[Bret L]

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

By Steve Sailer

"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 did 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 “racist” redlining,
the Home Mortgage Disclosure Act (HMDA), passed by Congress in 1975
and implemented by the Federal Reserve Board's Regulation C, tracks
whether lending institutions give enough mortgage dollars to
minorities.

The government, however, does not track whether minorities 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 government 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 “McDash”) dataset. [FRB of Boston
Public Policy Discussion Paper No. 09-2(PDF)]This 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 economists 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 whites.

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 by Dr. Elizabeth Laderman and 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 and 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 accounted for most of defaulted mortgage dollars in
California. After all, they accounted for a majority 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 State.

And California 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 percent 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 adjusted 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, huge amounts of
the blame should also go to Wall Street rocket scientists who
leveraged mountains of debt upon 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 request 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 determination” denying my request.

They offered two excuses:

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

Since it obviously does 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 refusal:

* “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
information.”

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 the 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. Ha-ha!”

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 System found that the Fed had to pony up to
Bloomberg the Bear Sterns documents within five working days.

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 Mayor of New York and 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 decision 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
VDARE.com’s readers. Does Judge Preska’s opinion 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?”

http://www.vdare.com/sailer/091101_foia.htm