Correlation between foreclosure figures and minority status?

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Let me start out this post by saying that I don’t like it when anyone is taken advantage of. Any individual, any group. I don’t like scammers who prey on the elderly, or those who speak English as a second language, or members of a certain religion or ethnic group, etc. It’s simply wrong.

However, I also don’t like sweeping generalizations that put a group of people in the status of “victim” without any hard facts to back it up.

Such is the case with an article on AOL’s site DailyFinance.com, for which I am a writer.  The article Mortgage Foreclosure Crisis Hits Minorities Hard starts out with a factual basis: that the foreclosure rate for minorities is higher than for non-Hispanic whites. Foreclosure rates published by the Committee for Responsible Lending put Latinos at 17%, blacks at 11%, and whites at 7%.

The next logical question is “why,” but the author doesn’t bother to ask it. He simply makes the leap that discrimination is the reason, and uses the rest of the article to speculate about that discrimination. Rather than speculate, why didn’t he take the time to research the answers?

He says “Civil rights groups are outraged.”

Outraged at what? At the discrimination? Because that premise hasn’t been supported in any way. It might be the case that discrimination is tied into this issue, but it might not.

A discussion of the fact that minorities are being foreclosed on at higher rates than whites is meaningless unless we have other information, namely:

  • What circumstances surrounded the home purchases?
  • How much of the borrower’s income did the home purchase eat up? (i.e. Could the borrower really afford the home?)
  • What prompted the foreclosures?
  • What kind of credit histories do the buyers have?
  • Did the homeowners attempt to avoid foreclosure? By doing what?

You see, simply saying it is an injustice that minorities have higher foreclosure rates is nonsense. We need to know why.

It’s easy to blame “predatory lending” as the reason minorities have higher foreclosure rates. But until we know whether “predatory lending” actually happened or not, it’s unfair to cast that blame. The article on DailyFinance says that subprime lenders aggressively marketed high interest loans to minorities, and it’s possible that some of those borrowers could have qualified for conventional mortgages. Then why doesn’t someone do the research to find out exactly whether or not that happened?

Subprime lenders aren’t inherently evil companies. They serve a purpose. They offer financing to people who are higher risk because of their credit histories or other factors related to money-management. And those loans with higher risk also come with a higher pricetag.

I don’t deny that subprime lenders can and do take advantage of people, just like many other industries and companies do, unfortunately. It’s easy to blame companies in an industry that has a bad image, and much harder to come up with the facts to support those accusations.

On a related note, the article says that mortgage companies are reducing loan balances on underwater mortgages, but not often enough. The premise here is that when a home’s value is less than the amount owed on the mortgage, the bank should just write off the difference. Really? Because it’s the bank’s fault that someone bought a house that later dropped in value? Well that’s just dumb.

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