Wednesday, October 15, 2008

Who is to Blame?

The media seems to be ignoring the statistics and facts on the demographics of the subprime crises perhaps because they are not sexy. But, by paying attention to these demographics we can perhaps craft a better fix so that it does not happen again.

"The problem with portraying the foreclosure crisis as a minority and low-income problem is that it affects how solutions will be approached. If, on one hand, it is believed that subprime rate loans were predominately made to marginal segments of society (Black, Hispanic or low-income) housing policymakers may approach solutions with bias assumptions about minorities and minority qualifications (low education, bad credit, and low-paying jobs, etc.). Thus, there may a tendency to write-off the subprime lending debacle as a type of affirmative action gone bad. On the other hand, if it is believed that the foreclosure crisis affects broader and more
demographically diverse segments of society then a more politically responsible approach is likely, thereby changing the tone, climate and context of how solutions are crafted.

Not enough research and media attention has been devoted to other causes of the subprime crisis that may have race and gender effects. Issues of steering, weak underwriting, fraud, and discrimination have not been aggressively investigated. Despite the presence of federal regulation and periodic examinations for safety and soundness, Community Reinvestment Act compliance and fair lending compliance, efforts to uncover whether subprime rate loans can be explained by legitimate business justifications will be impaired based on erroneous assumptions about the
demographic distribution of subprime rate loans.

Last, if it is believed that subprime rate lending is predominately an urban minority problem, officials will fail to see that in 2006 non-Hispanic Whites had 1,108,676 subprime rate loans of which 868,806 or 78.36% were in census tracts <30% minority. The subprime lending meltdown is better described as a mainstream white suburbia problem with aspects that affect minorities and urban communities. Erroneous assumptions about the demographics of subprime rate lending will only lead to poor decisions that result in ineffective solutions." The whole report is here:

In addition, note that the primary areas for defaults on subprimes are in the states of Florida, California, Arizona and Nevada and a substantial number of these defaults are for NON_OWNER occupied homes.

We can't fix this if we don't fully understand the details and try to determine the causes.

4 comments:

  1. The same thing is happening here in Canada.
    Many foreclosures here are because people got greedy and thought they could make a lot of money by flipping houses and/or condos because real estate values were constantly rising.
    There is one fellow here that we know who is complaining that he can't sell or even lease the FIVE houses he bought 16 months ago with 0$ down.
    Now that we have massive unemployment in the area and real estate values have dropped 25%, he wants us (the taxpayers) to bail him out.
    I don't think so.

    Bear((( )))

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  2. The media only tells us what it wants us to hear. We have to do our own research to get the true and unbiased story of most of the current issues these days.

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  3. I agree and then I heard this morning they raised the interest rates, I'm confused!

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  4. Anonymous1:51 AM

    I suppose that if any arm of the media were to suggest that the problems lie so very much deeper than any set of specific symptoms - that they are systemic and thus fundamental - they'd be accused of communism. So perish the thought. Let's just keep tinkering each time disaster strikes...

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Take your time...take a deep breath...then hit me with your best shot.