America`s Minority Mortgage Meltdown/ Diversity Recession: The Smoking Gun?
The ongoing financial crash was
overleveraging at all levels of society, from
Main Street to the
slums. The initial cause, however, was the popping
of the subprime mortgage bubble.
At their bubblicious peak, American
homes were theoretically worth
$24 trillion. The amount of wealth that has evaporated
in the popping of the American real estate bubble so far
appears to be in the $5 trillion range, to pick a very round
number. The blogger Dr. Housing Bubble recently estimated
the loss to be
$4.68 trillion using Case-Shiller data. Another source
$6 trillion. And we haven`t necessarily hit bottom yet.
So the wealth loss already amounts to a quarter to a third
of US GDP—greatly magnified, and spread around the world, by
the simultaneous metastasizing of poorly-understood
I`ve long argued that the massive
demographic trends in our society toward
played an underappreciated role in the disaster. Now we`re
now getting very close to finding the smoking gun that
proves my “Diversity
Many readers have expressed doubts
that minorities could possibly play a large enough role in
the mortgage market to matter. Actually, they do. In fact,
we can now see that, more than anything else, the
Housing Bubble was a Hispanic Housing Bubble. Mortgage
flowing to Hispanics for home purchases increasing
almost eightfold from 1999 to 2006!
argued, the Bush
Administration wanted to turn
into Republican voters by
making them homeowners through easy credit. George W.
Karl Rove don`t deserve all the blame, however. Their
lax mortgage policies were largely a continuation of
trends to boost minority and low income mortgage access that
well under way in the Clinton Administration—as I
pointed out in my June Takimag.com article on
Diversity Recession.” These lax mortgage policies
also had the secondary effect of encouraging residential
real estate speculation—“flipping”—by
minorities and non-minorities alike.
The federal government doesn`t make
it easy for citizens to find information on
mortgage defaults and foreclosures by race. But it does
collect a huge amount of information by race on mortgages
handed out, in order to encourage
lending to minorities by
threatening lawsuits against financial institutions
accused of discriminating against them.
A very helpful reader sent me a link to the federal Home Mortgage Disclosure Act
HMDA National Aggregate Report,
I`ve chosen to look at
conventional home purchase mortgages originated in 2006,
the peak of the Bubble, the year of the worst
“toxic waste” mortgages.
Unfortunately, I couldn`t figure out
how to break out subprime dollars, which is where most of
the unexpected defaults occurred. But looking at total
dollars loaned on the purchase of homes, prime and subprime
aggregated together, is revealing enough.
I looked at total mortgage dollars
originated for home purchases in 2006. It appears the
minority share of overall mortgage dollars was slightly
larger (35%) than their share of the population (about 33%
in 2006). This is due to higher average mortgage sizes for
minorities ($188,000) than for whites ($183,000).
This may seem counterintuitive—until
you stop and think about it. Minorities tend to be
concentrated in metropolitan areas with expensive land
Rural areas with
Further, America`s largest and most
epicenter of the housing bubble and thus the global
financial earthquake due to subprime defaults, is now
majority minority (with
non-Hispanic whites making up
only 43 percent of the financially tarnished Golden
State`s population in 2005).
For home purchase mortgages
originated in 2006, Asians averaged $255,000, Hispanics
$183,000, non-Hispanic whites $183,000, and blacks $153,000.
1999 (the first year in the federal database), which was
Housing Bubble, it`s striking to note
much more mortgage money has flowed to Hispanics. The
mortgage dollars for home purchases by Hispanics grew
691 percent from 1999 to 2006! Hispanics originated only $21
billion in purchase mortgages in 1999 v. $163 billion in
four heavily Hispanic states—California, Florida,
Arizona, and Nevada—account
for 50 percent of the mortgage defaults in America in 2007,
and, due to California`s ridiculous home prices, no doubt an
even larger share of defaulted dollars.
Blacks also received far more
mortgage dollars in that seven-year stretch from 1999 to
2006, up 397 percent from $17 billion to $84 billion. Both
Hispanics and blacks participated heavily in the subprime
market, with two to three times higher percentages of their
mortgages being subprime than among whites. So much of this
breakneck expansion in borrowing among
blacks must have been due to subprimes, which is where
the financial collapse started.
Despite rapid immigration, Asians
were up only 218 percent in total new mortgage dollars from
1999 to 2006, from $24 billion to 77 billion. We know they
mostly stuck to prime mortgages, at
about the same rate as whites.
Total minority purchase mortgages
taken out in 2006 were $360 billion, compared to $678
billion for non-Hispanic whites. So, minorities were
slightly over-represented in purchase mortgage dollars
relative to their share of the population.
Unfortunately, changes in reporting
methodology from 1999 to 2006 make comparison difficult for
non-Hispanic whites. (They weren`t
broken out separately from
“Whites” in 1999, so the 1999 figures may or may not
include some Hispanics. In contrast, non-Hispanic whites are
identified separately in 2006.)
It`s not all that important a
methodological problem, though, because Hispanic borrowing
wasn`t huge in 1999. So, my estimate for
non-Hispanic whites is that mortgage dollars flowing to
them increased about 100 percent over those seven years.
The picture in
refinancing of existing mortgages in 2006 is quite
similar, with minorities getting 33 percent of home
refinancing dollars originated in 2006. Interestingly, the
average minority refinancing was bigger ($218,000) than the
average non-Hispanic white refinancing ($188,000).
Refinancing dollars flowing to Hispanics increased more than
seven-fold, while whites were up somewhat more than double.
So the ethnic change wasn`t quite as
extreme as in home purchase mortgages, but they weren`t very
different. The total value of refinancing and purchase
mortgages were fairly similar in size in 2006. So minorities
accounted for about 34 percent of purchase and refinancing
of mortgages in 2006.
I couldn`t find usable numbers in
the database on subprime dollars alone, although a more
assiduous researcher may well be able to tease out the
facts. But if minorities in 2006 accounted for 35% of all
mortgages (see above), they would have accounted for a
higher share of subprime dollars mortgages. Defaults so far
have been concentrated in subprime adjustable rate
mortgages. They accounted for 6% of mortgages and 39% of
likely that it will turn out that the
unexpected default dollars, above normal trend lines, in
2007 were from defaults by minorities.
The conventional wisdom that emerged
from the crisis of the Great Depression
dominated American ideology until almost 1980.
Similarly, the reigning ideas that congeal in the next few
weeks about the causes of this crash will determine the
course of politics for decades to come. Right now, the elite
consensus (as in the 1930s) is that the free market failed.
The truth, to which we blinded ourselves in an orgy of
political correctness, is that the America of 2008
doesn`t have the human capital to justify the valuations of
wealth it thought it had.
The American Conservative.
features his daily blog. His new book,
AMERICA`S HALF-BLOOD PRINCE:
BARACK OBAMA`S “STORY OF
RACE AND INHERITANCE”, is available