states with the highest foreclosure rates.
- Nevada: 1 in 91 homes
- California: 1 in 130 homes
- Arizona: 1 in 182 homes
- Florida: 1 in 194 homes
- Michigan: 1 in 332 homes
- Georgia: 1 in 422 homes
- Ohio: 1 in 444 homes
- Colorado: 1 in 452 homes
- Illinois: 1 in 483 homes
- Indiana: 1 in 522 homes
Michigan and Ohio are hard hit by auto industry declines. But how much of these high foreclosure rates can be accounted for by growth in home ownership during the bubble, especially among NAMs? We need more data. Anyone know some relevant information?
At a local level the foreclosure rates hit even higher levels.
Stockton, Calif., documented one foreclosure filing for every 31
households during the quarter, the highest foreclosure rate among the
nation's 100 largest metro areas. A total of 7,116 foreclosure filings
on 4,409 properties were reported in the metro area during the quarter,
up more than 30 percent from the previous quarter.Detroit's
third-quarter foreclosure rate of one foreclosure filing for every 33
households ranked second highest among the nation's 100 largest metro
areas. A total of 25,708 foreclosure filings on 16,079 properties were
reported in the metro area during the quarter, more than twice the
number of filings reported in the previous quarter.The Riverside-San
Bernardino, Calif., metropolitan area in Southern California documented
the nation's third highest metro foreclosure rate, one foreclosure
filing for every 43 households. A total of 31,661 foreclosure filings
20,664 properties were reported in the metro area during the quarter, up
more than 30 percent from the previous month.Other cities in the top 10
metro foreclosure rates: Fort Lauderdale, Fla.; Las Vegas; Sacramento,
Calif.; Cleveland; Miami; Bakersfield, Calif.; and Oakland, Calif.
California cities accounted for seven of the top 25 metro foreclosure
rates, while Florida and Ohio each accounted for five of the top 25 spots.
Update: Starting from here you can find a set of useful documents from a 2006 Harvard report on the demographics of housing and lending.
Accounting for nearly two-thirds of household growth in
1995–2005, minorities contributed 49 percent of the 12.5 million
rise in homeowners over the decade. But even with these
strong numerical gains, increases in homeownership rates of
minorities barely exceeded those of whites. As a result, the gap
between white and minority rates remains near 25 percentage
points (Figure 19).
In large measure, the stubbornly wide homeownership gap
reflects the rapid growth in young minority households.
Because young households have lower homeownership rates
than older households, they bring down the overall rate for
minorities. Part of the disparity in rates also reflects the fact
that minorities continue to lag whites in average income.
Indeed, the lower average incomes and ages of minorities
together account for about 15 percentage points of the gap
in the homeownership rates.
If you look at figure 24 in that report you can see a higher rate of higher risk loans made to low income (NAM) minorities (about 33% of all loans to NAMs versus about 18% for whites - I'm reading these numbers from a graph so not exact) as compared to whites at similar income levels. This supports the argument for a diversity recession.
Update II: Blackstone Group chairman Stephen Schwarzman sees the US Congress as the initiator of this debacle.
It’s a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.
Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.
When they started defaulting, out of bad luck or bad judgment, we implemented fair value accounting….You had wildly different marks for this kind of security, which led to massive write-offs by the commercial banking and investment-banking system.
Click thru and read the rest of it. He basically lays out what went wrong. But what caused Congress to make the initial disastrous step? Politically correct intellectually bankrupt leftist multicultural ideology. Oh, and they do not learn from their mistakes. Bush embraces this ideology too.
Update III: Keep sight of a basic fact: Housing prices are too high and must correct. The housing price-to-rent ratio is still well above historical norms. So is the price of a single family home as a percentage of median household income. These things must correct. Attempts to keep people in homes they can not afford will just stretch out the correction period and make the downturn last longer.
We were just discussing this on Sudden Debt.
Fwiw I still think talk in this direction is missing the forest for the trees. Housing was just the latest is a long line of bubbles that increased our debt.
We have been in a debt super cycle since the mid 1970's (really went into overdrive in 1980 under Reagan).
And while it is true that sub-prime debt lit the campfire of the larger housing debt problem, the housing debt problem is still only a campfire but it MAY light a forest fire of TOTAL DEBT, which is the really where the big problem lies. TOTAL debt is running at nearly 360% GDP (if you add household, municipal, corporate, state and federal). And this does not even include the $55 Trillion in unfunded Medicare liabilities.
Everyone is up to their eyeballs in debt in the US right now (even the rich). If unemployment continues to inch up, people will not be able to service their debt and once that gets going, the non-linear nature of the system MAY reach a tipping point and the whole thing collapses with >25% implosion in the US economy.
But if you want specific analysis on whether specific federal programs designed to encourage minorities and lo income families to purchase homes played much a role in this issue (this answer is "yes" but it is only a small role), this issue has endlessly been analyzed over at economist's view http://economistsview.typepad.com/economistsview/
And the real debate around the bailout is whether it will simply spark a run on the dollar as we transfer debt from one pocket (financial services sector) to another (government).
The only thing that will solve a total debt issue is 1. improving productivity, 2. cutting non-productive assets (really the same as 1 but looking at it a different way-it is the discussion of rationing and is somewhat related to your IQ. low income discussions on earlier postings), 3. more savings, 4. default and there are about 7 ways a society can do this if you have ever read Niall Ferguson's Cash Nexus.
Think about how to solve the following problem:
If you have a society that has a total output of 10, is growing at 1 per year and is comprised of 4 citizens (A,B,C and D) who individually contribute the following amounts to the overall economic output of the society: A=5, B=3, C=2 and D=0 For this example let's assume everyone's productivity is growing equally at 10% a year (you could re-do the model where productivity growth rates were growing differently for A, B, C and D but the basic issue I am trying to covey is still the same).
Then how should a society spend its wealth on (say) healthcare for one of its citizens when they become sick? (you can substitute any other thing you want to for the word "healthcare". I just use it as one example since I think it good at illuminating the point I am trying to make)
If you spend more than 1 on D, the ENTIRE economy will contract. Will A, B and C let that happen? Might they do it once? And what if they are to do this forever and not just once, will they tolerate it?
You can spend up to 2 on C and the economy will still grow, etc… Again, if you spend more than 2 on C it will contract. Again, what if the society is to do this forever?
Should it spend more on C than D or on any other member?
And if it does OR DOES NOT, how do A, B, C and D trust each other in this model?
What if each member has different values when it comes to rationing, how do they bridge the divide?
What if some members even deny 'the truth' of the model (say those who disagree with the conservation of energy?), how do they bridge that divide?
Except that stated income in the subprime category quite often needs little or no verifiable income documentation. They get to say they have whatever income is needed for a given mortgage. Looking at the cities with the highest foreclosure rates, it could be close to 100% minorities getting foreclosed there. Maybe there are whites with Acorn connections who can get the waivers of mortgage insurance, ID checks and income verification that have been done to get the minority homeownership fractions up, but how do you make your quota by doing something for those not in the official disadvantaged categories? Not that it doesn't happen, but there's no real institutional push for it.
From a list I'm on I get this comment about Bainbridge's post:
This blog post is based on a 2004 Fannie Mae publication of a Gallup
Poll of borrowers orginating mortgages between January 1996 and June
1997. I'm not sure how relevant it is to what happened in 2004-2007.
See p. 3 of:
Re: Stephen's comment. The relaxation of lending standards to facilitate minority loans resulted from political rather market considerations, and opened a floodgate of bad loans to all sorts of high-risk borrowers. The percentage of such borrowers who are minorities is much less-meaningful than the percentage of sub-prime defaulters who are minorities. If you have a comprehensive stat for that, and if it is proportional to their overall percentage of sub-prime borrowing, that would strengthen your case.
Nobody whom I've read who seems to understand this mess has argued that sub-prime loans were the only problem. But they all acknoweledge that sub-prime loans are a major component of the problem, and that they triggered a laxness in credit standards that has done significant damage to the credit markets. None of this is to say that short-term thinking, indifference to financial losses pawned off to others, a herd mentality, market pressures, stupidity, greed, arogance, and sloth didn't also play major roles.
The one I'm referring to talks of 2006 data??
Schwarzman gets it right. The "gummint" started this whole mess by encouraging subprime loans to minorities so they could afford to purchase homes (this is, of course, at least in theory, not a bad idea, but we all know what the paving bricks of the road to hell are made of). Once this program got rolling, it could not be limited to just minorities, so lots of folks piled on. This increased the demand for homes and caused prices to rise. The debt was repackaged and purchased by Fanny and Freddie, so it was implicitly guaranteed by the US government. Wall Street firms were glad to buy these debt instruments, which were mostly rated AAA because of their implied governmental backing. Then the whole house of cards collapsed, and you know who gets stuck with the bill. Most of this is the fault of Congress, but Bush II and Clinton also get a healthy chunk of the blame. Here's a nice You-Tube video about the whole disaster:
I especially enjoy Chris Dodd's posturing - he's the Number One recipient of campaign contributions from Fanny and Freddie.
I especially enjoy Chris Dodd's posturing - he's the Number One recipient of campaign contributions from Fanny and Freddie.
Guess who was right up there with donations and has an "executive" from Freddie Mac on his campaign staff?
In my experience Mexicans would be the last people to actually lose their homes, at least that was the case in the mid 80's and the 90's. They would pack 20 people in the home and sleep in shifts before they lost their property. Now I do believe that the suceeding generations of Mexicans have taken on more distructive traits. You can see it in sunny SB. Gangs, Stabings, Shootings, Fights etc. The Mexican family has broken down at an alarming rate. Also now we are getting the bottom of the barrel as far as the illegal immigrants go. This is happening as competition for any kind of job is getting harder. Mexicans used to be able to start at the bottom and work very hard often two jobs but manage to send at least one talented child to collage. I am talking about Santa Barbara where I have experienced this for myself. Now because of their greatly increased numbers and sliding social mores, we have the same problems as LA. As George Long used to say, you never see blacks standing in groups trying to get work. Well they still aren't except at Harvard at the Law Review Office. He would be amazed to see dangerous Mexican gangs are kicking black asses in those innane gang wars that go on. One last thought the housing bubble might not be caused so much by Mexicans buying houses but by them building houses very cheaply for developers who found out that eventuly there was no one waiting to by their product. Florida sounds like a perfect example of this.
Here we go again...the darkies, the darkies...they destroyed everything. LOL
The implicit obligation is through Fannie Mae and Freddie Mac guaranteed loans. Fannie and Freddie do not guarantee non-conforming loans, i.e., subprime loans.
Thus, Fannie and Freddie were not a part of the meltdown. It was the securitizations done by Wall Street that securitized non-Fannie and Freddie loans, subprime loans.
CRA did not compel sophistacted individuals and banks to make subprime loans. Money made these banks make these loans as the profits and origination fees are far more lucrative for subprime loans.
Just ask yourself who pocketed the money and you'll then see who is responsible.
Black and brown folk certainly didn't pocket the hundreds of billions made on subprime loans.
Its almost always greedy white men, disporportionately of one religion, but not the majority... :-) I know in Randall's mind he sees Mexican and black gangbangers forcing WASP Brookes Brother's suited down bankers on Wallstreet to give them SUB PRIME (not even normal 30 year fixed) loans by gun point while at the same time licking the pretty Ivy League white admins face...and eyeballing her...but sorry...that just "ain't what it be"...LO
Most people of any race are not very bright. If you hand out money most folks will take it. I saw plenty of middle class white kids as an undergrad who had $6K+ debt. The market should be allowed to work, but trying to blame CRM for all of this is corny and shows a lack of sophistication in analysis...but then again racialism has been known to lower one's IQ.
You seem surrounded by some sort of reality distortion field. Randall quite explicitly blamed mostly white mostly christian legislators for pressing for looser credit in a sort of paternalistic racism. How you equate that with blaming black folks and brown folks is quite inexplicable and remarkable.
What distorts your perception of reality?
I blame Barney Frank, Karl Rove, George W. Bush, Chris Dodd, and a long list of other white guys. I blame white politicians, white academics, white Wall Street execs, white lobbyists, white guys.
I agree that the dummies will do dumb things if given the chance. It is the responsibility of the smarter people to behave more responsibly.
You are wrong about Fannie and Freddie wrt subprime. Fannie and Freddie are far more responsible than you think. Here is Clarence Page on part of how it happened:
In 1999, for example, Fannie Mae, the nation's biggest underwriter of home mortgages, announced it was easing the credit requirements on loans that it would purchase from banks and other lenders.
The purpose was to help increase home ownership among minorities and others whose incomes, credit ratings and savings were too low to qualify for conventional loans.
Their alternative was "subprime" loans, which could charge 3 or 4 percentage points higher than conventional rates.
Fannie Mae's pilot program, announced by its then-chairman, Franklin D. Raines, allowed eligible buyers to pay as little as 1 additional percentage point for a conventional, 30-year fixed rate mortgage. After two years, that extra point would be dropped if the borrower had kept up his or her monthly payments.
Of course, Fannie Mae was taking on more risk. But Fannie Mae also was being pressured by the Clinton administration to help working-class home buyers. And the entire lending industry was being pressured to ease up on its consideration of income, credit history, down payment and closing costs in determining the creditworthiness of customers.
Bush's HUD pushed Fannie and Freddie into more irresponsible lending.
In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.
Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.
...In 1995, President Bill Clinton's HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.
So that white guy Bill Clinton and that white guy George W. Bush used black guy Franklin D. Raines to buy the toxic securities. They did it with Fanne and Freddie.
Actually, I'll blame a Brother for being part of this mess: Barack Hussein Obama. Not only did he perpetrate this kind of shit as a "community organizer", he took over $100,000 from Fannie Mae/Freddie Mac. And now another Brother who worked for Freddie Mac is on his campaign staff. You can go read Stanley Kurtz's latest article in the NY Post for more details. Not to mention liberal Barney Fag who pushed for loans for NAMs and now wants a bailout for the problem he also helped cause. Now I know that Obama is supposed to be such a righteous guy, but shit, he was on the take, getting paid like the house negro he is. Blacks like Dragon Horse will vote for him anyway. After all, the Brothers have to stick together and fight The Man. Racism and all that you know...
And one last point for all you liberals out there who keep screaming for more cash for failing NAMs who can't get their act together. Don't kill the White Goose that lays the golden egg, understand? Blacks and hispanics aren't productive enough to fund their own welfare. If that money pipe goes dry...
What did those evil Kneegrows do?
* CRA loans constituted only 23% of all loans and 9.2% of high-cost loans.
* CRA loans were twice as likely to be retained in the originating bank’s portfolio than loans made by other institutions.
* CRA loans were less likely to be foreclosed upon than other loans.
Posted by Dragon Horse on September 30, 2008 07:12 AM:
So Obama didn't have his hand in the cookie jar with other liberals? Liberals didn't want this kind of set-up for loans? You really should read Stanley Kurtz's article as well. But sadly, it appears Bob Badour is right. You live in a different world. And your reading comprehension sucks as well. And keep your head down, I hear the KKK and skinheads get active when there is an economic downturn. Just ask the SPLC.
It isn't politically correct to say that the ideological need for increasing ethnic diversity in home-ownership was what caused the housing crisis, but we all know it is one of the things that was chiefly responsible, whether anyone here wants to admit it or not. Do-gooders will never take the blame, but this modern (baseless) ideology that ethnic diversity is somehow a "need" or "necessity" for a better western society, is what caused the pressure on the banks to lower the standards. If they had not lowered the standards the do-gooders would have continued their claims that banks "discriminate" against low-income buyers (a convenient code word for "non-white people).
I find it unbelievable that people here would be willing to try to pretend that this wasn't the root cause of this whole problem. But shame on you for lying to yourselves and the rest of America.
Nobody is saying that the banks were forced to lower the standards by the people actually wanting to buy homes, rather, the pressure was from whites (many in high positions) themselves who are interested for whatever reason in “more [ethnic] diversity” in homeownership, which is directly related to these politicians wanting to gain favor with the voting base that they hope to continue getting in order to secure their own positions.
If race didn’t matter, none of this would have happened, because then it wouldn’t matter if more whites coincidentally have more homes than other races. But the truth of the matter is that race means a lot to people on the left, for whatever reason. In fact, keeping the idea of racism alive is what keeps the left movement going. If racism died, almost every agenda they have on the plate would be pointless.