A story in the Washington Post says that banks should follow a policy of redlining — that is, not making loans to minorities.
Of course, it doesn’t come right out and say that, but that appears to be the inescapable conclusion. It appears that members of minority groups don’t pay their mortgages back at the same rate as whites, regardless of income level.
Minority homeowners have been disproportionately affected by the foreclosure crisis and stand to lose homes at a faster pace than white borrowers in the future, according to a report released Friday by a nonprofit research group.
[...] High-income black borrowers, for example, were 80 percent more likely to lose their homes to foreclosure than their white counterparts, while Latino borrowers were 90 percent more likely.
Now, I’d expect minorities to default on their obligations more often than whites. On average, members of minority groups are poorer than whites. The very biggest problem with being poor is that a minor misfortune — say, a car breaking down — can turn into a major disaster pretty quickly. I’d be surprised if foreclosure rates for white and blacks of comparable financial means weren’t similar.
But here we’re told that even ‘high-income’ minority borrowers don’t pay back their loans at the same rate as white people.
Housing experts have pointed to a variety of factors to explain the disparity, including higher unemployment rates in minority communities and traditionally fewer financial resources for black and Latino borrowers to fall back on.
Meaning: they’re poorer. But remember, higher-income minorities are actually more likely to default than their poorer cousins from the same minority groups. So this can’t be it.
One possibility that’s not addressed in the story at all is that members of minority groups tend to buy property in bad neighborhoods at a greater rate than whites. When real-estate values fall, they fall first and fastest in the ghetto-adjacent areas, leaving a lot of the mortgagees there under water on their loans. People of all colors are far more likely to stop paying their notes when the outstanding balance exceeds any plausible value of the property.
There are some quotes in the article that explain the problem by means of the chicken and the egg:
“I think it reflects that minority borrowers were targeted by the sellers of these [risky] mortgages,” said Barry Zigas, director of housing and credit policy at the Consumer Federation of America.
Yeah, well, when you’re poor, it’s riskier to lend you money, so you get a riskier mortgage. And as there’s a headline in the Post here, atop this very story, saying ‘Minorities hit harder by foreclosure crisis’ — meaning ‘People who lent to minorities hit harder by deadbeats not making their payments’ — it would seem that the lenders offering risky mortgages to these people knew exactly what they were doing.
Research has shown that minority borrowers were more likely to receive subprime loans during the housing boom even if they had credit scores, incomes and loan sizes similar to those of whites. Some housing experts say that minority borrowers received higher rates on subprime loans compared with similarly situated white borrowers, resulting in higher monthly payments and quicker defaults.
Though, since nobody is forced to accept a certain loan, this paragraph really just says ‘Minorities are so stupid that they take worse loan terms than they could get’. That’s a rather shocking thing to read in a left-wing paper like the Washington Post, which is why they couch it in the passive voice and put the blame on the lenders.
Of course, had the lenders not made loans to the minorities, this would have been because of racism.
