Liberalism and Minorities Caused the Subprime Crisis, Not Greed
by James Buchanan
The Democrats are desperately trying to distance themselves from the subprime crisis. They’re claiming that it was “corporate greed” (not liberalism) that caused the mortgage industry meltdown. There’s just one little problem with their claim; it’s not true. The mortgage industry has traditionally made money by sticking to a rigid set of requirements for home loans that include a substantial down payment, a good credit history and proof of employment. Relaxing those requirements and making loans to high-risk groups like poor Blacks and Latinos was NOT in their interest if they wanted to stay profitable. The truth is that our government coerced the mortgage industry into making these high-risk subprime loans to minorities, which has caused our current subprime crisis.
A New York Post article reports that “a ‘landmark’ 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic. That study was tremendously flawed - a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination. Yet the political agenda triumphed - with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion. No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: ‘discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.’ Some of these ‘outdated’ criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt. Sound crazy? You bet… On the Web, you can still find CRA loans available via ACORN with ‘100 percent financing . . . no credit scores . . . undocumented income . . . even if you don’t report it on your tax returns.’ ”
So a fabricated “study” by the Boston Fed claimed that minorities were being discriminated against for home loans. In reality, Blacks and Latinos were failing to qualify for home loans because their average income is lower, their average credit history is worse and their ability to make a down payment is worse than the average for White people. Unfortunately, liberals entrenched in powerful positions in our government chose to ignore all the evidence that ordinary Blacks and Latinos have certain inherent, persistent flaws that make them bad candidates for home loans. (more…)