The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis
Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.
More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.
The chickens have finally come home to roost.
About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles.
The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population. After three decades of the home ownership rate stalling at around 64 percent, a series of federal initiatives to increase minority and low-income ownership helped push the rate up to just below 70 percent.
As this graph from a 2006 article by three economists with the Federal Reserve Bank of St. Louis shows, the great bubble of the last dozen or so years was driven by bets on marginal households well below the median.
Economist William T. Gavin, a vice president at the St. Louis Fed wrote in 2006:
One of the stated goals of current and past administrations since the Great Depression has been to increase home ownership. After remaining relatively stable around 64 percent, the rate of home ownership has risen to 69 percent in the past decade. This uptrend has been driven by a sharp rise in the rate of home ownership among young, minority and low-income households.
In contrast, at least the previous bubble, the Internet stock boom of the 1990s, had a bit of prima facie credibility. It was a largely a wager on a three-phase business plan:
1. The smart fraction of American society would invent amazing new online services.
2. ?
3. Profit!
As it turned out, bright young people really did start up lots of websites that did things that almost nobody in 1994 had imagined. The problem turned out to be getting from Phase 1 to Phase 3. So many of them became competent at website creation that few (with the huge exception of Google) ended up with the kind of lucrative quasi-monopoly of which investors dreamt.
The housing bubble, on the other hand, never made much sense. The lower half of American society, where the new homeowners had to come from, isn’t getting better educated, is not settling down to more stable family structures, and is not developing a more rigorous code of honor about paying debts.
Nor was the government doing much of anything to help the bottom half earn more in order to afford home ownership. Indeed, by not enforcing the laws against illegal immigration, the Clinton and Bush Administrations were flooding the country with unskilled workers who competed down the wages of blue-collar Americans.
The home construction industry lured in Mexicans to build new exurban houses for Americans trying to get their children away from public schools overrun by the children of illegal immigrants—in effect, a Ponzi scheme that had to break down eventually.
It turned out, not surprisingly, that contrary to the assurances of the Great and the Good of both parties, many of these marginal homebuyers should have continued to rent.
Pushing black and Hispanics into buying was risky for all concerned. Economist Edward N. Wolff calculated that in 2004 the median net worth of black households was only $11,800, exactly one order of magnitude less than the median net worth of whites. (Hispanics were similar to blacks.)
Yet, pointing out that expanding credit to minorities was likely to lead to a debacle is not the kind of thing a prudent corporate manger would put in an email--too great a chance it would be discovered in a discrimination lawsuit.
For four decades, political leaders have viewed subsidizing minority home buying as insuring social peace. The Wall Street Journal reported on white flight from a Chicago neighborhood on March 2, 1977:
The whites in Marquette Park are particularly embittered over the Federal Housing Administration mortgage insurance program, which they claim is causing neighborhood deterioration by subsidizing home purchases by blacks too poor to maintain them. Long conservatively run and an engine of the post-World War II suburban housing boom, the FHA program was liberalized shortly after the 1968 urban riots to encourage lower-income black home ownership (‘if they own it they won’t burn it’ was the maxim of the time).
Whether home ownership actually precludes riots is uncertain. In the Florence-Normandie neighborhood in South Central Los Angeles, where the 1992 race riot broke out, five of every eight residences were owner-occupied.
Still, “if they own it, they won’t burn it” provides a hardheaded-sounding excuse for a complex web of policies that please real estate developers, who contribute so much to local campaigns. (For instance, Barack Obama has admitted to receiving a quarter of a million dollars from developer Tony Rezko, recently convicted on 16 counts).
Republicans theorized that raising the rate of home ownership would create more conservative voters, as Margaret Thatcher was said to have done in Britain by selling public housing flats to their tenants. Thus, George W. Bush campaigned in 2004 under the rubric ”the ownership society.” As the President explained in his eye-glazing prose style:
...[I]f you own something, you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America, and the more people have a vital stake in the future of this country.
Thus, in a 2004 address to home builders, Bush called for the Federal Housing Administration to issue zero down payment mortgages in order to aid 150,000 first-time buyers per year, saying,
To build an ownership society, we’ll help even more Americans to buy homes. Some families are more than able to pay a mortgage but just don’t have the savings to put money down.
Long before Bush came up with the phrase “ownership society,” Democrats had gleefully been using this justification to funnel vast sums of mortgage money to their base voters among minorities through the liberal-dominated quasi-state institutions Fannie Mae (once run by former Obama adviser Jim Johnson) and Freddie Mac and via leftwing NGOs such as ACORN (to which Obama had long and close ties). The government both devised de jure quotas and leaned on lenders with discrimination lawsuits to get them to impose their own de facto quotas.
The strong growth in the homeownership rate from the early Forties into the early Sixties was a symptom of an economically and socially healthy society in which good-paying jobs were widespread and human capital was rising. The high school dropout rate, for example, fell steadily from early in the century until the end of the Sixties.
In the mid-Sixties, however, the fraction of households owning their residence plateaued at around 64 percent, where it more or less remained into the mid-1990s, as the collateral damage of the Sixties cultural revolution hit the lower half of the population hard. The upper reaches of American society flourished under the new customs that emerged in the Sixties … but they already owned their own homes. To boost homeownership beyond 64 percent would require millions of people in the bottom half of society to convert from renting to owning.
In retrospect, this post-Sixties stagnation of the ownership rate stagnation was hardly surprising. American society began fragmenting in the Swinging Sixties, reducing the number of grown-ups per household. For example, the percentage of babies born to unmarried women has risen from six percent in 1963 to 39 percent in 2006. The 22 percent black illegitimacy rate that so alarmed LBJ’s advisor Daniel Patrick Moynihan in 1965 has grown to 71 percent. The percentage of babies born to unmarried white women hit 27 percent in 2006, and the illegitimacy rate of Latinas, a category that barely mattered in the 1960s but now accounts for a quarter of all babies, is now 50 percent.
After 1973, economic inequality grew steadily as well.
Moreover, the human capital of the bottom half of society stopped improving. According to a 2007 study by Nobel laureate economist James Heckman, the high school dropout rate has risen from around 20 percent in 1969 to about 25 percent in 2000.
Rather than make the fundamental reforms needed to help the bottom half actually become economically productive and domestically stable enough to afford to buy a home, the government tried to juice the home-ownership rate directly. Indeed, without ever-increasing government efforts, such as the 1977 anti-redlining Community Reinvestment Act (CRA), to artificially boost minority housing purchases, the rate would have naturally fallen due to the increasing number of single parent homes.
The CRA enables leftist lobbies like ACORN to shake down big financial firms whenever they tried to merge. Economist Thomas J. DiLorenzo observed that the Community Reinvestment Act:
compels banks to make loans to low-income borrowers and in what the supporters of the Act call ‘communities of color’ that they might not otherwise make based on purely economic criteria. … These organizations claim that over $1 trillion in CRA loans have been made …The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA ‘protest’ is issued by a ‘community group.’ … They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
To avoid the Community Reinvestment Act hassles, more than a few respectable institutions avoided doing business in minority communities. A lender could define its “community” as, say, stretching only five miles north and south from Mulholland Drive along the top of the Hollywood Hills.
Then, who’s more likely to offer mortgages to Compton and Pacoima? Why, high-pressure bucket shop operations that have no skin in the game—they’re just sales outfits that immediately repackage often fraudulently documented subprime mortgages and sell them to Wall Street.
Two events in 1992—a much-publicized study and a new piece of legislation—ratcheted up mortgage affirmative action.
U. of Dallas economist Stan Liebowitz recently pointed out:
That study was tremendously flawed—a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.
As Peter Brimelow noted in Forbes on January 4, 1993, blacks had the same default rates as whites, suggesting racial fairness. After all, if current financial institutions were really discriminating irrationally against minorities, it would be highly profitable for a non-discriminator to enter the market, just as the Brooklyn Dodgers won six National League pennants in the decade after they became the first team to sign black baseball players.
In reality, as Insight on the News reported in 1999:
A recent study by Freddie Mac, the federally chartered Federal Home Loan Mortgage Corp. that buys mortgages from banks to resell to investors, documents the shaky financial standing of minorities. The study found that nearly half of black borrowers and a third of Hispanics have “bad” credit records—that is, they have a record of delinquent loans or bankruptcy—compared with a quarter of whites. Moreover, income does not explain the disparity, according to the study. Among people with incomes of $65,000 to $75,000, 34 percent of blacks have bad credit, compared with 20 percent of whites.
Today, however, non-Asian minorities (NAMs) have much higher default rates, suggesting racial bias has entered the system of judging creditworthiness.
Liebowitz went on:
Yet the political agenda triumphed—with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.
No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: ‘discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.’
Liebowitz asked:
Some of these ‘outdated’ criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.
This is just standard operating procedure when the government wants private firms to impose racial quotas on themselves. The same procedure is used in hiring. Objective measurements that have ‘disparate impact’ on legally protected groups have been subjected to severe judicial and legislative review for decades, with the burden of proof severely resting on the firm.
Liebowitz goes on:
Sound crazy? You bet. Those ‘outdated’ standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.
Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.
Also in 1992, Congress passed the Government Sponsored Enterprises bill, which set “targets” (i.e., quotas) for Fannie Mae and Freddie Mac, which are quasi-governmental publicly-traded for-profit thing-a-ma-bobs, to encourage “affordable” and “underserved” (more or less minority) home loans.
Both the Clinton and Bush departments of Housing and Urban Development raised the quotas repeatedly. For example, initially, the Clinton Administration required 21% of these quasi-governmental mortgages must go to ”underserved areas” (which are officially defined as “low-income census tracts or in low- or middle-income census tracts with high minority populations"), but the quota for 2008 established by the Bush Administration is 39 percent.
Reuters reported October 13, 1999:
The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership in underserved groups. ‘We need to push into these underserved markets as much as we can,’ said David Glenn, president and chief operating officer of Freddie Mac. …
In September, Freddie Mac launched a new lending program, based on research done in collaboration with five black colleges, to bring more African-Americans into the market.
The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories.
Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low-and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets.
Now, even the head of Freddie Mac has protested that the quotas have become “perverse.” On March 12, 2008, Bloomberg News reported:
Freddie Mac Chief Executive Officer Richard Syron said he’s urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can’t afford. It’s ‘perverse’ that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged ‘to put people into homes that they end up losing,’ Syron said at a meeting with analysts and investors in New York.
Ironically, Syron helped get us into this mess when he was head of the Boston Fed. His Freddie Mac biography boasts, “Syron also was sponsor of a landmark study on racial discrimination in mortgage lending …”
Similarly, the Clinton Administration used the Community Reinvestment Act and Fair Housing Act to set, in effect, racial quotas for private lenders. Cynthia Latta, an economist with DRI/McGraw-Hill, commented in 1999:
We have created a tremendous amount of risk…Banks are under a great deal of pressure to lend in these communities. It is very political
The Fed pumped so much money into the system after 9/11 that, with stocks in disfavor after the Internet bubble burst, the liquidity flooded into the home market, postponing the day of reckoning in housing until now.
Straightforward tax-and-spend programs were out of favor in the 1990s, but lean-on-lenders for the benefit of your political constituents is always in season.
For instance, an article entitled “Fannie Mae Bending Financial System to Create Homeowners, Says Raines” reported in 2000:
Yet home ownership is unevenly distributed in society, [Fannie Mae head Franklin] Raines said. He quoted the famous pronouncement by W.E.B. Du Bois, in The Souls of Black Folk in 1903, that the problem of the 20th century is the problem of the color line. Du Bois also observed that the size and arrangement of people’s homes is an index of their condition…
In the early days of the movement, he said, there was a significant commitment of government funds. … Now, said Raines, more money is being invested in community development through private mechanisms, including Fannie Mae, which works through mainstream lenders to reach out to underserved communities.During the 1990s, Fannie Mae pledged $1 trillion in capital over seven years to boost home ownership among underserved populations. Last spring, said Raines, the commitment was completed ahead of schedule, and Fannie Mae pledged a further $2 trillion to assist 18 million families during the next decade.
George W. Bush got in on the game too. The Bush Administration announced on June 17, 2002:
Today, President Bush announced a new goal to help increase the number of minority homeowners by at least 5.5 million before the end of the decade… The President also issued ‘America’s Homeownership Challenge’ to the real estate and mortgage finance industries to join in his effort to increase the number of minority homeowners by taking concrete steps to tear down the barriers to homeownership that face minority families.
Bush called for, “Creating new mortgage products to meet the unique needs of recent immigrants.”
The President bragged:
Many organizations have already responded to the President’s challenge by committing to substantially increase by at least $440 billion, the financial commitment made by the government sponsored enterprises involved in the secondary mortgage market, specifically targeted toward the minority market.
$440 billion here, $440 billion there, pretty soon you are talking about real money.
In 2004, President Bush promoted his Zero Down Payment Program for FHA insured loans, thus giving Presidential respectability to the ruinous trend toward no money down deals. MSNBC reported in a March 27, 2004, article subtitled ”President wants to add new minority home owners:”
He also proposes to make zero down-payment loans available to first-time buyers whose mortgages are guaranteed by the Federal Housing Administration.
The Washington Post reported on June 10, 2008, in ”How HUD Mortgage Policy Fed the Crisis:”
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. … Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.
None of this was controversial at the time, in part because being oblivious to the obvious about minorities is the hallmark of authority these days.
Thus, the home ownership increased over the 1994-2004 period by 8.6% for non-Hispanic whites, but by 16.1% for blacks and 16.7% for Latinos. I calculate that ethnic share changes alone between 1994-2004 would have driven down home ownership rates by 1 to 2 points. Instead, they went up 4 points.
Similarly, from 1994-2004, the ownership rate for married couples went up 7.8%—but by 15.2% for female-headed families.
One mystery remains: Why was Wall Street was so credulous about all these dubious mortgages?
Obviously, greed and fear are always at war on Wall Street. Perhaps, though, one reason greed outgunned fear while phony subprime mortgages were running amok in recent years was that so many were going to non-Asian minorities and that Wall Streeters assumed that the federal government would bail them out rather than see so many NAMs turned out on the street.
Further, lots of immigrants actually do have more income than they report to the IRS—illegal immigrants often get paid in cash under the table. As USA Today reported in 2007:
Hispanic families are more apt to have undocumented income, leading them to lenders who make loans without income verification, according to the National Council of La Raza.
Quite a few of the legal immigrants in Southern California are from mercantile minorities in West Asia who consider paying taxes something that only chumps do. The presence of all these immigrants who work in a grey market cash economy gives a mortgage company like Countrywide a rationalization for believing loan applicants when they put down an income figure that’s far above what they can document from their 1040: Who knows? Maybe Uncle Adnan’s import-export business really does generate enough cash to cover the loan. Who can tell for sure?
As Fred Dickey showed in his 2003 Los Angeles Times Magazine article “Undermining American Workers,” immigration has driven a large fraction of California’s economy underground. Not only can’t it be taxed, but it can’t be documented either.
And the problem is not just that “undocumented workers” get “undocumented mortgages.” It’s also that so many others get drawn into the “undocumented income” racket. For example, many of the highest rates of foreclosure are in fast-growing boomtowns like Las Vegas and exurbs like Palmdale, CA, where so many people are in the contracting business building and upgrading housing.
When some of these contractors get a mortgage for their own homes and the bank asks them to document their income, they wink and imply: ”My employees don’t want me to keep a lot of documents on them, so I pass my savings on to my customers who don’t want me to keep a lot of documents on them either. Just trust me.”
And many contractors were getting rich in the housing boom, so they were safe bets as long as the boom went on even if they wouldn’t document their income. But a lot of the people applying for mortgages by claiming to be successful cash-only businessmen weren’t successful, and were just staying afloat by refinancing their mortgages as interest rates dropped and home prices went up. Ultimately, even the ones who were raking in the cash during the Bubble got hammered when the housing construction boom ended.
Finally, a compounding factor in the subprime debacle was that these complicated exploding adjustable rate subprime mortgages were disproportionately handed out to people who aren’t very good with numbers. For example, the Washington Post profiled the fraudulent straw-man mortgage received by a Honduran immigrant cook named Glenda Ortiz, who paid “triple what the house had sold for the year before, and $5,000 more than the asking price…”:
She agreed to a high-interest loan that would cost her more than $3,000 a month, more than 70 percent of the $4,200 that she and her husband brought home monthly. She signed papers in English that she didn’t understand. One said she was married to a man she didn’t know. She placed her financial future in the hands of a woman she barely knew who sold cosmetics and jewelry door to door. She sought no one else’s advice.
In contrast, a list of the ten places with the lowest ratio of subprime to normal mortgages consists of sophisticated San Francisco and nine classic college towns, such as Ithaca, NY.
In summary, while blame for this economic fiasco is deservedly widespread, multiculturalism bears a much larger share of the shame than it’s gotten so far.
As Brimelow wrote in National Review in 1993:
Classical socialism called for direct state ownership of the means of production, distribution, and exchange. Neosocialism just aims at political control. Socialism claimed to be more efficient. Neosocialism claims to be more equitable. Above all, neosocialism professes to combat ‘racism,’ since this magic word cows all opposition.
Steve Sailer is a columnist for VDARE.com and the founder of the Human Biodiversity Institute. He also blogs a lot.
Comments
This is a brilliant essay: I think it is even worse, than you say. This mess we are in, is almost beyond belief.
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A devastating analysis. Bits of the jigsaw could be glimpsed now and again but only now can we see the whole charade for what it was.
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Awesome work, Steve.
Here in the UK we didn’t have this push to loan to sub-prime ‘minority’ borrowers, and there has not been a spike in defaults. But there has still been a housing crash, because thanks to the US disaster lenders cannot borrow money cheaply off the money markets, so they aren’t loaning out cheap money. Perfectly viable would-be buyers just can’t get mortgages anymore.
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Excellent article. And underlying the unwillingness to challenge the bulldozer is the knowledge that if you do so you will be called a racist, a bigot, and a xenophobe.
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Excellent article. I’ve enjoyed your work on vDARE, Steve, and it’s great to see you here at Takimag.
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I don’t believe for one second the banks loaned money to minorities for egalitarian purposes. Articles like this are bull. They should focus on greed and planning that came out of closed door meetings where geniuses targeted the “untapped” minorty markets for megabucks.
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Mitesh:
“I don’t believe for one second the banks loaned money to minorities for egalitarian purposes”
They didn’t. They increased loan rates to minorities so they wouldn’t get sued or be stopped from merging. And it’s not ‘the blacks’ fault, it’s the fault of the government that pushed unsustainable mortgages on them. Don’t inject me with heroin and then blame me for getting addicted.
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Brilliant analysis, Mitesh.
Incidentally, in Orlando, the worst-hit area from the subprime crisis is Osceola county, which is a mxied county of working class whites and working class Hispanics. Many Hispanics employed in the construction and other labor-intensive industries bough homes there in the $90-150 range in recent years on incomes of approximately $25-40K. This is a pretty wide gap, and the foreclosure rates there are through the roof.
Instead of an ownership society, we now have a leverage society, where everyone is indebted up to their eyeballs and we’re all trying to get rich quick by flipping houses and chasing the latest trend. David Brooks’ article recently on the enervated virtues of thrift is worth a read. We need to bring things under control, and, frankly, I’m less touched by appeals to the property rights of banks and credit card companies than ever. It’s not as if they respect free markets and property rights when it’s too their avantage, see, e.g., Kelo. A Jubilee of sorts would be a useful way to discipline these speculators, reign in loose credit, give significant numbers of Americans a fresh start, remind ourselves of the “eternal destination of earthly goods,” and support an economic order that works for the working man.
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A fascinating and disturbing post, in equal measure. The GOP once again talks conservative while it acts even more leftist than the Democrats. I only hope that the latest boneheaded attempt at social engineering in America is not exported to other western democracies.
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Well, someone finally said it.
And just think, 5 minutes before the bottom fell out, members were standing up in congress saying that more zero-equity loans should be made, because not to do so would be discriminatory.
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Your bit about the illegitimacy rate may leave the impression that it is getting worse, but in fact things are improving from the damage of the Great Sixties Freakout:
http://www.gnxp.com/blog/labels/previous generations were more depraved.php
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Steve Sailer is a fool who has the same disease the lefty-academics he mocks have - he simply cannot stop seeing race in everything. He also loves to pontificate on topics he knows nothing about. Put those together, and you get this piece of shit article.
My god, he really thinks that the bubble is a result of a few government minority program! You know, it was the government that pushed loan originators to sell option-ARMs, HELOCS, and stated income loans to people. And these loans were only made to blacks and hispanics! And these originators didn’t make a pile of money selling them to banks, nope, this was out of the kindness of their hearts to help poor folk. And the banks didn’t make a dime selling them to firms who turned them into mortgage back securities. And these firms couldn’t get an AAA rating for them and then sell them for megabucks to institutional investors, who believed 100% in the AAA rating. This never happened in Steve Sailers world, cause in Steve’s world all our problems come from trying to help black people.
I say this as a white and as a racist: The bubble happened because some greedy whites and jews saw a window of opportunity to make a mint. Just like any bubble. They offered loans first to wealthier whites (prime loans), then when they ran out of them they offered to middle class whites (alt-A), then when they ran out of them they offered to nogs, spics, and white trash (subprime). When its unwinds, first the subprimes fail, then the alt-A’s, then the primes. The greedy whites and jews don’t care about “bailouts”, cause they made their money already.
Please get your bubble information from reputable sources, not some dilletant hack. First read this series of articles, which covers the mechanics of the industry in great detail:
http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html
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Extra goodness: stupid white people losing a bundle:
http://www.youtube.com/watch?v=WgqSd3-nBFU
“She pulled out $325k of equity to get the house to $1.6 million. The house tanked to 65% of that, or $1.04M. She started with $725k as zero, so she is down to $715 - $725k or - $15k.”
http://www.youtube.com/watch?v=aPNjRoJ3PXw&feature=related
See, they spend $100,000 to put in a home movie theatre to raise the price of their home by $100,000 so they can borrow $100,000 for a HELOC to pay for their daughter’s schooling (better have pulled out the money fast, the bank will have cut it off by now).
These home improvement bubble shows are aimed at minorities, in case you couldn’t tell.
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A few of us have been following this issue convinced that illegal aliens make up a significant portion of the subprime mess.
However, it is very hard to get actual numbers because no one wants to report this. If you ask, you are made to feel like a bigot for doing so.
Instead, I have found many who say that illegals can’t be a significant part of the problem because illegals can’t get benefits that others do such as home mortgages, welfare, free health care, etc. So to even bring it up is a waste of time.
Instead of discussing illegals and subprime, many open border supporters like the WSJ have changed the subject to immigrants
and the individual tax identification number (ITIN) mortgages. ITINs are given to immigrants (legal, I assume) who don’t have SSNs. These mortgages have been reported to have a better payback rate than even non-subprime mortgages.
Many groups are now running with this to prove that immgrants, legal and illegal, are better credit risks than natural born Americans. Blogs especially now claim illegals just get ITIN mortgages and pay them back better than Americans do.
The latest to carry this story is the Charlotte Observer. http://www.charlotte.com/business/story/667410.html
If you read closely you will find they state the ITIN market is “$3 billion”.
That does not seem much. If the average home mortage is $100K, which is a low number, that would put ITINs at 30,000 nationwide. I used the low figure to make a nice round number. Therefore, at most there are 30,000 ITIN mortgages
nationwide.
Now enter a piece from the Denver Post. “One government source estimates 20,000 illegal immigrants hold FHA-insured loans in metro Denver alone.” http://www.denverpost.com/search/ci_4228048
Mind you these might not be subprime, but they sure as heck can’t be ITIN mortgages either. Because if there are 30,000
ITINs nationwide, how can 20,000 be in Denver alone?
I don’t wish to bore you with more links, numbers and minutiae. Suffice it to say illegals are probably a significant part of the sub prime mess and don’t let anyone try to fool you by changing the topic to legal immigrants and ITIN mortgages.
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I don’t think Steve says anyone did anything out of the goodness of their hearts. Hack politicians threatened law suits and other bad things to banks and gave away other people’s money to a pushy constituency. The banks, under threat of lawsuit, complied. Finally, distorted economic incentives fueled the bonfire. It had many causes, the race thing is one of them.
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Hack politicians threatened law suits and other bad things to banks and gave away other people’s money to a pushy constituency. The banks, under threat of lawsuit, complied.
The government did not have to do anything to promote lending to minorities. The banks started to lend to minorities when they ran out of better people to lend to, and they kept doing it until they couldn’t sell their loans anymore. They could sell their crap because the rating agencies didn’t do their job in properly evaluating the securities made from those loans. The government did not tell the rating agencies to look the other way cause they were minority loans, the rating agencies were just lazy/in collusion. Everything had a simple short-term profit motive.
Other than keeping the interest rate stupid-low, the government had little to do with this bubble.
And, of course, lots of white people took out stupid stupid loans. Look at this graph:
http://www.irvinehousingblog.com/wp-content/uploads/2007/04/adjustable-rate-mortgage-reset-schedule.jpg
See how the first people to get their interest rate reset (= game over) are the subprimers? See how the second wave is alt-a, primes, option ARMS, i.e., white people? See how much more pain is yet to come?
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There would be no social engineering unless it was a fertile avenue for the kinds of State Sanctioned and fertilized private investment utilized by the Standard Issue Kleptocracy. Unfortunately, the State would muck up a one car funeral procession and as a result, Social engineering is doomed to failure squared once the profit motive is corrupted by its influences. The edifying effects of property ownership are lost once it is made too easy to practice or achieve a sense of ownership. Stewardship suffers a terminal deflation.
There has been a kind of self-inflicted Reverse Versailles Treaty imposed upon the Post WWII USA. The lapsed-Republic elected to become imperialists with a happy face and while we double-downed to vanquish the Soviets in a spending spree, we failed to understand how to control ourselves once we were victorious against our nemesis...the deal with the devil was mistaken for divine inspiration.
We have embraced the role of Imperialist and encouraged a kind of feigned “free-market” globalism that has indebted us and willingly forsaken our manufacturing base while enlarging most everyone elses. The downside of this protracted fools paradise is that the Government discovered that our only real remaining asset beyond the arms business was our vaunted and supremely idiotic suburban experiment. Inflation rates were sliced and diced and the Government presided over a shotgun marriage between the Mortgage and Investment Worlds under the rubric of “spreading risk” by back-loading it. Mathematics, a discipline grounded in a rigorous pursuit of truth was used not to reveal but to obscure. The entire thing could have been dreamed up by a reasonably resourceful Meth Head Economics major 23 hours into a 48 hour high.
What is truly remarkable about this current state of affairs is that we have been provided with a near pitch-perfect demonstration of the dysfunctions we have pursued...with relish...over the last 6 decades and still, the best we can do is produce the bromide of “Change” while looking to assign primary blame in the affair to the minor players. Cheap Oil, abundant food and water, geographic safety and an easily led population of earnest joiners lulled the nation into thinking it was “exceptional” and “entitled”. We failed to understand that our belligerent militarism and meddling would ultimately be turned back on us nor did we accept that a sense of economy, of restraint, quiet study and patience are the most valuable behaviors in the long run. The American Mind became the Las Vegas Hustle.
Rest assured, now that we have created a generation of A.D.D. serfs indoctrinated into the Church of Debt and Declining Aspirations, the social engineering will continue to metastasize. We will see a continuation of the government sponsored impoverishment amply demonstrated by a subsidized lack of thrift, malignant “forgiveness” and “affordable housing” schemes that ensnare citizens in housing that removes them from the last remaining chance of financial security available to us :Home equity. This sub prime fiasco is akin to Custer’s Last Stand.
With Compassionate Conservatism or Politically Correct Liberalism ...both hilarious oxymorons, the future will be one of an equal opportunity serfdom but true to form , race will be used to codify it and reliably keep the bleeding from stopping.
The fact that we hear increasing discussion of “intelligent design” during this brazen period of moronic behavior is but one of many magnificently hilarious aspects about this nation led around on a nose ring by it’s baser instincts.
Race is not a causal element of this debacle, it’s just one more of the many useful idiots of it.
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“The fact that we hear increasing discussion of “intelligent design” during this brazen period of moronic behavior is but one of many magnificently hilarious aspects about this nation led around on a nose ring by it’s baser instincts.”
‘it’s’ should be “its’ (last sentence).
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Don’t be too quick to put a halo on blacks. It was their leaders like Jackson, Sharpton, NAACP, the Black Caucus ...etc who pushed for loan preferences and handouts. And average blacks were quick to enjoy these spoils.
Because blacks did not have the same credit scores as whites they cried “racism,” and threatened to sue. That is why the taxpayers (non-blacks) will be screwed yet again. It was not about racial egalitarianism but racial terrorism on the part of blacks that we are in this mess.
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This aspect of the crisis deserves much more attention. Black civic leaders threatened to sue banks in the 1990s, claiming discrimination in mortgage loans, and then the rules were changed so that blacks and latinos could get their own homes…
...and they defaulted.
The liberal press is spinning this by claiming “Minorities [were] hardest hit,” which is a tacit admission that this article is correct. It could not be the case if the Clinton Housing Bubble weren’t affirmative action writ large.
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“Incidentally, in Orlando, the worst-hit area from the subprime crisis is Osceola county, which is a mxied county of working class whites and working class Hispanics. Many Hispanics employed in the construction and other labor-intensive industries bough homes there in the $90-150 range in recent years on incomes of approximately $25-40K. This is a pretty wide gap, and the foreclosure rates there are through the roof.”
I just moved from Osceola in late 2006. The houses they bought there were more expensive than you state. We used to see ‘em in the fancy, gated subdivisions with brand new 3000+ square foot homes. The “Hispanics” you mention were Puerto Ricans mostly with theme-park related jobs (hotel maids, etc.)not construction jobs. They clearly couldn’t afford these homes (we’re talking $250,000+) .
A family could easily afford the morgage on a home in the price range you mention on a $30,000- $40,000 salary (I know from experience) but most people (whites included) are spoiled spendthrifts. Frugality used to be a virtue but noone cares anymore.
The thing that stinks is that lots of us responsible homeowners now have to face the possibility of selling our homes (if we need to move) for less than we bought them for).
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One of the results was that single people who brought home almost 60k a year were unable to buy a home and ended up simply renting for a couple decades as they worked in positions of responsibility. They were left out in the cold.
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Is this a joke? Did Sailor do one bit of research on the subprime criss? The subprime crisis was caused by CDOs.. mortgage-backed financial products sold to the world by Wall Street. Wall Street couldn’t care less who the loans were offered to - it might as well have been cats and dogs. They just wanted to move loans and get their commission. It was caused by Wall Street greed. This article is utterly unbelievable.
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Steve this article will be one that is passed around the office, but only those offices not
located in America. I would subtitle it; “And Reality Meets the American Dream, Reality Wins.”
The critics you have here are pathetic with their clinging to magic thinking such that says,
add third world population across the magic borders of America and shazam housing boom with
no end in sight.
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The factors he wrote about are non-negligible, as he mentioned, not all-encompassing. He specializes in neglected aspects of contemporary social problems. Good article, Steve!
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I think it’s worse than a Ponzi scheme. It’s just a theft (or a government-sponsored risk-free speculation).
Here is how it works.
A Mexican “immigrant” buys a home with 0% down, backed by FHA. (Just last year, FHA required a 5% down on “qualified” home mortgages without PMI, but provided the borrower with an additional loan for half of the down payment, and allowed him to borrow the remaining half from elsewhere.)
After two years, if the prices of homes went up, he sells his home and cashes the “profit”, usually in the range of $ 100,000’s, from the pocket of the next buyer. (I know several cases in this scenario.)
If, however, the prices go down then he walks away from the loan and FHA (the taxpayers, that is) foots the bill.
I strongly believe that all government workers that were participating in this rip-off should be tried and jailed. I hope they will, one day.
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Any idiot who tries to say this “housing bubble” was caused by anything other than the intense push for non-white home ownership is living in their own fantasy!!
FACT
the majority of sub-prime loans were to non whites
FACT
the majority of defaults on these loans are from non-whites
FACT
if you don’t pay your mortgage you WILL lose your home
and with NOBODY interested in catching falling knives you will see a great number of homes sit for a while until a responsible white family buys it.
The idiot who said CDO’s caused this is an obvious dolt
CDO’s are AFTER the fact.
The DEBTS being leveraged are the debt of tens of thousands of non-whites aka blacks and mestizos
who should have NEVER been given home loans which only aggravated the destruction of white neighborhoods.
This really pisses me off
I saw this coming YEARS ago
I KNEW they wouldn’t repay their loans or show ANY semblance of white behavior and that is EXACTLY what happened
Now these liberal turds DARE to say it is “affecting minorities disproportionately”, while other liberal idiots deny it is black and mestizos NOT paying loans that are causing it!!!
Fucking FUMING anger over here!!!
If it is affecting minorities more than whites that is WHOLESALE PROOF that they are NOT paying their mortgages...IDIOT!!!
Evidence enough for me is the 5 out of 5 blacks that moved into our neighborhood in the past 4 years ALL defaulted on their home loans and are GONE!!! THANK GOD!!!
the homes sit waiting for a nice white family to stop the bleeding and destruction of our neighborhood that is 90+ percent white families…
SICK TO DEATH of liberals making excuses for the clear racial differences and attitudes among blacks and mestizos that is EVIDENT for ANY idiot to see!!!
I give you Africa and ANY black nation and ANY mestizo freakshow country including most mainland Asian nations...and no i don’t give a damn if China is growing...China is an ant mound existing off the intellectual properties of whites who use them for cheap labor...they are NOT an innovative nation!!!
And if you aren’t an innovator you are a follower waiting to the next great, WHITE invention for you to mass produce.
The West can survive and thrive without cheap peon labor...but China and the East and in fact ANY non-white nation will DIE without the innovation and creativity of the white Western man!!
ALL modern technology
ALL past great technologies and innovations from 200 years on are WHITE and WESTERN!!
We need to crush the Globalist/aka Marxist aka Jewish hatred of our civilization and return to sanity and an appreciation of just how unique we truly are in the world...duhhhh!!!
Don’t you forget it!!!
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Great post Adam!
The attack on White Americans is multi level. Izzy knows damn good and well what his dark minions will do, not only to the ‘value’ white people have in their homes, once they infest an area. Blacks turn any neighborhood into an instant ghetto. They degrade the quality of life in any area to the point where decent people have to leave. After the area goes black for a few decades they have some ‘urban renewal’. Giving home loans to blacks is just another way Izzy uses them as weapons against white people.
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Great article-states the truth, which is why it is so refreshing. The MSM wouldn’t touch this angle with a ten foot pole. To the clowns crying “racism"- I don’t blame blacks and Hispanics per se, I do blame the idiot white liberals who elevate diversity as the rason d’ tre of this once great nation.
The chickens are coming home to roost, and we have about ten years left before the nations of the Orient leave us in the dust. Unfortunately for us, they don’t have the ball and chain of slavish devotion to diversity that continues to infest our way of life. I guess if there is a silver lining to this inevitable fate, it will be that meritocracy and hard work will prevail-it just won’t be America that wins.
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Partly to blame as well are the nonsensical loans some of these borrowers took out: loans which were interest-only for the first five years, and “negative amortization” loans. In the first of these cases, borrowers were betting that property prices would increase faster than their interest rates, so they could flip the real-estate after the five years were up. In the second case, they were betting that property prices would increase faster than their interest rate plus the negative-am rate. Property prices were fated for a correction; in many areas they were overvalued by as much as 200%.
The problem with this sort of expectation is that real-estate was a speculative bubble the way stocks were in the 1990s. Speculative bubbles always collapse. The same speculation that bid up stocks in the 1990s and real-estate in the last eight years is now driving up commodities prices, hence the increase in price of everything from corn and rice to meat to oil and copper. It’s apt to get worse, too. When the Federal Reserve Bank talks about “increasing the money supply”, what they’re realling saying is that they’re going to print more money. More money in circulation means the commodities speculative boom will be even more dramatic than the real-estate and stock booms.
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Gosh, I didn’t know that all of those WALL STREET firms that helped blow up this real estate bubble were owned by shiftless darkies!!
Like at Bear Sterns, who made a ton of money selling those MBO’s back and forth to one another, kinda like a financial version of musical chairs, except when the music stopped, Bear Sterns didn’t have a seat to sit on.
Guess those indolent darkies brought guns along when they applied for home loans--you know how THOSE people are--and forced the bankers to give them “liar loans,” a loan in which the bank doesn’t verify the amount of money the borrower makes.
Yeah, that must be it.
Those hordes of dusky-skinned natives forced their way into firms like Goldman Sachs and Lehman Brothers and forced the owners at gunpoint to give them shaky loans.
Gee, thanks for explaining all of this for me.
Hell, i had thought it was just a bunch of greedy bankers.
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the statement “business or job that generates enough cash to cover the loan”...is a crock. The HOUSE generates the cash to cover the loan- thats the collateral!
Wake Up, Somebody.
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Whether or not one agrees with Sailer’s methodology or conclusions, one ought to respect the wisdom in this line: “...being oblivious to the obvious about minorities is the hallmark of authority these days.”
Nonetheless, I’m surprised he didn’t find a way to at least mention this mortgage pioneer: http://www.businessweek.com/magazine/content/04_48/b3910023_mz072.htm
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