Progressive icon Sen. Elizabeth Warren (D-MA) recently dropped a bombshell in a private meeting with Boston-area donors, according to a report in Politico. The dispatch focuses primarily on Warren’s candid criticisms of President Barack Obama and his pick to serve as undersecretary for domestic finance at the Treasury Department, Antonio Weiss. This bit of fractious infighting within the Democratic Party will provide pundits with an opportunity to examine the divisions within the Democratic coalition, but Warren also made a more interesting contention in this meeting that merits further review.
According to sources who attended that meeting, Warren heavily criticized the federal government’s approach to the subprime mortgage crisis in 2008. She added that the financial crisis disproportionally affected African-American and Hispanic families because they were “targeted” by the federal government.
Politico does not elaborate on what Warren meant, but her lament is a familiar one on the left. The argument stipulates that black and Hispanic families, many of whom suffer rates of poverty greater than those of the population of American whites, were more frequent beneficiaries of subprime lending prior to the collapse of the housing market. As a result, minorities suffered at a rate greater than did their non-minority counterparts when the bottom fell out.
This is not an entirely unsupported claim.
The results of the Department of Housing and Urban Development investigation in the wake of the mortgage crisis in the Atlanta area lent credence to this assertion.
“In general, the analysis shows that subprime lending is more prevalent in lower-income and minority neighborhoods than in higher-income and white neighborhoods,” the HUD study read. “This likely indicates that because of their lower incomes, lenders may consider these borrowers to be a higher credit risk, and these borrowers may therefore be less likely to qualify for prime loans.”
“However, a lack of competition from prime lenders in these markets to find creditworthy borrowers may increase the chances that borrowers are exposed to the predatory practices of a subset of subprime lenders,” the report continued. “There is also evidence suggesting that after controlling for income, predominantly black neighborhoods may be comparatively underserved by prime lenders.”
By HUD’s own estimation, the “targeting” minority groups underwent is a bit more complex than the left would have you believe.
The supposed “targeting” minority applicants who received low-interest loans in order to increase access to housing was not merely a bug but a feature of the administration of the 1977 Community Reinvestment Act (CRA).
“In the 1990’s under the administration of Franklin Raines, a Clinton Administration appointee, Fannie Mae began to demand that the lending institutions that it dealt with prove that they were not redlining,” read an analysis via San Jose University economics professor Thayer Watkins. “This meant that the lending institutions would have to fulfill a quota of minority mortgage lending.”
A New York Times report in 1999 celebrated the extension of low-interest loans to minority applicants, which had exploded under President Bill Clinton.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
In a sense, minorities were “targeted” by the federal government for access to subprime mortgages, but this was a policy pursued by bureaucrats who presumed that they were helping to elevate low-income minority families out of poverty by offering the opportunity of homeownership.
Though the expansion of access to these types of loans began under the Clinton administration, George W. Bush’s administration expanded the practice and oversaw the loosening of controls.
While it is arguable as to whether the extension of these loans contributed to the 2008 financial collapse, it is indisputable that they were extended more often to low-income minority applicants.
This is only one aspect of the debate on the nature of government intrusion into the housing market with effects that so often negatively impact minorities that few on either side of the political aisle really want to have. Racially poisonous outcomes arising from public policy surrounding socially progressive lending to minority home loan applicants is as old as the New Deal.
In order to finance the development of the suburbs, as Watkins observed, the process of “redlining” became a feature of government policy. In the 1950s and 1960s, the process in which only certain types of applicants – the criteria for whom often included race – could get loans to live in clearly defined neighborhoods accelerated.
“We’ve replaced middle class communities with poor communities,” Massachusetts Institute of Technology Professor Craig Steven Wilder told PBS as part of a 1999 documentary. “Why is there a black ghetto in every city in the United States? The answer is public policy.”
The issue of race and housing development is a complicated one. While Warren touched on a grain of truth in her statement about minorities being “targeted,” she likely glossed over the fact that so many minorities who suffered in the wake of the financial crisis were just another generation of victims of government officials who tyrannize with good intentions.