October 5, 2008

Mortgage risk and the two kinds of bell curves

The NYT reports in "Pressured to Take More Risk, Fannie Reached Tipping Point:"

But by the time Mr. Mudd [son of newscaster Roger Mudd] became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.

Dozens of interviews, most from people who requested anonymity to avoid legal repercussions, offer an inside account of the critical juncture when Fannie Mae’s new chief executive, under pressure from Wall Street firms, Congress and company shareholders, took additional risks that pushed his company, and, in turn, a large part of the nation’s financial health, to the brink.

Between 2005 and 2008, Fannie purchased or guaranteed at least $270 billion in loans to risky borrowers — more than three times as much as in all its earlier years combined, according to company filings and industry data.

“We didn’t really know what we were buying,” said Marc Gott, a former director in Fannie’s loan servicing department. “This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”

No comment.

Last month, the White House was forced to orchestrate a $200 billion rescue of Fannie and its corporate cousin, Freddie Mac. On Sept. 26, the companies disclosed that federal prosecutors and the Securities and Exchange Commission were investigating potential accounting and governance problems.

Mr. Mudd said in an interview that he responded as best he could given the company’s challenges, and worked to balance risks prudently.

“Fannie Mae faced the danger that the market would pass us by,” he said. “We were afraid that lenders would be selling products we weren’t buying and Congress would feel like we weren’t fulfilling our mission. The market was changing, and it’s our job to buy loans, so we had to change as well.” ...

Fannie never actually made loans. It was essentially a mortgage insurance company, buying mortgages, keeping some but reselling most to investors and, for a fee, promising to pay off a loan if the borrower defaulted. The only real danger was that the company might guarantee questionable mortgages and lose out when large numbers of borrowers walked away from their obligations.

So Fannie constructed a vast network of computer programs and mathematical formulas that analyzed its millions of daily transactions and ranked borrowers according to their risk.

Those computer programs seemingly turned Fannie into a divining rod, capable of separating pools of similar-seeming borrowers into safe and risky bets. The riskier the loan, the more Fannie charged to handle it. In theory, those high fees would offset any losses.

With that self-assurance, the company announced in 2000 that it would buy $2 trillion in loans from low-income, minority and risky borrowers by 2010.

A trillion here, a trillion there, pretty soon you are talking about real money.

Look, the problem with Fannie Mae's computer models can be summed up like this: They were looking at the wrong bell curve. They assumed that the risk of mortgage defaults were normally distributed along a bell curve, so you could use all the usual tools of statistical reasoning to diversify away this purely random risk.

Instead, they should have been looking at The Bell Curve. The homeownership rate had been stuck around 64% for a quarter of a century. Then the Clinton and Bush Jr. Administrations pushed it up, by hook and by crook, to 68 or 69% (published figures differ on what was the precise peak). Bush announced in 2002 that he wanted to add 5.5 million more minority homeowners, which would have pushed the rate above 70%.

In other words, the national policy was to keep pushing homeownership farther down toward the left tail of The Bell Curve (in less technical terms, further scraping the bottom of the barrel) by debauching traditional credit standards for everybody. This movie doesn't end well.

But, can you imagine what longtime Fannie Mae CEO Franklin Raines' response would have been if one of his modelers had tried to inject insights from The Bell Curve into their bell curves of mortgage default risk? Heck, nobody -- public, private or hybrid -- would be allowed to do it because it would show up in discovery of discrimination lawsuits. ACORN and La Raza would have a field day.

... The ripple effect of Fannie’s plunge into riskier lending was profound. Fannie’s stamp of approval made shunned borrowers and complex loans more acceptable to other lenders, particularly small and less sophisticated banks.

Between 2001 and 2004, the overall subprime mortgage market — loans to the riskiest borrowers — grew from $160 billion to $540 billion, according to Inside Mortgage Finance, a trade publication. Communities were inundated with billboards and fliers from subprime companies offering to help almost anyone buy a home.

Within a few years of Mr. Mudd’s arrival, Fannie was the most powerful mortgage company on earth.

Then it began to crumble. ...

Shortly after he became chief executive in 2004, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.

“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”

Then Mr. Mozilo offered everyone a breath mint.

Investors were also pressuring Mr. Mudd to take greater risks.

On one occasion, a hedge fund manager telephoned a senior Fannie executive to complain that the company was not taking enough gambles in chasing profits.

“Are you stupid or blind?” the investor roared, according to someone who heard the call, but requested anonymity. “Your job is to make me money!”

Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

Yes, that is kind of a problem, isn't it? Obviously, the solution to home prices rising faster than incomes is lend more money!

Now, over the last couple of weeks there has been a lot of fingerpainting over who is to blame. And that's a good thing. But the efforts to pin the positive blame on one party or another seem fairly hopeless, since they were all in on it. Sure, the Bush Administration raised qualms about Democrat-infested Fannie Mae in 2003, but Bush was simultaneously pushing zero down payment mortgages to promote minority homeownership, so the Bushies were not interested in dealing with the real problem, just in fighting Democrats over the spoils.

More realistically, there's a lot of negative blame to hand out because nobody in a position of power or influence -- Bush, Clinton, Greenspan, Frank, Dodd, etc. -- was willing to be seen as to stand athwart history, yelling Stop. What if the federal government had imposed a minimum 5% down payment on mortgages right after the 2004 election? That doesn't seem like too much to ask, but it was, because the "promoting minority homeownership" narrative was crucial in dissuading anybody from yelling Stop because that would be, in effect, yelling that minorities were lousier credit risks on average. And that's racism (because it's true, which is what make it so intolerable to mention in public), so that's unthinkable, so nobody thought about it.

So, here we are.

[By the way, Mr. Mudd is now out of a job. I guess his name is now mud, kind of like his ancestor, the Dr. Mudd who set the leg John Wilkes Booth broke while leaping from Abraham Lincoln's box to the stage of the Ford Theatre.]

My published articles are archived at iSteve.com -- Steve Sailer

40 comments:

tommy shanks said...

>>The homeownership rate had been stuck around 64% for a quarter of a century. Then the Clinton and Bush Jr. Administrations pushed it up, by hook and by crook, to 68 or 69%

The irony is that the homeownership rate should have been *declining*, reflecting the increasing share of less-creditworthy minorities in the total population.

Statsquatch said...

Wall Street hired a lot of physicist and mathematicians. They learned the hard way that a person’s behavior can be harder to predict than a muon's.

Captain Jack Aubrey said...

“This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”

Do not, do not, DO NOT view this metaphor in racial terms. DO NOT look at that quote and see "plain vanilla" as "white" and "chocolate sundae" (presumably with bronze-colored caramel on top) as black & Hispanic.

And, BTW, what the hell is ever meant by "plain vanilla?" Vanilla is a pretty damn potent and delicious flavoring, and quite expensive at that.

Ronduck said...

Now, over the last couple of weeks there has been a lot of fingerpainting over who is to blame.

...fingerpointing over who isto...

I know our government grows more juvenile by the day, but they haven't degenerated that far...yet.

Garland said...

I just don't understand all you weirdoes who obsess over race and IQ. Even if what you say were true, what's the point in talking about it? What good can come of it when you're just hurting people's feelings? It's not like it has any effect on anything!!! We should ignore it even if true and there will never be any negative consequences.

(obv kidding about wondering why anyone would talk about it if it has no real world relevance--it's because they hate minorities of course!)

RKU said...

Well, I *still* don't see much evidence of "racial" factors playing a large roll in this Bubble. No smoking gun, or even a smoking water-pistol. A contributing factor, sure; but probably not a leading one.

Pretty much all the quotes sound like what you'd typically find in a Bubble, not too different from e.g. the Internet Bubble.

I really don't think Mozilo or those hedge-fund managers yelling at the Fannie Mae people to accept riskier loans were motivated by winning some NAACP Image Award.

Anonymous said...

Mudd suffers from upper class Wasp disease. He's probably smart enough, but as a result of having a famous dad, going to good schools,etc. doesn't really feel he HAS THE RIGHT to stand up to Angelo what's his name, who could beat him to a pulp in a bar fight.

Anonymous said...

rku,
You didn't see the letter from the government I got after I bought my house. I found out after the fact, a couple years ago, that I had bought a house in a dumping ground for HOPE recipients (young middle-class families and older working-class). My letter told me I might qualify for assistance and it had pictures of a Latina woman and a black family.
If you don't see that the great civil cause of our government was all about pushing poor non-whites into homes, and living amongst whites I might add so they could become more like whites, and that it has failed, then you don't want to see it.
I live in Florida, one of the worst housing bubble states, and my old neighbors who were dumped here did not last. It's kind of sad, but because they brought crime with them, I'm glad they're gone. For sale and for rent signs are everywhere and white, higher class people have replaced the HOPE recipients in the few that have resold.

RKU said...

Look, one thing that makes this endless "NAM" argument seem so silly is that it should be pretty easy to objectively determine its plausibility.

My own guess is that no more than 15% or so of the total dollar value of the mortgage loans currently in foreclosure are held by blacks+Latinos, and it could easily be less than 10%. (Adding in defaulted corporate/commercial loans would obviously reduce this figure even more).

If I'm right, than I think all the "NAM" people look pretty ridiculous blaming the Financial Meltdown substantially on blacks+Latinos.

But if I'm wrong, and the actual figure is (say) over 30%, I'd certainly reassess my own analysis.

You'd think that in today's hyper-racialized American society, it wouldn't be too hard to locate this figure in some government report...

Argent Paladin said...

One smoking gun is the untouchability of Franklin Raines. Any criticism of his work was considered a "lynching." Also, as others have pointed out, the indirect effect of political correctness was enormous. Even if only 10-15% of sub-prime mortgages were made to minorities, the policy to extend lending to all, regardless of risk, was protected by it being a "pro-minority" program. It was impossible to criticize.

max said...

But the efforts to pin the positive blame on one party or another seem fairly hopeless, since they were all in on it. Sure, the Bush Administration raised qualms about Democrat-infested Fannie Mae in 2003, but Bush was simultaneously pushing zero down payment mortgages to promote minority homeownership, so the Bushies were not interested in dealing with the real problem, just in fighting Democrats over the spoils.

At the point (2003) where the quoted Democratic interference with over Fannie and Freddie occurs, the housing bubble had already been growing for four years. They're trying to get a piece of the action.

However, does the theory work absent the massive credit explosion? No. No credit explosion, no housing bubble. The lenders may have needed warm bodies to loan to, so the nice white people could unload their homes and buy McMansions in the exurbs, but neither the price runup nor the mass movement occurs without the credit explosion. (Especially since the other bubbles (stock market in the 80's, real estate in the 80's, bonds in the 90's, stocks in the 90's) are all tied together with this one.)

Fundamentally, encouraging illegals to move here to drive down wages AND provide warm bodies to buy old houses so that the nice white people could buy new houses (built by illegals) is very much straight out of the R party. The illegals didn't cause it, even though they wound up being integral to the scheme. If you have no illegals, but you do have loose credit, you still get a bubble, not quite as steep or lasting as long; but it still pops.

(And there is a long long list of various banking & finance deregulation bills that have been issuing from DC since the 80's (Phil Gramm, c'mon down!); the deregulation train picked up major steam once there was an R congress, and then an R white house.

Bill Clinton is at fault for signing off on some of this crap, and Chuck Schumer has been in the tank for Wall Street since ever, but those are the minor players. The major players are Alan Greenspan and Phil Gramm[*], followed by the Bush family[**], and Rob Rubin.

[*] Anybody remember Enron and the California electrical crisis? Or just Enron and Worldcom period?
[**] Silverado Savings & Loan? Neil Bush? Paul O'Neil getting canned as Treasury Secretary? And so on?

max
['If you wanna call Phil Gramm a minority, you can blame THIS on the minorities then.']

Anonymous said...

My own guess 15% or so of the total dollar value of the mortgage loans

But it's a guess, ain't it RKU? Yet here's a real number:

http://www.highbeam.com/doc/1P1-25484829.html


03-16-2000
WASHINGTON -- Fannie Mae is launching a 10-year, $2 trillion campaign to finance home purchases by minorities, women, new immigrants and other underserved segments of American society.


TWO TRILLION DOLLARS!

And that's just the start. You haven't even begun to wrestle with the dozens of links and stats posted by Sailer and other commenters, yet you keep repeating the same BS theories about how NAMs had _nothing_ to do with it, or a negligible fraction , or whatever. But Mark Seecof took this apart already.

What exactly do you think a NINJA loan was, anyway? Google it!

Anonymous said...

Silicon Valley and Hollywood

RKU, like you I have been stunned and amazed by the high natural verbal and mathematical abilities of Mexicans, Guatemalans, and Colombians. They have regularly shown themselves to be competitive with Asian computer scientists in Silicon Valley and Jewish screenwriters in Hollywood. Because of their remarkable, overnight assimilation into the middle class, I think the Hispanic surge into California portends well for the hightech and entertainment industries.

Because as we all know, the continued success of knowledge industries like Silicon Valley and Hollywood is based upon importing just as many illiterate, resentful migrant workers as possible into the country!

Right? Right? Back me up here RKU!

RKU said...

I think the Hispanic surge into California portends well for the hightech and entertainment industries

Well, look. California *overall* is close to 40% Latino, rising by straight-line extrapolation. Twenty years ago, it was almost 30% Latino. Furthermore, Hollywood and Silicon Valley are centered in two of the *least* white European regions of the state.

Did Latino immigrants *create* Hollywood and Silicon Valley? No. Did the vast influx of legal+illegal Latino immigrants into the Hollywood and Silicon Valley regions over the last three decades do any apparent harm? Also, no.

And I really wish all the "NAM"ists hanging around here would go out and find me ONE solid statistic indicating that more than (say) 10-15% of the dollar-value of currently foreclosed home mortgages is held by blacks+Latinos. If the Meltdown is really a "NAM" problem, that shouldn't be so hard...

Anonymous said...

find me ONE solid statistic indicating that more than (say) 10-15% of the dollar-value of currently foreclosed home mortgages is held by blacks+Latinos

The list of zip codes with foreclosures was already posted. So was Fannie's commitment to $2 trillion for minority mortgages. So were the numbers on default rates for educational loans, which are comparable in magnitude. And here is some more.

http://www.pr.com/press-release/62396

Some experts estimate that of the two million properties expected to go into foreclosure, minorities could account for as much as 50 percent of those homeowners.

www.lanhs.org/LANHSHarvardStudy.pdf

Mortgage Foreclosure Trends in Los Angeles
2
In general, the findings of this study are consistent with those from foreclosure studies
conducted in Atlanta, Baltimore, Boston, Chicago, and other US metropolitan areas.
Like foreclosure activity in those places, Los Angeles area foreclosures are highly
concentrated
in specific neighborhoods. In particular:

• Over the three year study period, foreclosures have clustered in the most distressed portions of the City and County of Los Angeles. Overall,
approximately 45 percent of all foreclosure completions occurred in census
tracts with at least eighty percent minority population shares and with median
incomes falling into the two lowest-income quintiles
.

• One quarter of all foreclosures occur in just 86 census tracts. These
foreclosure hotspots are disproportionately clustered in neighborhoods with
minority population shares greater than 80 percent and median incomes in the
lowest-income quintile.

• Given the tendency for foreclosures to cluster, little wonder that the highest
foreclosure rates (7.65 percent) occur in the lowest-income quintile portion of
targeted neighborhoods where LANHS works. In fact, these areas saw nearly
11 percent of all foreclosures in the entire study area despite having slightly
less than 2 percent of its mortgages.
...

• Recognizing that the spatial distribution of the subprime lending as a share of
total lending will depend in part on the spatial variation in tract level average
credit quality, the highest foreclosure rates occur in neighborhoods where
subprime loans account for more than 25 percent of all lending. Yet even
controlling for subprime mortgage share, foreclosure rates are highest in
census tracts with higher shares minority population.



I think any reasonable observer has to conclude that when 2 trillion dollars was loaned out with a special focus on minorities and "new immigrants" and when the defaults are heavily concentrated in NAM neighborhoods, that this is more than 10-15 percent of the problem.

The real question is why the NAM apologetics? There are a lot of people who have figured out that NNAMs, so to speak, are the ones who are covering up for NAMs. My guess is that you are one.

Did the vast influx of legal+illegal Latino immigrants into the Hollywood and Silicon Valley regions over the last three decades do any apparent harm? Also, no.

Oh sure, if you don't count crime, gangs, traffic, failing public schools, and our subprime debacle. They did no harm at all. Ever wonder why California is $7 billion in the red? Why hospitals are going bankrupt across Southern California?

And really, not even the apologists claim that Latinos contribute to those knowledge industries at all. If we have to bring in immigrants, why don't we bring in people that would *help*? At $18 billion in net worth, one Sergey Brin is quite literally worth the yearly wage of 900,000 Mexican illegals earning 20,000. He probably takes up less parking spaces and kills fewer families of three to boot!

Have they ever contributed and will they ever contribute? Anyone who sees the IQ numbers or the fourth generation Latino outcome measures has to know the answer is no.

"Did no harm" -- that's the best that can be said, and it's still wrong!

Tell us RKU, why exactly is California 48 out 50 in the nation in academic achievement?

Tell us RKU, why are 53 percent of adults in LA illiterate?

Anonymous said...

Furthermore, Hollywood and Silicon Valley are centered in two of the *least* white European regions of the state.

Yeah, and the people manning the industries are Jewish and Asian. Not Latino, not black -- to be honest, probably not ever.

If you think otherwise we have the perfect conference for you! Jack O'Connell will be there I'm sure.

http://www.ncpublicschools.org/racg/conference/

The thirteenth Raising Achievement and Closing Gaps Conference will be held March 30 - April 1, 2009 at the Sheraton Greensboro Hotel at Four Seasons/Joseph S. Koury Convention Center.

I am told that right after the sessions on boosting NAM math and verbal numbers there will be breakout groups focused on flattening earths and pounding square pegs into round holes.

Captain Jack Aubrey said...

I just don't understand all you weirdoes who obsess over race and IQ. Even if what you say were true, what's the point in talking about it? What good can come of it when you're just hurting people's feelings? - Garland

Hmmmm - interesting. Let's see: take away the assumption that economic/criminal/educational disparity equals discrimination, the Keystone Cop-like efforts of the government to ameliorate those problems, the fact that blacks and Hispanics invariably make white neighborhoods undesireable and/or unsafe when they move in, the fact that race craziness (theirs, not ours) helped lead to the mortgage meltdown, the fact that blacks and Hispanics when they obtain political power invariably use it to reallocate white wealth to themselves, and, oh yeah, the fact that since IQ and race are directly related that an America over 50% black and Hispanic will have all the cultural/economic/political/military heft of, oh, Brazil - take away all those things and there's no reason at all to talk about racial differences, especially race and IQ.

So long as Jesse and Barack are alleging that disparity is the result of discrimination rather the innate differences, we have a right to answer back. When all of these problems go away, and when the accusations stop being made, then we'll shut up. Until that time, don't bother asking.

My own guess is that no more than 15% or so of the total dollar value of the mortgage loans currently in foreclosure are held by blacks+Latinos, and it could easily be less than 10%. (Adding in defaulted corporate/commercial loans would obviously reduce this figure even more)...But if I'm wrong, and the actual figure is (say) over 30%, I'd certainly reassess my own analysis.

1) Why do you assume that all corporate defaults are the fault of whites?

2) My guess is that your guess (15%) is off by at least a factor of 2. Do you know how white America isn't? Only 66.4% of Americans today are white, meaning about 30% NAM - worse in states with the highest foreclosure rates. During the last 6 years they were probably at least 30% of first-time homebuyers, and an even higher percentage of subprime borrowers.

3) As I've mentioned on other threads, you can't just focus on loans taken out by minority borrowers. Race agitators (and pols trying to buy their votes, like W) were the ones pushing hardest to debase lending standards. Hispanic illegal aliens provided the labor that was necessary, along with easy money, to sustain the overbuilding boom. The illegal invasion led to white flight that pushed up home prices in white neighborhoods. And the huge immigrant population (over 1.5 million annually) helped lead to the belief that the higher home prices were justified.

Did the vast influx of legal+illegal Latino immigrants into the Hollywood and Silicon Valley regions over the last three decades do any apparent harm? Also, no.

These industry centers would probably be even stronger if affordable housing in decent neighborhoods were more available for the populations that actually contribute to their success.

John of London said...

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,”
Surely this is a totally unacceptable situation whether or not visible minorities are disproportionately missing out on the "money for nothing"? I think both the UK and the USA need to get back to a situation where:
renting is a sensible way of obtaining a home;
if you want a home you can do what you like with and leave to your kids, you buy a house; but if you want to make capital gains, you invest in something productive (and take a risk).
All we need are governments that recognise this and have some idea of how to get there. I guess in the UK resumption of building new public housing (council housing) with no thatcherite "right to buy" is part of it, but I've no idea of the rest, or what should be done in the US.

RKU said...

My guess is that your guess (15%) is off by at least a factor of 2.

Well, *now* we're finally getting somewhere. It looks like we may be in agreement that if the "NAM" figure is 15%, they probably weren't a major factor, but if it's 30%, they probably were.

But remember, I'm talking about total dollars in foreclosure, rather than just numbers of mortgages. That makes a huge difference.

For example, CA is almost 50% Latino+black, but I'd guess that Latinos+blacks hold only a tiny slice of the $1M+ mortgages, probably under 5% or so. And a foreclosure on a $1.5M property is worth 5 foreclosures on $300K properties.

Also, very few "first time home-buyers" were purchasing the expensive homes; those were going to the people trading up in the housing market, or possibly the investors/speculators.

Again, forget *numbers* of total homes purchased or foreclosed; the only important financial statistic is the total dollar figure, which probably tells an entirely different story.

Lucius Vorenus said...

RKU: Well, I *still* don't see much evidence of "racial" factors playing a large roll in this Bubble. No smoking gun, or even a smoking water-pistol. A contributing factor, sure; but probably not a leading one.

Explosive Video, Fannie Mae CEO calling Obama and the Dems the "Family" and "Conscience" of Fannie Mae
Daniel Mudd speaks to the 2005 Congressional Black Caucus
http://www.youtube.com/watch?v=usvG-s_Ssb0
Views: 1,050,291

Captain Jack Aubrey said...

But remember, I'm talking about total dollars in foreclosure, rather than just numbers of mortgages. That makes a huge difference.

Again, I'm talking about more than total mortgages or percent of total dollars. Let me repeat: other factors inlcude minority pressure to debase lending standards which, by necessity, had to be debased for all; the labor supplied by Hispanic illegals to fuel the overbuilding boom, without which it could not have happened; and the pressure on middle class white families to get out/stay out of neighborhoods that were starting to look like Tijuana.

Explain those without race issues coming into play.

Truth said...

Those damn NAM's. If the banking industry had only done it's lending according to the Bell Curve, this would never have happened!

http://www.timesonline.co.uk/tol/news
/world/europe/article4888293.ece

Too Tall Jones said...

shanks sez:
The irony is that the homeownership rate should have been *declining*, reflecting the increasing share of less-creditworthy minorities in the total population.

Dubious. Your theory is like saying hurricanes have increased because the weather service now names these storms after males. Do you have any data to back up your assertion?

In fact home ownership in the overall population has RISEN to 68.3 percent in 2003 from 65.2 percent in 1978, contradicting your doom and gloom tale where minorities are the convenient scapegoat.

As the study referenced below notes: where such rates have fallen, they have only been doing so significantly since 2003, and that drop was primarily among low income households. Low income households are those LEAST likely to own homes, and gasp.. yeah this is news.. rates have dropped among this class of people.

Furthermore, minority populations in the US have been increasing for decades, so how come we didn't see this "drop" in homeownership because of all these evil minorities, over those past decades?

When one looks at the actual FACTS, as opposed to dubious "minorities are at fault" claims, "The study cites a combination of factors for the divergent trends, including soaring housing costs that have overshot wage increases, higher health care bills and a rise in the number of single parents."

Yeah.. that's right.. but I know.. Things like rising housing costs, higher health care bills, etc are not as dramatic as the "Evil minrities caused this" song. Note again, that the drop in homeownership was most significant for low income households, precisely the people who always have problems in the first place, regfardlessof race, and also note that overall, ownership rates have been RISING.

See study:
http://money.cnn.com/2006/03/22/real_estate/homeownership_study/index.htm

So much for yet another "evil minorities are at fault" crying session.

Too Tall Jones said...

Anon claimant sez:
The list of zip codes with foreclosures was already posted. So was Fannie's commitment to $2 trillion for minority mortgages. So were the numbers on default rates for educational loans, which are comparable in magnitude. And here is some more.
http://www.pr.com/press-release/62396



lol.. the list of zip codes "already posted" as "proof" has been debunked. Is this all you got? Recycling the same empty talking points? As we have seen previously, one of the major zip codes, city of Denver, is 70% white, but that was conveniently skipped over by the "minorities are to blame" hand-wringers.

And lists of foreclosures by zip code are essentially meaningless. Sure you will have more foreclosures in black Harlem than in swanky whte Beverly Hills, but what is the total amount of cash borrowed in each place? You can bet that low income 'hoods borrowed LESS money than those better off. The poor are not as credit worthy as others you know.. lol.. But I know, such logic and common sense doesn't really matter since um, "minorities are to blame". You still havent produced any credible evidence yet to back up your claim of how all these minorities caused the mortgage mess.


Some experts estimate that of the two million properties expected to go into foreclosure, minorities could account for as much as 50 percent of those homeowners.
www.lanhs.org/LANHSHarvardStudy.pdf


Actually your link to the Harvard study, the asserted "some experts", says nothing about any 2,000,000 properties or any 50% minority defaulters. It deals with patterns in LA County, Calif. Essentially, you are making a bogus assertion, then using a link as backup which fails to surrport the bogus assertion. Who do you think you are fooling Ace?

But leaving aside your bald attempt at deception, and even if you were attempting to use the LA study to make some kind of national extrapolation, how does the default rate prove that these heah low income minororoties foreclosures caused the mortgage meltdown? What proportion of the total mortgage cash was borowed by dem there minororoties? Still no answer I see... uh huh...


Over the three year study period, foreclosures have clustered in the most distressed portions of the City and County of Los Angeles. Overall, approximately 45 percent of all foreclosure completions occurred in census tracts with at least eighty percent minority population shares and with median incomes falling into the two lowest-income quintiles... One quarter of all foreclosures occur in just 86 census tracts. These foreclosure hotspots are disproportionately clustered in neighborhoods with minority population shares greater than 80 percent and median incomes in the lowest-income quintile.

Ace, listen up. You just destroyed your own argument with your own data. You claimed that all these minority foreclosures are a big part of the current mortgage crisis. But your own study shows that (a) most of said foreclosures occur in low income areas (this is news?) and (b) 25% of the foreclosures occured in these heavily poor and minority areas.

We all know that low income areas will have more foreclosures than higher income areas. But your own data shows only 25% of the defaults occurring in said low income areas. That leaves the OTHER 75% of the defaults to be carried forward by supposedly more virtuous white people.

Get it Ace? You claimed that all these minorororetee defaults were playing a "big role" in the mortgage crisis. But your own data shows white people causing 75% of the damage.

Also you conveniently dont answer the question as to the total amount of cash borrowed by these eveell minorities. People in low income areas may default more, but they still borrow LESS than folks in higher income areas, because they have less collateral and credit to begin with. Posting default rates doesn't help your case, in fact your own data shows that most of the foreclosure "damage" is caused by white people, and those white people, not only defaulted more percentage wise, but borrowed a lot MORE cash that said minororetees to default with.

Even aside from your argument with the bogus "supporting" link, your own data undermines your case. Quit while you are ahead Ace.

Too Tall Jones said...

captain jack sez:
the Keystone Cop-like efforts of the government to ameliorate those problems, the fact that blacks and Hispanics invariably make white neighborhoods undesireable and/or unsafe when they move in, the fact that race craziness (theirs, not ours) helped lead to the mortgage meltdown..


Hold on there Captain. You have not presented any credible evidence to back up your claim that "race craziness helped lead to the mortgage meltdown." Really? In fact, the data posted by your ally on this page undermines your very own argument. His posted data shows 25% of the defaults occuring in poor minority areas. That still leaves 75% of the defaults to be done by the supposedly good and virtuous white people. And since low income people borrow less money than better off people (yeah, they have worse credit, assets etc) your 75% good and virtuous white people not only had more of the defaults, but they borrowd most of the cash as well to carry out those defaults. So tell me then, based on your own data or that of allies, how did these "race crazies" or evil minorities (as asserted in other posts) "lead to our mortgage meltdown"?

too tall jones said...

But remember, I'm talking about total dollars in foreclosure, rather than just numbers of mortgages. That makes a huge difference.

For example, CA is almost 50% Latino+black, but I'd guess that Latinos+blacks hold only a tiny slice of the $1M+ mortgages, probably under 5% or so. And a foreclosure on a $1.5M property is worth 5 foreclosures on $300K properties.

Also, very few "first time home-buyers" were purchasing the expensive homes; those were going to the people trading up in the housing market, or possibly the investors/speculators.

Again, forget *numbers* of total homes purchased or foreclosed; the only important financial statistic is the total dollar figure, which probably tells an entirely different story.


Exactly... such basic logic though is apparently beyond the grasp of "minorities are to blame" deep thinkers..

Too Tall Jones said...

As I've mentioned on other threads, you can't just focus on loans taken out by minority borrowers. Race agitators (and pols trying to buy their votes, like W) were the ones pushing hardest to debase lending standards. Hispanic illegal aliens provided the labor that was necessary, along with easy money, to sustain the overbuilding boom. The illegal invasion led to white flight that pushed up home prices in white neighborhoods. And the huge immigrant population (over 1.5 million annually) helped lead to the belief that the higher home prices were justified.

What a bunch of malarkey. Your logic on this thread is still as dubious as that debunked on other threads. First you say that minority borrowers are the problem. Now you say "you just can't focus on loans taken out by minority borrowers." Get your story straight.

Next you speak of "race agitators" but conveniently don't mention that it was whites pursuing good profits that as a major factor, whether by "flipping" a house or acting as lenders and brokers. Funny how you keep missing those good white folk. You also keep conveniently missing the fact that most of the defaults, and most of the money borrowed was by white people.

And you say the illegal invasion led to "white flight" that pushed up home prices in white 'hoods? BS. So-called "white flight" has been ongoing since the mid 1970s, but there was no orgy of "overbuying" or "overbuilding" until the loosened credit markets of the 1990s and beyond, among other economic factors. You or your allies claimed a book by E Warren as part of your argument that it was evil minoroties that caused the crisis, but the book does nothing of the sort.

The central point of Warren's book is the vast expansion of women into the workplace, and certain weaknesses this has caused in family finances and safety nets. She stresses the fragile nature of the two-income family, based on dependence on female earnings. This contradicts the claim that a frantic desire to "escape" minorities is driving this crisis. To the contrary, the "crisis" revolves around heavy female labor force participation, and subsequent over-extension of family finances. Its not those evil minorities that are at fault, it's your regular white moms in the workforce it could be well argued using Warren's reasoning, and it was the "minorities are to blame" side that put forward Warren as a data source.

As one review puts it:

"A number of factors explain the problem of rising costs, including a bidding war in the housing market, a marked rise in the cost of education, and the additional burden of providing a second vehicle for the working mother. With more money earmarked for the necessities of middle-class existence—house and car payments, insurance costs, educational expenses—there is less flexibility and freedom and a greater chance that expenses will outstrip resources and compel bankruptcy if disaster strikes. “And so the Two-Income Trap has been neatly sprung. Mothers now work two jobs, at home and at the office. And yet they have less cash on hand. Mom’s paycheck has been pumped directly into the basic costs of keeping the children in the middle class.”
http://www.law.harvard.edu/students/orgs/jlg/vol27/sullivan.php


To this could be added such other important factors include mortgage interest rates, economic strength (the business cycle), taxes, earnings, local economic strength, state and municipal zoning, and the condition of the property itself.


Finally Sailer's own data, undermines your argument. He said in an earlier post:

We do know that defaults are closely tied to subprime loans. The most toxic of all, adjustable rate mortgage (ARM) subprime loans, accounted in early 2008 for only six percent of all loans outstanding but 39 percent of foreclosures started. Fixed and adjustable subprimes account for only 12 percent of loans outstanding, but half of current foreclosures. The subprime share of new lending roughly doubled from 2003 to 2004 and increased again in 2005. So far, that's where most of the "unexpected" defaults have come from, although the default contagion will likely spread to lower interest rate adjustable rate mortgages in the near future.

Note Sailer's data shows that the subprimes, which those "darn" poor minorities are so affected by, and are defaulting on so often, only make up 6 to 12% of loans outstanding. That leaves the OTHER 88% of the loans, that are LESS likely to be borrowed by poor minorities. But somehow you don't seem to be hollering too much about that.

Like many others, you specialize in pointing fingers at those "darn" minorities as the "cause" of "the meltdown", but these so-called "affirmative action loans" are minor players overall. Funny how you keep missing those good white folk on the other end of the seesaw...

too tall jones said...

The homeownership rate had been stuck around 64% for a quarter of a century. Then the Clinton and Bush Jr. Administrations pushed it up, by hook and by crook, to 68 or 69% (published figures differ on what was the precise peak). Bush announced in 2002 that he wanted to add 5.5 million more minority homeowners, which would have pushed the rate above 70%.

Fair enough, but a 4-5% bump by Clinton and Dubya is hardly dramatic, and the actual trend in ownership for lower income people has been DOWNWARD. Thus, the much talked about dramatic rise in homeownership among poor minorities never happened, poetic justice perhaps for Bush's stated goals.
QUOTE: "..only 59.6 percent of working class families owned their homes in 2003, the most recent year for which figures were available, down from 62.5 percent in 1978."
http://money.cnn.com/2006/03/22/real_estate/homeownership_study/index.htm


They assumed that the risk of mortgage defaults were normally distributed along a bell curve, so you could use all the usual tools of statistical reasoning to diversify away this purely random risk. Instead, they should have been looking at The Bell Curve... This movie doesn't end well. But, can you imagine what longtime Fannie Mae CEO Franklin Raines' response would have been if one of his modelers had tried to inject insights from The Bell Curve into their bell curves of mortgage default risk?

We know they took poor risks, but they also surely knew that poor minorities would not borrow as much money as more affluent white people, and would buy less desirable property, in less desirable neignborhoods. They also knew that said minorities would default more. It could be well argued that they DID look at the Bell Curve, and for the limited amount of the total loan pot that went to poor minorities, those risks were acceptable.

A minority default rate of say 50% means little without reference to the total amount of cash borrowed by minorities. If said poor minorities borrowed a minor part of the total pot, then the white financiers could limit the higher default damage to that minor segment of the total pot. The crucial segment is the larger pot, and no one was forcing said white financiers or bond rating analysts or others in the mix from carrying out their traditional analysis on this larger segment. They could have done the affirmative action loans, watched the higher defaults blow up in the face of liberal advocates and said "I told you so." However, they saw a chance to make a lot more money by expanding these practices to the larger "white" segment of the market, and that is where most of the basic and critical damage is. No one forced all those supposedly more virtuous, "IQ" white people to borrow beyond their means.


In other words, the national policy was to keep pushing homeownership farther down toward the left tail of The Bell Curve (in less technical terms, further scraping the bottom of the barrel) by debauching traditional credit standards for everybody.

Agreed. But it is a big jump from this to a claim that minority default rates and loans to minorities caused the mortgage meltdown as dubiously asserted by Captain Jack, and many others. Also national policy was not simply that minority home owners increase, it was that ALL homeownership increase.


The ripple effect of Fannie’s plunge into riskier lending was profound. Fannie’s stamp of approval made shunned borrowers and complex loans more acceptable to other lenders, particularly small and less sophisticated banks. Between 2001 and 2004, the overall subprime mortgage market — loans to the riskiest borrowers — grew from $160 billion to $540 billion, according to Inside Mortgage Finance, a trade publication. Communities were inundated with billboards and fliers from subprime companies offering to help almost anyone buy a home.Within a few years of Mr. Mudd’s arrival, Fannie was the most powerful mortgage company on earth.

Agreed. But your own data posted earlier shows subprimes only accounting for 6 to 12% of loans outstanding, with the poor minorities drawing heavily on that minor segment of the overal picture. That leaves 88% to 94% of the picture in the hands of the supposedly more sensible and virtuous.


More realistically, there's a lot of negative blame to hand out because nobody in a position of power or influence -- Bush, Clinton, Greenspan, Frank, Dodd, etc. -- was willing to be seen as to stand athwart history, yelling Stop. What if the federal government had imposed a minimum 5% down payment on mortgages right after the 2004 election? That doesn't seem like too much to ask, but it was, because the "promoting minority homeownership" narrative was crucial in dissuading anybody from yelling Stop because that would be, in effect, yelling that minorities were lousier credit risks on average. And that's racism (because it's true, which is what make it so intolerable to mention in public), so that's unthinkable, so nobody thought about it.

Exactly how do you define "crucial"? The narrative was never exclusively about minorities. Indeed two cornerstones of Bush's plan was a $2.4 billion tax credit to facilitate home purchases by lower-income first-time buyers, and a $200 million national downpayment grant fund for low income buyers. This applied to ALL Americans. In any event, white financiers, like white Republicans, had the option of sitting back while expanded loans to poor minorities collapsed under high default rates. They could have let the poor minority segment, relatively small in overall terms, wither on the vine. They could have indulged the liberals and then kicked back and said "I told you so" when the crud hit the fan. However white financiers and white homeowners/borrowers had other agendas in mind. A lot of white people had no interest in yelling stop, because they could make good money letting the bubble roll. They could care less about minority loans.
Your notion that everyone was afraid to say minorities were lousier credit risks is one theory in the mix, but there has been no end of white politicians and financers saying that, ever since the 1980s as "redlining" controversies heated up. Everyone knows that on average, based on their credit histories, certain minority borrowers are higher credit risks. That is no secret, and it has been talked about openly in study after sudy, some of which have been referenced on this blog.

Another theory in the mix is that white politicans saw that they could buy more white votes by loosening credit standards, whether on the name of "access for all Americans" or as part of "compassionate conservatism" and that white financiers and borrowers saw that they could make nice money via lending or real estate transactions. Trying to lay the morgage mess at the door of a banking version of "affirmative action" may warm the hearts of some conservatives, but such reasoning conveniently and selectively ignores the main players on the field, white financiers and borrowers, both of whom had the option not to play along, and who had other agendas in mind besides minority homeownership.

Truth said...

Too Tall Jones, you are a Gentleman and a Scholar.

Anonymous said...

too tall jones - too much time on his hands

randy white said...

too tall, could you be a bit more succinct? Your comments shouldn't be longer than Sailer's post.

Anonymous said...

Also, too tall, use italics for quotes rather than bolding them. Looks much better.

tommy shanks said...

>>too tall: Dubious. Your theory is like saying hurricanes have increased because the weather service now names these storms after males. Do you have any data to back up your assertion?

My theory is based on basic math. Fine, I should have added *all else being equal* to my statement that the homeownership rate should have been declining to reflect the increasing share of less-creditworthy minorities in the total population. Or, even better, to reflect the lower rates of homeownership among minorities.

Assume that the homeownership rates for whites, blacks and Hispanics are 70%, 50% and 55%, and they remain steady over time. If the population is 80% white, 12% black and 8% Hispanic, then weighted homeownership is 66%. [(.80 * .70) + (.12 * .50) + (.08 * .55) = .66]

But if the population shifts to 70% white, 12% black and 23% Hispanic, then weighted homeownership drops to 64%. And this is why I said that homeownership rates ought to have been declining based on population shifts.

Lucius Vorenus said...

RKU: Well, I *still* don't see much evidence of "racial" factors playing a large roll in this Bubble. No smoking gun, or even a smoking water-pistol. A contributing factor, sure; but probably not a leading one.

BTW, did you know that Obama PERSONALLY profited from suing Citibank to force them into the subprime market?

Strong, silent type
OBAMA'S LEGAL CAREER | He was 'smart, innovative, relentless,' and he mostly let other lawyers do the talking
December 17, 2007
BY ABDON M. PALLASCH
Political Reporter/apallasch@suntimes.com
suntimes.com

Obama represented Calvin Roberson in a 1994 lawsuit against Citibank, charging the bank systematically denied mortgages to African-American applicants and others from minority neighborhoods...

On Feb. 23, 1995, Obama billed 2 hours and 50 minutes for an appearance before Judge Ruben Castillo on behalf of his client, and also for reviewing some documents in advance of a deposition. That cost Citibank -- which ultimately had to pay the winning side's fees -- $467 at Obama's hourly rate of $165.

Miner commanded the higher rate of $285 an hour. During his appearance before the judge, Obama said he would need more time to file a response to a motion, and the judge agreed. That was all Obama said during the half-hour hearing.

His final bill on the case was 138 hours, or $23,000.


PS: The Sun Times prose is a little unclear on this, but note that

138 X $285 = $39,330 [Miner's rate]

138 X $165 = $22,770 [Obama's rate]

so clearly Obama PERSONALLY pocketed about $23,000 [minus overhead] in this blackmail scheme.

Anonymous said...

too tall jones:

"Get it Ace? You claimed that all these minorororetee defaults were playing a "big role" in the mortgage crisis. But your own data shows white people causing 75% of the damage."

but read what the study you quote says:

"Over the three year study period, foreclosures have clustered in the most distressed portions of the City and County of Los Angeles. Overall, approximately 45 percent of all foreclosure completions occurred in census tracts with at least eighty percent minority population shares and with median incomes falling into the two lowest-income quintiles..."

So why are you focusing on the 25% number - why not the 45%? And in addition this doesn't take into account foreclosures of NAMs in districts where they are less than 80% population share. So your statement of" "your own data shows white people causing 75% of the damage" is meaningless.

And I mean that.. it has no meaning - zero meaning. It is just angry noise. I don't know why you think that by calling someone 'Ace' you will add meaning to it.

Your whole rhetorical attack on this website and its commenters is just as meaningless - it's just angry noise - signifying nothing.

This is the future we face in the West - angry, nonsensical minorities screaming at us until the end - 'till the whole thing comes down and falls down on us. It will never be their fault - never. The crime, the dysfunctional society, the ethnic cleansing, the racial blackmail, the shrinking economy, the lost competitiveness, the looting...

Welcome to third world mentality - something to look forward to.

VoodooMan said...

By the way, Mr. Mudd is now out of a job. I guess his name is now mud, kind of like his ancestor, the Dr. Mudd who set the leg John Wilkes Booth broke while leaping from Abraham Lincoln's box to the stage of the Ford Theatre.

Or galactic con-man Harry Mudd.

heleneedwards said...

actually, Italians are not known as good with their fists; Mozilo would likely lose a fight to almost any similarly sized WASP, upper-class or not.

Anonymous said...

Next you speak of "race agitators" but conveniently don't mention that it was whites pursuing good profits that as a major factor, whether by "flipping" a house or acting as lenders and brokers. Funny how you keep missing those good white folk. You also keep conveniently missing the fact that most of the defaults, and most of the money borrowed was by white people.


It wasn't the flippers who succeeded in getting government to pressure lenders to lower lending standards. Flippers simply took advantage (which is what happens in, you know, free markets.)

To the contrary, the "crisis" revolves around heavy female labor force participation, and subsequent over-extension of family finances. Its not those evil minorities that are at fault, it's your regular white moms in the workforce it could be well argued using Warren's reasoning, and it was the "minorities are to blame" side that put forward Warren as a data source.

Women insisting on self-fulfillment by entering the workforce is very much a part of the 'crisis' (as biocons understand it). That we can agree on.

However, the desire to escape ever growing minority-packed public schools has meant that what was once simply a dubious idea (female workforce participation as female career-based self-empowerment) is now a necessity.

Anonymous said...

Furthermore, minority populations in the US have been increasing for decades, so how come we didn't see this "drop" in homeownership because of all these evil minorities, over those past decades?


The quality of immigrants took a nose-dive in the 90s, as illegals began swarming across the border.

A large part of the reason we didn't see a drop in the home ownership is likely the relaxation of lending standards discussed on this blog.

John Thacker said...

Look, the problem with Fannie Mae's computer models can be summed up like this: They were looking at the wrong bell curve. They assumed that the risk of mortgage defaults were normally distributed along a bell curve, so you could use all the usual tools of statistical reasoning to diversify away this purely random risk.

I don't see how you can read that article and come away with an attack on the computer models and the modelers. The article very straightforwardly says that the FM/FM risks models said don't buy these loans, but management (and investors, and government, and people on Wall Street saying "if you don't buy it we'll find someone who will") insisted on it. How is that necessarily a flaw with the model?