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Surprise, Surprise:The Subprime Mortgage Crisis And The Government War On "Redlining"
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October 18, 2007, 05:41 PM
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Back in August, I pointed out that subprime crisis was in part the result of years of government efforts to prevent "discrimination" against minorities in the mortgage market. Now, the NYT reports — unwittingly, of course — that the current subprime mortgage crisis is in part an outgrowth of the long government war on redlining:

Study Finds Disparities in Mortgages by Race

By MANNY FERNANDEZ

October 15, 2007

Home buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels, according to a new analysis of home loan data by researchers at New York University.

The analysis, by N.Y.U.’s Furman Center for Real Estate and Urban Policy, illustrates stark racial differences between the New York City neighborhoods where subprime mortgages — which can come with higher interest rates, fees and penalties — were common and those where they were rare. The 10 neighborhoods with the highest rates of mortgages from subprime lenders had black and Hispanic majorities, and the 10 areas with the lowest rates were mainly non-Hispanic white.

The analysis showed that even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender.

In Jamaica, Queens, for example, where the majority is black and the median household income was $45,000 in 2005, 46 percent of the mortgages were issued by lenders who specialize in subprime loans, the second highest rate in the city. In Bay Ridge, Brooklyn, which had a median income of $50,000 and is mostly white, the rate was among the lowest in the city, with 3.6 percent of home loans coming from subprime lenders.

The analysis provides only a limited picture of subprime borrowing in New York City. The data does not include details on borrowers’ assets, down payments or debt loads, all key factors in mortgage lending. And comparing neighborhoods is inexact; the typical borrower in one may differ from a typical borrower in another.

Jay Brinkmann, an economist with the Mortgage Bankers Association, said there was not enough information in the Furman Center analysis and other studies on the issue to draw conclusions about whether subprime lenders were discriminating against minority home buyers. One of the crucial missing pieces is the credit histories of individual borrowers, he said.

But the Furman Center study, a summary of which is being released today, still raises questions about the role of race in lending practices. A separate analysis of mortgage data by The New York Times shows that even at higher income levels, black borrowers in New York City were far more likely than white borrowers with similar incomes and mortgage amounts to receive a subprime loan.

“It’s almost as if subprime lenders put a circle around neighborhoods of color and say, ‘This is where we`re going to do our thing,’” said Robert Stroup, a lawyer and the director of the economic justice program at the NAACP Legal Defense and Educational Fund Inc.

The New York State Division of Human Rights is investigating whether subprime lenders have been engaging in discriminatory practices by singling out minority communities. ...

Even so, housing and civil rights advocates said the findings highlight lending patterns that have long troubled them.

They say minority communities whose financing needs were starved decades ago because of redlining — banks’ refusal to offer loans or other services in minority areas — are now singled out for high-cost, high-risk mortgages in a kind of reverse redlining.

In other words, in the past, poor credit risks in minority neighborhoods had a hard time getting mortgages at the standard rate. So, now, after decades of government lawsuits and programs to direct more lending to minorities, the complaint is that the poor credit risks in minority neighborhoods are getting mortgages, they just have to pay more for them. Obviously, the only solution is for the rest of us to subsidize the mortgages of minorities. After all, how much could it cost? A trillion or two?