May 18th 09, 03:56 AM
"The Gods Of The Copybook Headings With Terror And Slaughter [a.k.a.
The Minority Mortgage Meltdown] Return."
By Steve Sailer
>> " What went wrong with the economy?
Lots of things, obviously.
Yet, there is one thread of cause and effect that is more central than
any other.
I’ve begun, with the assistance of a sociologist, a sizable
statistical analysis of the causes of the crash.
* First—what happened?
We can observe the crash all the way back to the winter of 2007, when
subprime lenders, frequently headquartered in Southern California,
began to go belly-up at an accelerating rate.
The big banks and investment houses had put too much trust in
mortgages, and thus fell victim to “predatory securitizing”—the 21st
Century mirror image of old-fashioned predatory lending. The Street
was snookered by conmen—borrowers, mortgage brokers, and lenders—
closer to the actual street, who had a more realistic idea of how
little chance there was of these mortgages ever being paid back.
The financial wizards assumed that if a recession came along, the
default rate would subsequently go up, but they never counted on
defaults causing a recession. Of course, it’s exactly what you are not
expecting that you are most vulnerable to.
* Second—where did it happen?
So far, though, defaults haven’t been a massive problem nationwide.
RealtyTrac reported last month that the top 26 foreclosure rates in
the country are all found in metropolitan areas in just the four Sand
States: California, Arizona, Nevada, and Florida.
Indeed, due to its enormous population and outlandish home prices
during the Housing Bubble, California alone accounts for a substantial
majority of defaulted dollars.
* Third—when did it happen?
If California, more than anywhere else, was the place, then 2006 was
the time. Subprime lending exploded in the wake of President George W.
Bush’s 2002 White House Conference on Increasing Minority
Homeownership, which served as the Housing Bubble’s kickoff rally. By
2006, borrowers were scraping the bottom of the barrel.
DataQuick reported recently on California mortgages:
“Of the 3.7 million home loans made in 2004, less than 1 percent have
since resulted in a lender filing a default notice. Of the 3.7 million
loans originated in 2005, 4.9 percent have triggered a default notice
so far. Of the 3 million in 2006, 8.5 percent have so far resulted in
default.”
So, we know the What, the Where, and the When. What about—
* Fourth—Who did it happen to?
Look at this pie chart:
It shows subprime lending in California by ethnicity. In 2006,
lenders handed minorities 77 percent of subprime dollars. Hispanics
alone got a majority: 53 percent.
This data is from the federal Home Mortgage Disclosure Act website.
(See reports 4-2 and 11-3). The federal government keeps careful track
to make sure that minorities get enough mortgage money. But,
strangely, it pays no attention whatsoever to whether or not
minorities are paying back their mortgages.
Private firms such as RealtyTrac and DataQuick count foreclosure
filings, but they don’t record them by ethnicity.
To get a sense of who is defaulting on their mortgages, we can match
data up geographically from the government’s HMDA database and from
RealtyTrac’s Q1-2009 table of foreclosure rates in metropolitan
statistical areas (MSAs) with populations of at least 200,000. (Thanks
to RealtyTrac for emailing a file not publicly online.)
Let’s first focus on subprime lending, which accounted for over a
quarter of all dollars lent in California in 2006 for home purchases—
i.e., to buy a home, not for refinancing or repairing an already owned
home. (The ethnic patterns for refis are similar but not quite as
ethnically skewed. But it was easy home purchase mortgages that
inflated the Bubble the most.)
In California, subprime only accounted for 14 percent of all borrowing
by non-Hispanic whites, but 47 percent of borrowing by Latinos and 52
percent by blacks.
This graph shows the strikingly close relationship between ethnicity
and default rates among California metropolitan areas.
Let’s focus first on the lower left corner of the chart. Among the 20
largest MSAs in California, the lowest foreclosure rate is found in
bucolic Chico in Northern California (0.80 percent), followed by three
affluent coastal regions: San Luis Obispo (0.84), Santa Cruz (0.90),
Santa Barbara (0.98).
In these towns, subprime loans to non-Asian minorities accounted for
merely six to ten percent of mortgage dollars (prime and subprime).
The worst foreclosure rates are in the graph’s upper right: Merced
(4.21 percent), Stockton (3.72), the huge Inland Empire of Riverside
and San Bernardino counties (3.54), and Modesto (3.42).
In these hot inland regions, subprime loans to non-Asian minorities
accounted for 30 to 36 percent of all mortgage dollars.
The correlation coefficient showing the goodness of fit of this very
simple model is r = 0.89, which is extremely high. (A rule of thumb in
the social sciences is that an r of 0.2 is “low,” 0.4 is “moderate”
and 0.6 is “high.”)
What about all the white people who took out subprime loans—like that
defaulting New York Times reporter who covers the Federal Reserve
Board?
Well, in California, the epicenter of the economic collapse, there
just weren’t all that many white subprime borrowers relative to the
large number of subprime minorities. Subprime loans to non-Hispanic
whites accounted for only 6 percent of all home purchase dollars lent
in 2006, while subprime loans to minorities accounted for 21 percent.
Not surprisingly, there is only a vague relation between white
subprime loan shares of total lending and the default rate:
The correlation coefficient is just 0.21.
The May 15 New York Times noted in the passive voice: Minorities Hit
Hardest by Foreclosures in New York [by Michael Powell and Janet
Roberts]. One of my readers commented:
“As Orwell might have said, this shows why good writing produces clear
thinking. To put the headline in the active voice: ‘Minorities
Default More than White Borrowers.’
The NYT ‘s Powell and Roberts blamed “reverse redlining” and argued
that the high minority default rate observed in New York was the fault
of lenders charging too high a risk premium. Yet a recent study by the
Federal Reserve of New York economists Andrew Haughwout, Christopher
Mayer, and Joseph Tracy, Subprime Mortgage Pricing: The Impact of
Race, Ethnicity, and Gender on the Cost of Borrowing, did not find
that black or Hispanic borrowers had to pay too much relative to their
risk factors.
Indeed, if you stop and think about it, you’ll realize that the fact
that so many of the lenders who strove to serve “underserved” minority
communities, such as Washington Mutual and Countrywide, are now out of
business or are on taxpayer life support suggests that lenders charged
blacks and Hispanics on average too low of a risk premium.
This is exactly how Peter Brimelow and Leslie Spencer said risk
premiums worked in their definitive Forbes refutation of the mortgage
discrimination myth back in 1993. Of course, nobody listened.
What if we look at total lending, with prime and subprime aggregated
together?
Minorities borrowed 56 percent of all dollars, prime and subprime, in
California in 2006.
The correlation between total non-Asian minority borrowing and default
rates is still very high, with an r = 0.81:
In sharp contrast, the white share of total lending is inversely
correlated with defaults;
One problem with this analysis is that it’s not granular enough. For
example, RealtyTrac’s report lumps together Los Angeles County and
Orange County into one vast MSA.
If you look within MSAs, however, this pattern of the Housing Bust
being worse in heavily Non-Asian Minority neighborhoods is even more
evident.
For example, DataQuick has a useful list of the change in average home
sale price from 2007 to 2008 for hundreds of California neighborhoods.
(Price declines correlate closely with foreclosure rates.)
Within vast Los Angeles County, the seven communities with the
sharpest price declines are rapidly Hispanicizing Palmdale, Lancaster,
and Little Rock in the high desert, San Fernando and Pacoima in the
all-minority north end of the San Fernando Valley, and Maywood and
Compton in South Central. (Maywood is all Latino, while Compton, the
spiritual home of gangsta rap, is now majority Latino.)
In contrast, the only LA County communities to enjoy price increases
in 2008 were the expensive beach towns of Malibu and Venice, idyllic
Avalon on Catalina Island, San Marino (Pasadena old money and Hong
Kong zillionaires), and Brentwood (which you may recall from the OJ
Simpson trial).
Perhaps it’s not fair that the rich got richer while the poor got,
well, free rent until the sheriff finally tossed them out. Yet, it’s
important to understand what happened—even though few politicians and
pundits seem interested.
This is hardly the only cause of the financial crisis. Still, this is,
more than anything else, the central chain of cause and effect of
recent history.
Which brings us to the final question:
* Fifth—Why did it happen?
Why did California crash the country?
In a word: diversity.
Diversity is a word with diverse meanings these days. And, not
surprisingly, diversity contributed in diverse ways to the mortgage
catastrophe. It’s important not to oversimplify this explanation and
blame everything on the Community Reinvestment Act or any other single
mistake.
Instead, the root cause was the elite’s intoxication with the concept
of diversity—and its concomitant suppression of dissent.
For example, the massive immigration into California unsurprisingly
increased demand for housing while decreasing the percentage of the
population who were good credit risks. Last week, the Pew Hispanic
Center released its multiple regression study of foreclosure rates by
county, "Through Boom and Bust: Minorities, Immigration, and
Homeownership." It wound up with an unwelcome finding much like mine:
“Of the several demographic attributes included in the analysis, the
immigrant share of the county population is the one that emerges as
the most important correlate with the foreclosure rate. And within the
immigrant population, the share of foreign-born Latinos stands out as
a more notable influence than the share of non-Hispanic
immigrants.” (Appendix Table A5).
One obvious reason for this correlation: Latin American immigrants
brought with them a fiesta culture not conducive to thrift.
But the federal government’s war against redlining discrimination
made it a legal offense for financial firm employees to point out
inconvenient facts like this—engendering what Orwell called
“protective stupidity”.
In the long run, however, stupidity isn’t terribly protective. Reality
always gets its revenge.
Or, to quote Kipling, as I did on VDARE.COM in a now-forgotten context
long ago: "The Gods Of The Copybook Headings With Terror And Slaughter
Return." <<
http://www.vdare.com/sailer/090517_foreclosures.htm
The Minority Mortgage Meltdown] Return."
By Steve Sailer
>> " What went wrong with the economy?
Lots of things, obviously.
Yet, there is one thread of cause and effect that is more central than
any other.
I’ve begun, with the assistance of a sociologist, a sizable
statistical analysis of the causes of the crash.
* First—what happened?
We can observe the crash all the way back to the winter of 2007, when
subprime lenders, frequently headquartered in Southern California,
began to go belly-up at an accelerating rate.
The big banks and investment houses had put too much trust in
mortgages, and thus fell victim to “predatory securitizing”—the 21st
Century mirror image of old-fashioned predatory lending. The Street
was snookered by conmen—borrowers, mortgage brokers, and lenders—
closer to the actual street, who had a more realistic idea of how
little chance there was of these mortgages ever being paid back.
The financial wizards assumed that if a recession came along, the
default rate would subsequently go up, but they never counted on
defaults causing a recession. Of course, it’s exactly what you are not
expecting that you are most vulnerable to.
* Second—where did it happen?
So far, though, defaults haven’t been a massive problem nationwide.
RealtyTrac reported last month that the top 26 foreclosure rates in
the country are all found in metropolitan areas in just the four Sand
States: California, Arizona, Nevada, and Florida.
Indeed, due to its enormous population and outlandish home prices
during the Housing Bubble, California alone accounts for a substantial
majority of defaulted dollars.
* Third—when did it happen?
If California, more than anywhere else, was the place, then 2006 was
the time. Subprime lending exploded in the wake of President George W.
Bush’s 2002 White House Conference on Increasing Minority
Homeownership, which served as the Housing Bubble’s kickoff rally. By
2006, borrowers were scraping the bottom of the barrel.
DataQuick reported recently on California mortgages:
“Of the 3.7 million home loans made in 2004, less than 1 percent have
since resulted in a lender filing a default notice. Of the 3.7 million
loans originated in 2005, 4.9 percent have triggered a default notice
so far. Of the 3 million in 2006, 8.5 percent have so far resulted in
default.”
So, we know the What, the Where, and the When. What about—
* Fourth—Who did it happen to?
Look at this pie chart:
It shows subprime lending in California by ethnicity. In 2006,
lenders handed minorities 77 percent of subprime dollars. Hispanics
alone got a majority: 53 percent.
This data is from the federal Home Mortgage Disclosure Act website.
(See reports 4-2 and 11-3). The federal government keeps careful track
to make sure that minorities get enough mortgage money. But,
strangely, it pays no attention whatsoever to whether or not
minorities are paying back their mortgages.
Private firms such as RealtyTrac and DataQuick count foreclosure
filings, but they don’t record them by ethnicity.
To get a sense of who is defaulting on their mortgages, we can match
data up geographically from the government’s HMDA database and from
RealtyTrac’s Q1-2009 table of foreclosure rates in metropolitan
statistical areas (MSAs) with populations of at least 200,000. (Thanks
to RealtyTrac for emailing a file not publicly online.)
Let’s first focus on subprime lending, which accounted for over a
quarter of all dollars lent in California in 2006 for home purchases—
i.e., to buy a home, not for refinancing or repairing an already owned
home. (The ethnic patterns for refis are similar but not quite as
ethnically skewed. But it was easy home purchase mortgages that
inflated the Bubble the most.)
In California, subprime only accounted for 14 percent of all borrowing
by non-Hispanic whites, but 47 percent of borrowing by Latinos and 52
percent by blacks.
This graph shows the strikingly close relationship between ethnicity
and default rates among California metropolitan areas.
Let’s focus first on the lower left corner of the chart. Among the 20
largest MSAs in California, the lowest foreclosure rate is found in
bucolic Chico in Northern California (0.80 percent), followed by three
affluent coastal regions: San Luis Obispo (0.84), Santa Cruz (0.90),
Santa Barbara (0.98).
In these towns, subprime loans to non-Asian minorities accounted for
merely six to ten percent of mortgage dollars (prime and subprime).
The worst foreclosure rates are in the graph’s upper right: Merced
(4.21 percent), Stockton (3.72), the huge Inland Empire of Riverside
and San Bernardino counties (3.54), and Modesto (3.42).
In these hot inland regions, subprime loans to non-Asian minorities
accounted for 30 to 36 percent of all mortgage dollars.
The correlation coefficient showing the goodness of fit of this very
simple model is r = 0.89, which is extremely high. (A rule of thumb in
the social sciences is that an r of 0.2 is “low,” 0.4 is “moderate”
and 0.6 is “high.”)
What about all the white people who took out subprime loans—like that
defaulting New York Times reporter who covers the Federal Reserve
Board?
Well, in California, the epicenter of the economic collapse, there
just weren’t all that many white subprime borrowers relative to the
large number of subprime minorities. Subprime loans to non-Hispanic
whites accounted for only 6 percent of all home purchase dollars lent
in 2006, while subprime loans to minorities accounted for 21 percent.
Not surprisingly, there is only a vague relation between white
subprime loan shares of total lending and the default rate:
The correlation coefficient is just 0.21.
The May 15 New York Times noted in the passive voice: Minorities Hit
Hardest by Foreclosures in New York [by Michael Powell and Janet
Roberts]. One of my readers commented:
“As Orwell might have said, this shows why good writing produces clear
thinking. To put the headline in the active voice: ‘Minorities
Default More than White Borrowers.’
The NYT ‘s Powell and Roberts blamed “reverse redlining” and argued
that the high minority default rate observed in New York was the fault
of lenders charging too high a risk premium. Yet a recent study by the
Federal Reserve of New York economists Andrew Haughwout, Christopher
Mayer, and Joseph Tracy, Subprime Mortgage Pricing: The Impact of
Race, Ethnicity, and Gender on the Cost of Borrowing, did not find
that black or Hispanic borrowers had to pay too much relative to their
risk factors.
Indeed, if you stop and think about it, you’ll realize that the fact
that so many of the lenders who strove to serve “underserved” minority
communities, such as Washington Mutual and Countrywide, are now out of
business or are on taxpayer life support suggests that lenders charged
blacks and Hispanics on average too low of a risk premium.
This is exactly how Peter Brimelow and Leslie Spencer said risk
premiums worked in their definitive Forbes refutation of the mortgage
discrimination myth back in 1993. Of course, nobody listened.
What if we look at total lending, with prime and subprime aggregated
together?
Minorities borrowed 56 percent of all dollars, prime and subprime, in
California in 2006.
The correlation between total non-Asian minority borrowing and default
rates is still very high, with an r = 0.81:
In sharp contrast, the white share of total lending is inversely
correlated with defaults;
One problem with this analysis is that it’s not granular enough. For
example, RealtyTrac’s report lumps together Los Angeles County and
Orange County into one vast MSA.
If you look within MSAs, however, this pattern of the Housing Bust
being worse in heavily Non-Asian Minority neighborhoods is even more
evident.
For example, DataQuick has a useful list of the change in average home
sale price from 2007 to 2008 for hundreds of California neighborhoods.
(Price declines correlate closely with foreclosure rates.)
Within vast Los Angeles County, the seven communities with the
sharpest price declines are rapidly Hispanicizing Palmdale, Lancaster,
and Little Rock in the high desert, San Fernando and Pacoima in the
all-minority north end of the San Fernando Valley, and Maywood and
Compton in South Central. (Maywood is all Latino, while Compton, the
spiritual home of gangsta rap, is now majority Latino.)
In contrast, the only LA County communities to enjoy price increases
in 2008 were the expensive beach towns of Malibu and Venice, idyllic
Avalon on Catalina Island, San Marino (Pasadena old money and Hong
Kong zillionaires), and Brentwood (which you may recall from the OJ
Simpson trial).
Perhaps it’s not fair that the rich got richer while the poor got,
well, free rent until the sheriff finally tossed them out. Yet, it’s
important to understand what happened—even though few politicians and
pundits seem interested.
This is hardly the only cause of the financial crisis. Still, this is,
more than anything else, the central chain of cause and effect of
recent history.
Which brings us to the final question:
* Fifth—Why did it happen?
Why did California crash the country?
In a word: diversity.
Diversity is a word with diverse meanings these days. And, not
surprisingly, diversity contributed in diverse ways to the mortgage
catastrophe. It’s important not to oversimplify this explanation and
blame everything on the Community Reinvestment Act or any other single
mistake.
Instead, the root cause was the elite’s intoxication with the concept
of diversity—and its concomitant suppression of dissent.
For example, the massive immigration into California unsurprisingly
increased demand for housing while decreasing the percentage of the
population who were good credit risks. Last week, the Pew Hispanic
Center released its multiple regression study of foreclosure rates by
county, "Through Boom and Bust: Minorities, Immigration, and
Homeownership." It wound up with an unwelcome finding much like mine:
“Of the several demographic attributes included in the analysis, the
immigrant share of the county population is the one that emerges as
the most important correlate with the foreclosure rate. And within the
immigrant population, the share of foreign-born Latinos stands out as
a more notable influence than the share of non-Hispanic
immigrants.” (Appendix Table A5).
One obvious reason for this correlation: Latin American immigrants
brought with them a fiesta culture not conducive to thrift.
But the federal government’s war against redlining discrimination
made it a legal offense for financial firm employees to point out
inconvenient facts like this—engendering what Orwell called
“protective stupidity”.
In the long run, however, stupidity isn’t terribly protective. Reality
always gets its revenge.
Or, to quote Kipling, as I did on VDARE.COM in a now-forgotten context
long ago: "The Gods Of The Copybook Headings With Terror And Slaughter
Return." <<
http://www.vdare.com/sailer/090517_foreclosures.htm