Researching The Minority Mortgage Meltdown: Can The Fed Evade My FOIA Request?

Recently, I`ve been trying to answer the question that
nobody else wants asked about the causes of the Great
Recession: what percentage of

defaulted mortgage dollars

minorities account for

In doing so, I`ve stumbled upon another important conundrum:
As the Federal Reserve continues to take on more power, are
the twelve regional Federal Reserve Banks above the law?

Specifically, can the Fed evade the Freedom of Information
Act by claiming that the regional Federal Reserve Banks are
private institutions not subject to the FOIA?

As you`ll recall, as part of

the crusade against
, the Home Mortgage Disclosure Act
(HMDA), passed by
Congress in 1975 and implemented by the Federal Reserve
Regulation C
, tracks whether lending institutions give
mortgage dollars to minorities.

The government, however, does
not track whether
pay back
these loans.

My theory has been that you get more of what you measure,
and less of what you don`t measure. If the federal

tracks lending to minorities
but not repayments by
minorities, we`ll inevitably tend toward seeing more of the
former and less of the latter.

This is not merely an academic question. The mortgage crash
kicked off the current recession—it`s our first

Diversity Recession
. So isn`t it time we were allowed to
know the facts about the mortgage meltdown?

Fortunately, in late 2008
“a consortium that
included the Board of Governors of the Federal Reserve
System and eight regional Federal Reserve Banks”

purchased, for a large sum, a copy of the private Lender
Processing Services (formerly
dataset. [FRB
of Boston Public Policy Discussion Paper No. 09-2
allows Federal Reserve economists to calculate the default
rates by ethnicity.

Unfortunately, Federal Reserve employees have not been in
any hurry to publish this historically and politically
crucial information.

But two

at the Federal Reserve Bank of San Francisco
have let slip, in the midst of a paper defending the
Community Reinvestment Act, that mortgages issued to
minorities during the bubble years in California had much
worse foreclosure rates than mortgages given to non-Hispanic

Below is a chart of the foreclosure ratios relative to
non-Hispanic whites
adjusted for income and credit scores
. The numbers are
found on pp. 13-14 of

Lending in Low- and Moderate-Income Neighborhoods in
California: The Performance of CRA Lending During the
Subprime Meltdown
Dr. Elizabeth

Dr. Carolina Reid
of the San Francisco Fed.

In this sample of 239,101 mortgages made in California in
2004-2006, blacks defaulted 3.3 times more often than
non-Hispanic whites with the same income and FICO score.
Hispanics defaulted 2.5 times more often than similar
whites, and Asians 1.6 time more.

Presumably the unadjusted default rate ratios, at least for
blacks and Hispanics, are even worse. After all, blacks and
Hispanics tend to have

lower income

lower credit scores
, so the Laderman-Reid adjustment
makes minorities look better.

Even without being allowed to know the raw ratios, we can
infer that minorities

for most of defaulted mortgage dollars in

. After all, they accounted for a

of home purchase mortgage dollar borrowing in
California in 2006, according to the HMDA. Hence, with their
much higher default rates, minorities must have accounted
for a landslide majority of default dollars in the Golden


alone accounted for a sizable majority of
defaulted dollars. California plus the other three

sand states
(Nevada, Arizona, and Florida) amounted to
about seven-eighths of the losses that kicked off the
economic crash.

We know from the HMDA database that in 2006 in California,
minorities borrowed 77
of subprime home purchase dollars and 56 percent
of all home purchase dollars (not counting borrowers of
uncertain ethnicity and couples of mixed ethnicity).

Judging from Laderman and Reid`s
foreclosure rates, minorities accounted for at least 70
percent of the dollars lost in California.

And California accounted for a sizable majority of all the
defaulted dollars in the country. So California`s minorities
alone might have accounted for about half the lost money.
(Of course,
amounts of the blame
should also go to

Wall Street rocket scientists
mountains of debt

pebbles of probability
that it would be paid back.)

If we were allowed to see the unadjusted default rates for
California, we could know much more about what actually set
off the Crash. As citizens, shouldn`t we have that right?

I requested the unadjusted numbers from Dr. Laderman and Dr.
Reid via email, but they wouldn`t provide them.

So I filed a Freedom of Information Act
with the Federal Reserve Board in Washington
D.C. asking for the 58 raw numbers in Laderman and Reid`s
work that I needed to calculate the unadjusted foreclosure
rates. I offered to pay for the clerical work necessary to
email them to me.

After many weeks of delay, the Board of Governors of the
Federal Reserve replied with an “adverse
denying my request.

They offered two excuses:

  • “The information you seek does not currently exist in
    the form you request.”

Since it obviously
exist in readily available form (Laderman and Reid
couldn`t publish the adjusted ratios without first
calculating the unadjusted ratios), the Board of Governors
quickly moved on to the heart of their rationalization for

  • “Even assuming the information could be derived and
    produced in the format you seek, the resulting table,
    like the underlying data set would be a record of the
    Federal Reserve Bank of San Francisco, not the Board.
    Accordingly, we cannot provide you with any such

In other words, sure, we`ll admit that the Freedom of
Information Act applies to the Board of Governors of the
Federal Reserve, but the Federal Reserve Bank of San
Francisco is a private entity, so it`s above the law.

This sounded absurd, but I quickly discovered that the Board
of Governors had made the exact same defense when Bloomberg
News sued the Fed under the FOIA to get the inside story on

bailout of Bear Sterns in 2008.
The Fed Board of
Governors replied, in effect,
“Hey, that wasn`t us,
that was the Federal Reserve Bank of New York that bailed
out Bear Stearns. And they ain`t subject to the FOIA.

Fortunately, the August 24, 2009 decision by Loretta A.
Preska, Chief United States District Judge, in

Bloomberg L.P. v. Board of Governors of the Federal Reserve
found that the Fed had to pony up to
Bloomberg the Bear Sterns documents within five working

Judge Preska`s decision begins:

“This action concerns whether the Freedom of Information Act
(“FOIA”, 5 U.S.C. 552, compels the Board of Governors of the
Federal Reserve System (the “Board”), when responding to
FOIA requests, to search for records held at the Federal
Reserve Bank of New York (“FRBNY”) …”

However, just because the Fed has to kow-tow to Bloomberg
News, which was founded by Michael Bloomberg, the

New York

Numero Ocho
on the
Forbes 400
, doesn`t mean it is going to apply the same
logic to a private citizen like myself.

It`s not clear from Judge Preska`s

whether she has cast doubt on the Fed`s claim
that the Freedom of Information Act doesn`t apply to its
member banks in general, or just in the Bear Sterns case.

Before starting legal action against the Fed, an institution
with, literally, infinite financial resources with which to
wage legal warfare against me, I`d like to appeal to the
lawyers among`s readers. Does Judge Preska`s

give me a legal leg to stand on?

Moreover, does anyone else object to the claim of the Fed,
which is arrogating ever more power, that it can avoid the

Freedom of Information Act
by delegating work to its
regional banks?

I have also filed an appeal with the Fed, which I ended with
these words:

“… let me conclude by appealing to your public-spiritedness.
All Americans have a strong interest in having the facts
about the roots of our current economic downturn made public
rather than continue to be kept secret. If we aren`t allowed
to learn
from the past,
how can we avoid repeating it?”

[Steve Sailer (email
him) is

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The American Conservative

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