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

[Steve Sailer (email him) is movie critic for The American Conservative. His website features his daily blog. His new book, AMERICA'S HALF-BLOOD PRINCE: BARACK OBAMA'S "STORY OF RACE AND INHERITANCE", is available here.]

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