Jack & Jill Politics

Lots of folks including the New York Times Opinion page are clucking their tongues over the subprime mortgage mess.
People have previously said alarming things like:

“U.S. subprime losses have detonated a global financial markets disaster,” said Vickie Hsieh, who helps oversees $1.4 billion at President Investment Trust Corp. in Taipei. (Bloomberg Aug 15, 2007)

“In the fixed income markets we have Armageddon.” — Jim Cramer of Mad Money (Aug 4, 2007)

Think everything’s just fine since the Fed stepped in? Think again:

Nomura Holdings, the largest Japanese brokerage, said Monday that it would shut down its mortgage-backed securities business in the United States, the latest casualty of the subprime mortgage crisis that is rippling across the globe.
[…]
“This is extremely regrettable,” the company’s chief executive, Nobuyuki Koga, said at a press briefing in Tokyo. “The pace of the collapse in the U.S. residential mortgage-backed securities market was quicker than we expected.” (International Herald Tribune, Oct. 15, 2007)

Because the excesses in the U.S. lending industry have kinda sorta threatened the world economy just a tad, (rich) people are taking a closer look at how we came to this dark place. And whose fault it might be. Props to Politics Plus who also blogged this.

From “Subprime in Black and White”:

Evidence is mounting that during the housing boom, black and Hispanic borrowers were far more likely to be steered into high-cost subprime loans than other borrowers, even after controlling for factors such as income, loan size and property location.

The Furman Center for Real Estate and Urban Policy at New York University released a study this week highlighting a disturbing pattern of racial disparities. Using data gathered by the federal government, the study showed that the 10 New York City neighborhoods with the highest rates of subprime lending in 2005 had black and Hispanic majorities, while the 10 areas with the lowest rates were mainly non-Hispanic white. The higher incidence of subprime lending to borrowers of color held up even when the median income levels of the neighborhoods were comparable.

And as The Times’s Manny Fernandez reported this week, the Furman findings are consistent with a separate analysis of mortgage data by this paper, which found that high-income blacks and Hispanics in New York City were two to three times more likely than comparable non-Hispanic white borrowers to have subprime loans.

Other studies have shown similar racial disparities in Boston, Washington, Philadelphia and other cities.

The bad news doesn’t end there. Neighborhoods where subprime borrowers are concentrated are the same neighborhoods that are now experiencing high rates of default and foreclosure. That’s because many subprime loans were not designed to be affordable over the long term, but rather to be refinanced before their initial teaser rates rose. That often hasn’t been possible as home values have dropped and credit standards have tightened, leaving borrowers stuck in loans that have become unmanageable.

That doesn’t sound good. But there’s more.

The mortgage lending industry says it’s impossible to say that such patterns are the result of discrimination because the federal data do not include so-called risk characteristics like borrowers’ credit scores, other debts or how much of a down payment they were able to make.

But the burden of proof has to be on the lenders to show that no discrimination has occurred. They have data on the risk characteristics of their borrowers. When the Federal Reserve began in 2004 to require lenders to provide specific data on subprime loans, the industry fought successfully to keep the risk profile of borrowers, including credit scores, under wraps. Now, with indications of discrimination rife, Congress must demand that data be fully disclosed.

If you’d like a translation for your barbershop conversation later, I offer you this:

Basically, some big lenders and brokers figured out a new, creative way to rip off African-Americans and Latinos of all socioeconomic levels, taking advantage in part of government encouragement to close the gap between minority and white home ownership in America. They made some crazy money off us and people all over the world got into the act and got a piece of the action. They have managed to cover their tracks and get rich until well, it didn’t work anymore and they got caught with their hands deep in the cookie jar. Now, we would like for these lenders and broker who claim not to be discriminatory to open up their hands so we can see if there’s a big fat racist cookie there.

Once again, we are witness to the ultimate market inefficiency of racism and its partner in crime, corruption. Our suffering in the form of what sounds like a disproportionate number of hard-working, tax-paying minorities losing their homes or going broke to keep them like Jose Pomoles here on NPR will lead to others in America feeling the pinch whether they make the connection — or not. What a waste.

The Bush Administration and Congress looked the other way — or aided and abetted for too long. Now it’s time to take a look and make changes that will protect the American consumer — no matter what race or ethnicity s/he might be.