To the progressive wing of the Democrat party, Sen. Elizabeth Warren, D-Mass., is The Lady Who Would.
She Would be the woman they want to knock Hillary Clinton out of the 2016 presidential nomination. She Would have been the woman they wanted to head up the CFPB. (She Would be a great icon for minorities, if her claim to being a Native American weren’t so laughable.)
Now, with a hat tip to Politico, she Would like to let you know she thinks blacks and Hispanics were targeted in the lead-up to the subprime mortgage, and that’s why they suffered so disproportionately.
And here’s the thing – she’s not wrong.
According to Politico, Warren gave the talk at a fundraiser in Boston where she hit on a number of subjects.
And as far as the subprime crisis and minorities go – she’s right. But it wasn’t the lenders that were targeting minorities; it was the federal government.
Yes, more blacks and Hispanics got subprime mortgages in the years leading up to the housing crash, so of course they suffered just as disproportionately.
A HUD investigation from 2009 backs this up. Kinda.
In general, the analysis shows that subprime lending is more prevalent in lower-income and minority neighborhoods than in higher-income and white neighborhoods. This likely indicates that because of their lower incomes, lenders may consider these borrowers to be a higher credit risk, and these borrowers may therefore be less likely to qualify for prime loans.
…However, a lack of competition from prime lenders in these markets to find creditworthy borrowers may increase the chances that borrowers are exposed to the predatory practices of a subset of subprime lenders. There is also evidence suggesting that after controlling for income, predominantly black neighborhoods may be comparatively underserved by prime lenders.”
But the thing is, all this targeting was by design. It was the directive coming out of the Community Reinvestment Act of 1977.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990′s. The number of mortgages extended to Hispanic applicants jumped by 87.2% from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9% and the number of Asian Americans by 46.3%.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2%.
As with so many other things, the next administration under George W. Bush took that bad idea and ramped it up further.
The basic presumption was, by encouraging lenders to offer subprime product to lower-income blacks and Hispanics, who, by and large, have lower credit scores and don’t have the savings for down payments, it would help them out of poverty.
Policymakers looked at homeowners who, by and large, are more financially stable and responsible than renters, and they thought, hey, if we just made homeowners out of people who aren’t yet stable and responsible, just being in that home will make them so.
There’s a Latin phrase for this mistaken thinking that will just make me sound uppity or like I know how to Google, so I’ll put it in plain English: People who are responsible homeowners (and thus getting the benefits ownership conveys) are so because they put in the hard work to earn good credit scores and save their down payments. They didn’t become responsible because they suddenly had a house.
There is a maximum threshold of homeownership, and it’s probably right around where it is now in the low-to-mid 60%.
Three in 10 Americans aren’t financially responsible, or aren’t financially ready for the responsibility of homeownership, or for what a 30-year or even 15-year mortgage involves.
So why, through policy and politics, are we trying to push them into failure under the guise of helping them?
So yeah, Warren is absolutely right – minorities were targeted.
But the villain here wasn’t lenders, it was the federal government and the kindness that can kill.