1990s FHA Mortgage Default Rates By Ethnicity

[1]

Thanks to reader Tino, who found this HUD document [2], here are the mortgage default rates by ethnicity for three vintages of 1990s FHA-insured mortgages. The sample size is 240,901 loans.

The Federal Housing Administration [3] insures smaller-sized mortgages of low and moderate income folks upon appraisal, so this is roughly an apples to apples comparison of fairly similar borrowers. In other words, we're not comparing rich whites to poor minorities, at least not as much as if we were looking at the population as a whole.

Moreover, the FHA seems to have been somewhat more responsibly managed than most other sectors of the mortgage industry. And this data is from the 1990s when housing was a more boring sector of the economy than in the 2000s.

So, we're looking at representative, long term ethnic differences.

As you'll recall, late 1992 was when the Boston Fed, under the leadership of Richard Syron [4], published a warmly welcomed study claiming that mortgage lenders discriminated against minorities and should be loaning more to minorities. As Peter Brimelow asked in Forbes [5]at the time, doesn't that mean minorities should have lower default rates?

But nobody in politics cared, and the study helped Syron get the top job at Freddie Mac, where he earned $38 million while piloting Freddie onto the rocks.

Default rates for 1992 vintage FHA-insured mortgages after 7 years:
White: 4.27%
Black: 10.81%
Hispanic: 13.18%

Default rates for 1992 vintage FHA-insured mortgages after 5 years:
White: 4.10%
Black: 9.14%
Hispanic: 9.47%

Default rates for 1996 vintage FHA-insured mortgages after 3 years:
White: 3.34%
Black: 6.93%
Hispanic: 6.99%

The source is

Analysis of FHA Single-Family Default and Loss Rates [2]
Prepared for:
U.S. Department of Housing and Urban Development
Office of Policy Development and Research
Prepared by:
Robert F. Cotterman
Unicon Research Corporation
March 2004

Even when adjusted for FICO scores and other objective factors related to credit risk, minority default rates still look worse. Cotterman concludes:

Blacks, Hispanics, and those in judicial foreclosure states and underserved areas have higher conditional loss rates, other things the same.

So, the changes in policy and worldview that led to the gigantic increases in mortgage lending to minorities seen over the last decade (with total mortgage dollars written per year increasing 691% for Hispanics [6] and 397% for blacks from 1999 to the peak of the Housing Bubble in 2006) unsurprisingly led to world-historical levels of mortgage defaults in 2007-2009. After all, blacks and Hispanics were still defaulting at very high levels when they weren't getting as much mortgage lending. The law of diminishing marginal returns suggests that throwing more mortgage money at them wasn't going to improve their credit worthiness.

In 2004-2007, minorities received half of subprime mortgage dollars handed out. A new 2008 Boston Fed study [7] shows minorities in Massachusetts getting foreclosed on subprime loans at twice the race of whites, suggesting that minorities accounted for a sizable majority of subprime dollars defaulted.

To the extent that we've had a debate over minority mortgage lending policy in the 18 months since the cratering of the subprime market (which we've barely had at all), it's been along the ideological lines of More Regulation vs. Less Regulation.

And yet, when we look at the federal policy over the last four Presidential terms, what we see is more aptly explained by a different paradigm than Regulation vs. Deregulation:

Who? Whom?

The Clinton Administration both strengthened some mortgage regulations and loosened others, all in the name of increasing minority homeownership. In complete contrast, tThe Bush Administration loosened some regulations and strengthened others, all with the intention of closing the racial homeownership gap.

The results of all this "affordable housing" social engineering was to first make housing unaffordable, and then, when the world finally woke up to the fact that it wouldn't be getting paid back on its mortgage lending, to smash the global economy.