UPDATED: Mr. Ritholtz has a question
June 30, 2009, 03:18 AM
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In this afternoon's comments on my morning post offering to debate him on whether or not "Diversity was a major factor in the mortgage meltdown," investment adviser, blogger (The Big Picture), and author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy Barry Ritholtz asks:
Ritholtz said...How about some evidence, hard data, facts?

Or are you more comfortable with nudges, hunches and squishy junk.

Show me some hard evidence!

Mr. Ritholtz apparently hasn't been paying attention here, but I also fear I've overloaded my regular readers so much on the topic of diversity and mortgages over the last couple of years that many would rather hear that I'm about to start a new 9-part series on track & field statistics (my all-time least popular obsession) than hear the same old same old about diversity and the mortgage meltdown.

So, I'll just link to a few highlights in chronological order. The data piles up as we get closer to the present, but it's helpful to understand how my thinking evolved from the point when I had no idea what I was talking about regarding mortgages.

Let's begin with my first blog post on the subject on August 12, 2007, a couple of weeks into the subprime collapse, where you can see my hesitancy to get involved in a topic with a topic where I didn't know anything, but I did remember a few things that almost everybody else seemed to have forgotten:

A trillion here, a trillion there, pretty soon we're talking about real money

I'm sure the private financial markets were quite capable of blowing up a big bubble by themselves in the eternal see-saw struggle between greed and fear, but this political pressure for lending to minorities with doubtful credit must have exacerbated the problem. About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites.

A reader has sent me some links to articles from 5 to 9 years ago to show me I'm not hallucinating about what I remember. The first are from early in this decade about Fannie Mae's big plans for boosting mortgages for minorities. Now, I don't pretend to understand what Fannie Mae is (but does anybody?). It's some kind of quasi-governmental publicly-traded for-profit thinga-ma-bob, but Fannie Mae's past pronouncements do make interesting reading at present.

Straightforward tax-and-spend programs were out of favor in the 1990s, but lean-on-lenders for the benefit of your political constituents is always in season...

Next, there's my June 22, 2008 Taki's Magazine article, The Diversity Recession, where I finally began to pull my thoughts together into a semblance of a thesis about just how manifold was the involvement of diversity on the mortgage meltdown:
The Diversity Recession

Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.

More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.

The chickens have finally come home to roost...

In VDARE.com on September 28, 2008, I explained how one central element in the housing bubble, President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:
... some of the conservative talking heads tended to put forward na??ve, self-serving, or unpersuasive versions of this theory—such as that the banking crash wasn't the fault of greed in the financial industry, it was the result of the Democrats in Congress passing the anti-redlining Community Reinvestment Act in 1977.

The reality is that blame is very widely shared: among Democrats and Republicans, businesspeople and politicians, Congress and the Executive Branch, borrowers and lenders, and whites, blacks and Hispanics.

There's one man, however, who has so far escaped any blame. Few have realized something that turns out to have been staring us in the face all along: that the mortgage mess was, in sizable measure, an outgrowth of the primary political goal of the Bush Administration.

That man's name is Karl Rove.

And the primary political goal of President George W. Bush's political strategist: to bring Hispanics into the Republican Party.

As you'll recall, Rove's best-known tactic to appeal to Latino voters was repeatedly pushing "comprehensive immigration reform" (i.e., an amnesty for illegal immigrants).

Rove, though, had other arrows in his quiver. One was a plan to turn Hispanics into Republicans by providing them with loose credit so they could become homeowners...

Then, "Tino" introduced me to the key source for numbers, the Federal Home Mortgage Disclosure Act database. The federal government carefully tracks how much minorities are getting in mortgage dollars (but not, of course, whether they are paying them back). I blogged on October 10, 2008:
Tino has added up all the subprime mortgage dollars for the entire disastrous 2004-2007 period. Among borrowers whose ethnicity is unambiguous, he comes up with $900 billion subprime dollars going to non-Hispanic whites, $887 billion to minorities. So, that's 50% of subprime dollars during the worst years of the Bubble went to minorities.

Someday, we'll get a count of defaulted dollars by race.

On January 21, 2009, I posted a graph I had made up from data of a Boston Fed study of every subprime default in Massachusetts showing that Non-Asian Minority subprime default rates average about twice the white rate over the years.

So, in Massachusetts, the Non-Asian Minority foreclosure rate on subprime mortgages was about twice the white rate. That didn't change too much over the years, but the proportion of mortgages that were subprime and the proportion of mortgage dollars going to minorities changed radically in the Bush years, contributing sizably to the disastrous mortgage meltdown that began in 2007 and triggered the more general crash of 2008.

If that two to one minority to white foreclosure ratio seen in Massachusetts holds true nationally, where minorities took out half the subprime dollars, then minorities would account for two-thirds of all defaulted subprime dollars.

However, Asians probably have a lower default rate. On the other hand, they largely stayed away from subprime mortgages, so it's not a big issue. So, it's likely that minorities accounted for at least 60% of the subprime dollars defaulted.

In VDARE.com on February 1, 2009, I finally got around to focusing on the Community Reinvestment Act, using Washington Mutual, which had pledged $375 billion in CRA lending as a case study of how the CRA subtly changed the culture of the lending business.

Two weeks later, I graphed data from the National Community Reinvestment Coalition showing over $4 trillion in CRA pledges by covered institions between 1996 and 2005, with $1.6 trillion pledged in 2004 alone.

On May 17, 2009 in VDARE.com, I focused on HMDA data on lending in California, where a great majority of defaulted dollars are found. I found that according to federal data, minorities got 77% of subprime dollars loaned out for home purchases in California in 2006, the worst year for subsequent defaults. Within California's 20 biggest metropolitan areas, there was a 0.89 correlation between minority share of subprime dollars in 2006 and default rates in Q1-2009.

And in VDARE.com on June 22, 2009, I profiled the largest lender not officially covered by the CRA — Angelo Mozilo of Countrywide. And showed that Countrywide had been told by the Clinton Administration that they would be brought under the CRA if they didn't act like they were under the CRA. But, Mozilo quickly became a true believer, which accounts for Countrywide's $1 trillion dollar CRA-style pledge in early 2005.