Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts

April 12, 2014

Great moments in marketing research: WaMu's focus groups

From the 2011 book Lost Bank by Kirsten Grind about Washington Mutual, which collapsed spectacularly in 2008: In mid-2003, a market researcher named Kevin Jenne is sent to Orange County and Illinois to conduct focus groups on WaMu customers who had recently acquired Option Adjustable Rate Mortgages. These allowed borrowers to choose anything from 15 year fixed repayment to letting them pay only 1% interest for five years while the principal "negatively amortized" (and then the hammer would come down around 2008 when the interest rate reset to the current index and the principal left to be paid off was larger than when they started). Jenne's assignment was to study these Option ARM borrowers to learn how to persuade more people to get Option ARM mortgages.
The 31 people who attended the dual sessions had two things in common: all of them held Option ARM loans, and few, if any understood what that meant.  
Jenne listened patiently, as, over and over again, the borrowers described what they believed to be their loan terms. They had gleaned startlingly few details about their loans from the mortgage broker or the WaMu loan consultant who had helped them through the process. Most of them knew they held adjustable-rate loans. They also thought the loan was cheaper than a regular mortgage, because they didn't have to pay as much each month. Approval hadn't been a hassle, the customers said -- WaMu had required little paperwork or income documentation. That's where their knowledge stopped. "From their perspective, it was a low payment loan, and that's all it was," Jenne said. "No one understood the option thing." 
Some of the borrowers in the focus groups were first-time homebuyers, still awed by their new ability to capture the American Dream. Recently, President George W. Bush had announced plans to increase minority homeownership by 5.5 million people, piggybacking on the goals of his predecessor, President Bill Clinton. "We want people owning something in America," Bush declared at an expo in New Mexico. "That's what we want. The great dream about America is, I can own my own home, people say."

In reading Bush's minority mortgage speeches denouncing redlining, downpayment requirements, and onerous paperwork requirements such as pay stubs, a recurrent phenomenon is Bush's Yoda-like reverse syntax. Did Bush always sound like this, or just on the topic of minority mortgages?
The focus group borrowers, some of them members of minorities, were effusive about their buying power. "They had been told by so many people that they couldn't afford one," Jenne said. Now they could. 

According to the federal Home Mortgage Disclosure Act database that exists to make sure minorities get enough loans, over half of the dollars lent in Orange County in 2003 by Washington Mutual's subsidiary Long Beach Mortgage went to Hispanics.
Few of them understood what negative amortization meant, or that it could make their debt grow in the long run. ...  
Half an hour into the first session with borrowers in Orange County, Jenne could tell that quizzing these people on their loan terms was futile -- they didn't know their loan terms. He got up, excused himself, and left the room. ... Jenne walked into another room at the sterile interrogation facility, behind a two-way mirror, where two mortgage production employees from the Home Loans Group had been observing the discussion. ... "I don't think we're asking the right questions," Jenne told them. The questions he had put together seemed useless. But the mortgage employees disagreed. They wanted him to ask about indexing, even though the customers barely understood interest rates. "Find out what the index means to them," they instructed Jenne. 
... He asked the group of borrowers: "How does your interest rate change?" 
No one responded. 
"It changes, right?" Jenne probed. 
The borrowers looked around the table at one another. Finally one said, "Yeah, it changes." 
"I think it's indexed," offered one woman. 
"Yeah, yeah, indexed!" agreed another. They had answered a question correctly! 
"Well, what's it indexed to?" Jenne asked. 
Another long awkward pause ensued. 
"My loan is indexed to the Nikkei," proclaimed one borrower. 
Another long, awkward pause ensued. 
"Your mortgage is based on the Japanese stock market?!" Jenne thought to himself. "Of course I didn't say that, he said later. "But I'm going, 'Oh, my heavens.'" Strangely, in another focus group, in Illinois, another borrower also believed his loan was indexed to the Nikkei. Jenned never discovered where borrowers had received that information. "I don't think they were being told this by someone," said Jenne. "I think that the only index they had heard of, like on TV or something, was the Nikkei. It was just bizarre.
The borrowers did seem worried about the loan terms. One of them said, "It's really scary to me what's going to happen in five years." Another echoed the same sense of foreboding with a slightly more compressed time frame. "Something terrible happens in three years." Said a third borrower: "I'm a little nervous about it. I have this feeling of impending doom. It's almost too good to be true."
On the other hand, the borrowers seemed comfortable in their ignorance. "Despite their lack of understanding, participants were almost universally happy with their loan choice," the report noted. ...
The Home Loans Group wanted Jenne to recommend ways to market the Option ARM. So, Jenne and his team noted in their follow-up report that the best way to off-load the product onto customers was to tell them little about it. That avoided the problem of complicated loan terms and words that no one understood. "Focusing on the right 'need to know' information is critical to developing more Option ARM sales. Participants seemed easily overwhelmed by the product details," the report concluded.
... Jenne came to believe that the Option ARM wasn't just a bad idea -- it might be evil. "After awhile, I lost that feeling," Jenne said. "Then I came back to it later on. And then I thought, 'No, no, this product is definitely evil.'" 
Whether or not [CEO] Kerry Killinger saw Jenne's research on America's hot new mortgage product -- and it's likely that he didn't se it -- WaMu doubled its annual Option ARM production to $68 billion in one year. By early 2005, WaMu promoted its loan as its "signature mortgage." It made up more than 25% of all the mortgages WaMu made or purchased.

A few observations:

The vast Mexican surge into places like Orange County over the last few generations represented basically Fresh Meat to exploit for Newport Beach MBAs with spreadsheets. When you hear the Donor Class of the GOP talking about the need for "immigration reform," that's what they mean: more Fresh Meat.

These dialogues capture quite well the happy-go-lucky agreeableness combined with an aversion to hard mental effort that are a trademark of Mexican-Americans in Southern California (and perhaps elsewhere). When Michael Barone talks about Mexicans as the New Italians, he misses a key distinction: Italian-Americans tend to be suspicious and pessimistic. They put a lot of cognitive effort into trying to understand why this too good to be true offer is too good to be true. They save a lot because they expect the worst.

Mexican-Americans tend to spend a lot because they expect the worst, but it would also be too much work to figure out what might happen, so why not have a good time now?
         

March 9, 2014

The Density of Los Angeles

Ann odd phenomenon of Southern California are regions of extreme density per room. You'll be driving through an area of one story houses and two story apartments, when suddenly there are people everywhere, with guys selling oranges on the corners of side streets.
L.A. and Orange counties are an epicenter of overcrowded housing

Sixteen-year-old Monica buried her face in a pillow, trying to rest for school the next day, as the clock ticked past 11 p.m. 
Sleep was a battle in the tiny apartment. Hunched at the other end of the family's only mattress, two of her brothers played a video game while a third lounged next to her, watching virtual soccer players skitter on screen. Her 2-year-old niece toddled barefoot near the door, toying with a pile of pennies. 
In all, seven people live in this wedge of space in Historic South-Central, including Monica's mother and the mother of the little girl — the longtime girlfriend of one of her brothers. They squeeze into an apartment roughly the size of a two-car garage, sharing a bathroom, a small kitchen and one common room.
"We're not comfortable," Monica's mother, Josefina Cano, said in Spanish. "But what can we do? It's better than being on the street." 
Cano and her family live in one of the most crowded neighborhoods in the country. Nearly 45% of the homes there are considered "crowded" — having more than one person per room, excluding bathrooms, according to an analysis of Census Bureau data spanning 2008 to 2012. Almost one home in six is severely crowded, with more than two people per room. 
Southern California is an epicenter for crowded housing: Out of the most heavily crowded 1% of census tracts across the country, more than half are in Los Angeles and Orange counties, a Times statistical analysis found. They are sprinkled throughout areas such as Westlake and Huntington Park around Los Angeles, and Santa Ana and Anaheim in Orange County. 
From the outside looking in, it is a largely invisible phenomenon. Places such as Maywood and Huntington Park, south of Los Angeles, look little like the high-rises of Chicago or Boston. Yet behind the closed doors of small bungalows or squat apartment buildings, they are home to thousands more people per square mile than those large cities. 
... Around South Gate and Huntington Park, Head Start instructors who visit children at home find they have trouble focusing amid the hubbub. In the Florence-Firestone area, longtime resident Paula Trejo said, street parking is always scarce. 
UCLA and University of North Carolina at Chapel Hill researchers have found that children in crowded homes have poorer health, worse scores on math and reading tests and more behavioral and emotional problems — such as tantrums and depression — even when poverty is taken into account. 
"I don't think anyone really wants to live in overcrowded conditions," said Larry Gross, executive director of the Coalition for Economic Survival. "But people will endure it because they have no choice."

Every inch of the apartment that Cano and her family share is consumed: Bags of clothing are heaped in the only closet. Atop the heater, under a can once used to collect funeral donations, sits a box with the ashes of Cano's late son, who endured seizures and died in his teens. 
... Experts say building is unusually difficult in Los Angeles, one of the factors contributing to the affordable housing shortage.
The cramped conditions echo an earlier era, when urban reformers railed against teeming tenements. After World War II, bigger homes and better incomes afforded Americans more space, and the shrinking size of families fueled the trend by 1970. But crowding rates began creeping higher again after the immigration wave of the 1980s, census data show. 
In Southern California, "that boom drew in a lot of immigrants who were very poor when they arrived," USC demographer Dowell Myers said. "And they came into a market of very inflated prices." 
... Today, Latino households in the Los Angeles area are more than a dozen times more likely to be crowded than white ones. 
Some scholars argue that crowding tends to be higher among Latinos and Asians because it is more accepted in their cultures, providing a survival strategy when workers strain to cover the rent. ...
Mexican and Vietnamese Americans tend to have different views than whites or blacks do of what is "crowded," according to a 2000 study, but they still suffer worsening anxiety and depression as crowding increases. 
Gabriel Guerrero, for instance, complains that the noise is too much. Twelve people crowd the two-bedroom house in South Gate that he bought decades ago. After school, the clamor of the television and the chatter on phones overwhelms him. 
"To go to the bathroom, you have to take a number," the 60-year-old grandfather said with a sigh. At times, his son heads to the nearby grocery to use its restroom.
Sometimes Guerrero daydreams of selling the house and finding an apartment for just a handful of them. But then he thinks of his grown children, and their growing children, muddling along with meager paychecks or measly hours.
He sets the daydream aside. "They have nowhere to go," Guerrero said.

You can't understand the causes of the subprime housing bubble of the 2000s without keeping in mind the density of modern Los Angeles. LA spun off all sorts of people desperate to get away to Las Vegas, Phoenix, and the Inland Empire.
      

February 3, 2014

Here we go again ...

From the New York Times:
Race Gap on Conventional Loans

African-American and Hispanic borrowers have been largely shut out of the conventional mortgage market, according to a new report from Zillow and the National Urban League. Citing 2012 loan data reported under the Home Mortgage Disclosure Act, along with results from a Zillow poll of 700 mortgage applicants in December, the analysis found that whites accounted for about 69 percent of all conventional mortgage applications. The share of applications filed by blacks was under 3 percent; Hispanics represented only 5 percent.

100 - 69 - 3 - 5 = 23% of new conventional mortgages going to whom?
Black and Hispanic borrowers are far more likely to apply for low-down-payment loans insured by the Federal Housing Administration. About 57 percent of black applicants and 60 percent of Hispanic applicants applied for F.H.A. loans, compared with 30 percent of white applicants. 
Access to financing that requires as little as 3.5 percent down is key for minority applicants, who on average have lower incomes and credit scores than whites, said Stan Humphries, Zillow’s chief economist. They also have far lower rates of homeownership, which makes it harder to accumulate wealth over time and across generations. “Higher down-payment requirements have had the biggest impact on minority applicants for conventional mortgages,” Mr. Humphries said. “They just don’t have the savings nonminority groups have.” 
And their conventional mortgage applications are more likely to be denied. One in four black applicants were turned down, compared with one in 10 white applicants, the report said. 
As conventional lending standards have tightened, F.H.A.-backed loans have become crucial to maintaining credit access in minority communities. But at the same time, Mr. Humphries said, F.H.A.’s dominance among such borrowers hints at a problematic trend: “a different path to financing based on your race and ethnic group.” 
And the F.H.A. path can be costly. Although F.H.A.-backed loans offer the initial advantage of less money down, their mortgage insurance premiums are considerably higher than premiums on conventional loans. 
Julia Gordon, the director of housing finance and policy at the Center for American Progress, a liberal research group, has concerns about what she calls “the dual housing market,” and says she believes the conventional market ought to be making lower-down-payment loans more widely available. “Like all the other separate-but-equal arrangements,” she said, “this is not good for consumers or the market or for taxpayers. We are seeing creditworthy people who should be able to get loans in the conventional market but can’t.” 
Ongoing discussions in Washington about how to wind down Fannie Mae and Freddie Mac should include a commitment to ensure that lenders make credit available equitably, she added. 

With apologies to Wordsworth and Milton:

                     Las Vegas, 2014
MOZILO! thou shouldst be lending at this hour:
    Exurbs have need of thee: they are a fen
    Of prudent finance: kitchen, bath, and den,
Fireplace, the heroic wealth of marble shower,
Have forfeited their late-lost subprime dower
    Of higher leverage. We are low-debt men;
    O raise us up, return to us again,
And give us zero down liar loan power!
Thy face was like an Orange, and golfed a lot;
    Thou hadst a voice whose sound was like TV:
    Pure flapdoodle, correct politically,
    So didst thou at Sherwood Country Club play,
In devout PCness; and yet thy stock
    The lowest return on investment did pay.
 
Here's the original:

                     London, 1802
MILTON! thou shouldst be living at this hour:
    England hath need of thee: she is a fen
    Of stagnant waters: altar, sword, and pen,
Fireside, the heroic wealth of hall and bower,
Have forfeited their ancient English dower
    Of inward happiness. We are selfish men;
    O raise us up, return to us again,
And give us manners, virtue, freedom, power!
Thy soul was like a Star, and dwelt apart;
    Thou hadst a voice whose sound was like the sea:
    Pure as the naked heavens, majestic, free,
    So didst thou travel on life's common way,
In cheerful godliness; and yet thy heart
    The lowliest duties on herself did lay.
         

January 15, 2014

Herbanism

Michael Wolf photo of Hong Kong
From Gizmodo
Tall is Good: How a Lack of Building Up is Keeping Our Cities Down
Urbanism -- Alissa Walker
Early in Spike Jonze's new film Her, Joaquin Phoenix's character gazes out his Los Angeles window. As the camera pans, we see not a squat, sprawling metropolis, but a golden-lit landscape of skyscrapers stretching all the way to the horizon. 
When I saw the film last Friday night, this scene made me gasp. 
It wasn't just the shock of seeing L.A. rendered as a vertical city. It was because this L.A. of the future looked like a place where I wanted to live. 
This digitally enhanced, metastasized Los Angeles—an L.A. that grew up instead of out—is almost a secondary character in the film. Jonze tapped graphic designer Geoff McFetridge and production designer K.K. Barrett, and also consulted with architect Elizabeth Diller on the look of L.A.'s future, which—for once—was blissfully free of those dystopian stereotypes. Even against the bleak narrative (no spoilers, don't worry!) the city around the characters is bustling, colorful, vibrant. It's a gorgeous world of tall buildings, mass transit, and busy sidewalks. 
Dare I say, this movie made density beautiful. 
Beautiful density is, of course, a reality for many cities; some of Her's most dramatic shots were filmed on the skyways and skyscrapers of Shanghai. But here in L.A.—like many cities that aren't Shanghai, or Tokyo, or New York—many people are doing everything in their power to suppress this future, citing detrimental side effects from building heights, whether it's shadows or earthquake danger. Even some already dense cities make it impossible to secure air rights, pass ridiculous parking restrictions, and work hard to incentivize low-rise development. 
But there is a huge problem looming larger than any skyscraper. Many major cities are experiencing a housing shortage which is pricing out large swaths of their populations—the workers, the creators, the young'uns. We need to start thinking big—or, rather, tall. 
In theory, most of us know density is good for us—it allows us to live closer together, share resources, save energy, and stay safe. But we like the idea of skyscrapers right up until the point where one is constructed next door. 
Suddenly, we lament that a tall building might obscure our view, or darken our perfect afternoon sunlight. There is an ongoing sentiment that density should be for someone else. I should be able to keep my car and my yard, while my neighbors get a subway and a public park. 
Anti-skyscraper urbanist Jane Jacobs argued for a "proper density," which it can be assumed looked a lot like the typical 1960s Greenwich Village street that she canonized through her writing.

Jane Jacobs liked her own neighborhood. Most people grow fond of where they live. I've liked every neighborhood I've lived in (except the one that had drug addicts shouting all night for their dealer Eddie to buzz them in so they could get their cocaine -- that started to get on my nerves). This is not to dismiss Jacobs, a wise woman, but urban planning mostly works by who it attracts and who it repels, not by the re-engineering of souls.
With this reasoning, we'd organize all the residential buildings into neat four-story walkups and go to work in the skyscrapers (an equation which obviously does not work out in today's cities). Jacobs was fearful of those towers sprouting throughout Manhattan at the time, which she believe took away a neighborhood's diversity and sense of community.

However, that doesn't seem to be the case. Hong Kong, which has more buildings over five hundred feet tall than any other city in the world, has been the muse of photographer Michael Wolf, who captures the towers as well as the people living inside them. These photos are shocking at first in their overwhelming scale. But 80 percent of the residents Wolf interviewed said they were happy, thanks to the sense of community. "The important lesson to be learned is that it's not space which is important for humans," Wolf told Atlantic Cities. "It's your neighbors."

Indeed. 

For example, in Chicago, Cabrini Green and Sandburg Village were modernist highrise complexes that were built about a mile apart at about the same time. The former was a public housing project that all the white residents soon fled, while Sandburg was a city-led for-profit project intended to drive out the Puerto Ricans from the neighborhood. It became a proto-yuppie haven. Cabrini Green is gone, but Sandburg Village is still there.

The unmentionable fear, of course, is running out of good neighbors. There are only so many to go around. And the American establishment has had as its policy for decades to make the population less white, more diverse. 

Obviously, immigration policy interacts in all sorts of ways with urbanism policy. America has been testing the diverse future out in ultra-immigrantish Los Angeles for a long time. (You might think that some lessons could be learned, but that'll never happen.) For example, the nice liberals of Beverly Hills have been resisting building the L.A. subway through Beverly Hills for the last 28 years. And if that mountain is finally climbed, the so-called Subway-to-the-Sea will still stop four miles from the sea because nobody has a clue how to get the People's Republic of Santa Monica to agree to a subway.

But you aren't supposed to think about that. Thus, in the movie Her, the population of Future Los Angeles has grown immensely, but almost all the characters are attractive white people.

In reality, Mexicans hate taking public transportation, hate high rises, hate driving Priuses. If they were suddenly renamed South Texans, the New York Times editorial board might even defy Carlos Slim and rethink this whole immigration amnesty project.

Armenian-type white immigrants like driving large expensive new cars really fast.

So, there are urbanist lessons to be learned from L.A.'s experience with immigration, but please don't mention them.

The other issues with high rises are traffic and that American white people don't breed in them. They are like zoo creatures -- to get them to reproduce, you need to take them out of small cages and put them in big enclosures. In Her, there is only one child and she lives in what appears to be the only single family home with a yard in Future Los Angeles.

L.A. subway map from Her
Also from Gizmodo:
One of the best moments in the new movie Her is watching Joaquin Phoenix ride an elevated train through a Los Angeles of the near-future, dance through a bustling subway station, and emerge at the edge of the Pacific Ocean. 
The scene got a surprised laugh from everyone at the screening I attended. After years of nimby battles and funding shortfalls, director Spike Jonze had just completed the Subway to the Sea!

Of course, it's the people who have upcoming movies screened for them who have done the most over the decades to keep the LA subway out of the liberal westside of LA. Funny how that works.

By the way, is this Google driverless car thing ever going to happen? If it does, who will take public transit then if you can sit in your own car and watch videos while Jamesbot drives you right to your destination? (Note, I'm not saying it's going to really happen.)
    

April 12, 2013

Where it really matters

The Washington Post editorial board has drawn a line in the sand against anti-white black solidarity, at least where it really matters: Washington D.C. city council elections.
Anita Bonds’ misguided focus on race 
By Editorial Board
D.C. COUNCIL member Anita Bonds (D-At Large) is not the first District official, nor sadly is she likely to be the last, to try to use race to her advantage. But her awkward comments about the role that race will play in the city’s upcoming election and voters wanting their “own” should not go unchallenged. 
Ms. Bonds appeared Monday on WAMU-FM’s “Kojo Nnamdi Show” with the five other candidates vying for the citywide seat in the April 23 special election. She was asked about recent comments by a union official endorsing her. The official said there is a strong desire within the black community that the seat be held by an African American. 
“Happy to hear that,” was Ms. Bonds’s response. She said, “People want to have their leadership reflect who they are” and longtime residents “fear” being pushed out by the city’s changing demographics. “The majority of the District of Columbia is African American. . . . There is a natural tendency to want your own,” she said.

The horror, the horror. Seriously, that's a perfectly reasonable thing for any politician to say. But, it's not okay with the Washington Post editorial board. This stuff's personal. If they help push blacks out of power in Washington D.C. their lives will be a lot better, so they are going to be as anti-black as they gotta be to get the job done.
Ms. Bonds, The Post’s Tim Craig reported, appears to be trying to rally black voters to her bid by noting that the council, now with seven white and six black members, has never had eight white members. 

But, it will soon, at least in the Washington Post editorial board's dreams of cashing in big on their real estate investments.
Ms. Bonds told us she is aghast that anyone would interpret her remarks as a plea to vote for her solely because of her race; she said she was merely expressing appreciation about having received the union endorsement. Her spokesman stressed that the campaign has never used race as a basis to garner votes and that the council member was simply responding to a direct question that should not be taken out of context. ... 
 But the failure of Ms. Bonds to make clear that a candidate’s skin color should not be the determining factor was disappointing, particularly since the council on which she hopes to continue to serve will have to deal with challenges confronting a city undergoing dramatic demographic change. 

Translation from Editorialese: Challenges to include blacks not letting the doorknob hit them on the butt as they leave D.C. for places where the locals don't have their hands on The Megaphone like we do here at the Washington Post.

April 9, 2013

Margaret Thatcher, John Gielgud, and real estate investing

From the website of the Noel Coward Society, a story recounted by Sheridan Morley (son of actor Robert Morley):
Morley recalled an occasion in the 1980s when, walking along Piccadilly with John Gielgud, they spotted Margaret Thatcher, then at the height of her powers, coming towards them. As they both knew her slightly, they stopped. Gielgud asked where she was now living. "No 10, Downing Street," replied the Prime Minister with some surprise. 
"Oh, you women!" exclaimed Gielgud, full of admiration. "Always so clever at buying the right kind of property!"

April 4, 2013

Foreclosures on 2005 Vintage Mortgages by Ethnicity

Here's a graph created by Dr. Carolina Reid of the Federal Reserve Bank of San Francisco tracking foreclosure rates over time on mortgages originated in 2005. This is for the 50 largest metro areas, so it's reasonably representative of the bulk of the mortgage dollars in the U.S.

In thinking about the Great Recession and foreclosures, we need to conceptually distinguish between later foreclosures caused by the recession versus earlier foreclosures that, more than any other single factor in the U.S., caused the recession. (Obviously, the recession had multiple causes, which can be analyzed on multiple levels, just as World War I can be said to be caused (at the specific level) by both the assassination of the Archduke or (at an abstract level) the system of Great Power rivalries. But for historical events as important as the Great War and the Great Recession, it's worth taking the trouble to analyze multiple causes at multiple levels. The mortgage meltdown may not have been the ultimate cause of the recent economic unpleasantness, but it deserves close analysis, just as the assassination of the Archduke, the stock market crash of 1929, and the bombing of Pearl Harbor deserve the attention paid to them.)

The foreclosures rates in this graph are for January of each year. Keep in mind that foreclosures lag defaults by some number of months. 

Some recent history: The subprime crisis was first noticed in February 2007 with the failure of subprime lender New Century Financial in Orange County. So, the first two data points, 2006 and 2007, are both before subprime blew up. The Great Recession itself did not become a certainty until mid-September 2008, and unemployment rose in the wake of those memorable fall 2008 events. Not surprisingly, broad unemployment caused numerous foreclosures. 

But, what's of more interest in figuring out cause and effect are the foreclosures that happened before the country fell into a general recession. This study of 2005 vintage mortgages offers some interesting clues. Here's Reid's map of foreclosures as of January 2007:
As you can see, foreclosures were centered around Greater Detroit

Not surprisingly, in those first two years, while the price of houses was still high, blacks had the highest foreclosure rates. The financial cost of these mortgages defaults was low, however, because home prices in the Great Lakes area are not particularly high.

But, by 35 months later, at the end of 2010, the landscape was dominated by the red of the Sand States of California (the Big Kahuna of real estate values), Arizona, Nevada, and Florida, all of which had above-average priced-homes (California exceptionally so):
As the top graph demonstrates and the second map implies, the Hispanic rate skyrocketed between January 2007 and January 2009. By January 2009, the Hispanic foreclosure rate (about 6%) was roughly three times the white rate (about 2% rate), and the Hispanic rate was now significantly higher than the black rate. The Hispanic foreclosure rate accelerated from January 2009 to January 2010 (roughly the second map), reaching about 10.5%, before its rate of growth moderated from January 2010 to 2011.

More than any other ethnic group, Hispanics blew up and then popped the bubble.

Interestingly, the Asian rate grew sharply over the course of 2009, almost catching up to the black rate. The white foreclosure rate lagged the other ethnicities rates, finally closing some of the gap by January 2011, suggesting that white borrowers tended to be less cause than victim of the recession.

The more I look at the recent studies, the more I keep coming back to my initial reaction: Diversity, in the multiple meanings we assign that term, played a major role in the Recent Economic Unpleasantness. You might think that knowing this would be relevant to immigration policy, but that just shows you are a bad person.

April 2, 2013

Mortgage mania: "The past is never dead. It's not even past."

Lately, I've been posting summaries of academic research into the true nature of the mortgage meltdown of a half decade ago. I realize that sounds like ancient history of no relevance, but from today's Washington Post:
Obama administration pushes banks to make home loans to people with weaker credit 
By Zachary A. Goldfarb, Updated: Tuesday, April 2, 5:48 PM 
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. ...
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. 
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. 
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. ...
“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”
“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrot, who until January was the senior adviser on housing for the White House’s National Economic Council.
The effort to provide more certainty to banks is just one of several policies the administration is undertaking. The FHA is also urging lenders to take what officials call “compensating factors” into account and use more subjective judgment when deciding whether to make a loan — such as looking at a borrower’s overall savings. 
“My view is that there are lots of creditworthy borrowers that are below 720 or 700 -- all the way down the credit score spectrum,” Galante said. “It’s important you look at the totality of that borrower’s ability to pay.”

It sounds like we need to know what actually happened in the 2000s.

Bankrupt Stockton: Was the mortgage meltdown a government-sponsored affinity scam?

With the city of Stockton, CA in the news as its municipal bankruptcy winds its way through the courts, I was struck by this 2010 San Francisco Federal Reserve paper on the kitchen table dynamics of how so many people in Stockton and Oakland wound up with mortgages they couldn't afford. One short answer: minorities trusted co-ethnic mortgage brokers to treat them fairly out of racial solidarity.
Sought or Sold? Social Embeddedness and Consumer Decisions in the Mortgage Market 
Carolina Reid,  
Federal Reserve Bank of San Francisco 
Working Paper, December 2010

Stockton is a Central Valley exurb of the San Francisco Bay Area. In the 2000s, new developments went up all over Stockton, but then around 2007, it became one of the foreclosure sore spots of the country, helping set off the Great Recession of 2008.

My theory of the mortgage meltdown has been that it was inextricably tied up with “diversity.”

But, what do I mean by “diversity?” I use the word to signify:

- a demographic reality;
- an ideology or attitude (“Diversity is our strength,” as Dan Quayle said);
- government, activist, corporate, and media projects intended to operationalize that ideology and intimidate skeptics into silence;
- and to signify what many, from the highest to the lowest in our society, view as a get-rich-quick opportunity.

Dr. Reid's little study of mortgagees in Stockton and Oakland is important for understanding the Who? Whom? aspects of the Minority Mortgage Meltdown. 

Since almost nobody in our culture publicly dissents from Diversity, or really even notices anymore how much it keeps us from noticing what is in front of our noses, we are left with only two ideologies:

Double Down on Diversity
v.
Libertarianism

The Randians have the problem that while a lot of government programs exacerbated the mortgage meltdown, good old hog-stomping greed played a huge role as well.

The Double Down on Diversity conventional wisdom about how the problem is, as always, Rich Old White Men blocks us from noticing that the Rich Old White Men who were up to their elbows in this debacle (e.g., Angelo Mozilo, George W. Bush) were outspoken enthusiasts for Double Down on Diversity themselves. Indeed, the Double Down on Diversity view prevents us from noticing the High-Low coalition in which elites use designated victim groups as mascots to get more of what they want, even though it is central to understanding the way of the world in the 21st Century.

If we drop both sets of ideological blinders, one thing we notice is that an overlooked aspect of the fiasco was the role of minority mortgage brokers in putting their co-ethnics into terrible loans. This isn't a huge aspect to the story, but it's an enlightening one.

Since 1968, the government had built a system based around the notion that the problem was white people denying loans to people of color. Over time, the more optimistic and/or aggressive industry participants became true believers. There had been a big push over the years to diversify the mortgage broker profession, both from the government for diversity reasons and from private interests for profit-seeking reasons. It seemed a happy illustration of the virtues of MultiCulti Capitalism.

Not surprisingly, with everybody -- regulators and regulatees -- in vociferous public agreement that the solution was to Double Down on Diversity – hire more minority mortgage brokers so minorities can get more mortgages – the real problem turned out to be the opposite: the minority mortgage brokers pocketed big commissions putting minorities who should never have gotten a mortgage at all into a mortgage, and pocketed bigger commissions by putting creditworthy minorities who should have gotten a prime interest mortgage into a higher commission subprime one. 

Dr. Reid's paper is based on interviews with 33 people in Stockton and 47 in Oakland. In this little study, 66 of the 80 homebuyers were nonwhite. Interestingly, 84% of the respondents enjoyed the services of a mortgage broker of the same race/ethnicity as themselves.
The anecdotes also provide insight into why so many borrowers ended up in loans that they could not afford over the long term, and why borrowers with prime credits cores—particularly among Hispanic and Black borrowers—received a subprime loan. Did borrowers actively “seek” out subprime loans, or were they “sold” loans by unscrupulous brokers and lenders?
In the interviews, three key themes related to social embeddedness emerged. ... social networks to help them identify mortgage brokers and lenders, and particularly for the immigrant and African‐American respondents, revealed a strong preference for brokers who were part of the local community [i.e., racial community, not geographical community). This preference was driven by perceptions that outsiders would not treat them fairly, and that a broker who “understood” their situation would be more likely to result in a positive outcome.

Keep in mind here that “positive outcome” to most of these minority borrowers means getting your hands on the front door key, and “treat them fairly” means letting them get a house, not making sure it’s a mortgage they can afford. Reid provides numerous examples of get rich quick greed among her interviewees. A lot of people in Stockton and Oakland figured they'd flip the house for big money right away, so few read their contracts, even if they were literate in English.
The shared identity that borrowers felt with their brokers, coupled with the broker’s perceived expertise about the mortgage process, led borrowers to trust their advice and not seek external validation of the information provided. As I show using the quantitative data, this led to mortgage outcome sthat were not necessarily in their best economic interest.  
One of the strong themes that emerged from the interviews was the extent to which respondents of color expressed their desire to work with a broker from their own community or background, and that they turned to friends and family members to identify a broker or lender that had a history of serving other families in the community.  
In, numerous interviews, borrowers said that they turned to their social networks and relations in the neighborhood to identify a local mortgage broker who would be willing to “work with someone like me.” Part of this was driven by a lack of trust in traditional lenders, and several respondents in Oakland noted a historical distrust of banks in the community. 

By lack of trust, they mean, I suspect, resentment that banks in the community didn’t trust them to pay back loans. Of course, that it turned out the the bad old banks were right about them won't make them like the bad old banks more.
….Empirical research studies, however, have revealed that during the subprime boom, yield spread premiums coupled with a push for a greater volume of loan originations provided a financial incentive for brokers to work against the interests of the borrower(e.g. Ernst, Bocia and Li 2008). In addition, since there was no statutory employer‐employee relationship between lending institutions and brokers, there were few legal protections to ensure that brokers provide borrowers with fair and balanced information. This aligns with the “trust” that social relations engender. … 
In both Stockton and Oakland, respondents did not seem to be aware of the potential for perverse incentives on the part of brokers, and instead trusted them fully to actin their best interests.

… The quantitative data, however, shows that the decision to “trust” a broker often worked against the best financial interests of the borrower, especially for minority borrowers. Research has shown that regardless of their FICO score, Blacks and Hispanics were much more likely to receive a high‐cost loan, especially when that loan was facilitated by a mortgage broker. This hold strue even when we control for other factors, such as local housing and mortgage market conditions, fico score, and loan to value and debt to income ratio. 
Indeed, in a multivariate model that controls for the majority of underwriting variables, we find that origination by a mortgage broker has a large statistically significant effect on the likelihood of getting a high cost loan for certain borrowers, and that this effect is greater for Hispanics and Blacks. (Figure 5) The marginal effect of using a broker is 22 percent for Hispanics, and 18 percent for Blacks. While it may not seem like an extremely large effect, it is approximately equivalent to a 200 point decrease in a borrower’s FICO score. In contrast, white borrowers who used the services of a mortgage broker were 4 percent less likely to get a high cost loan, suggesting that in their case, on average, brokers helped them to navigate a better mortgage product based on their risk characteristics. 
So, were these loans “sold” or “sought”? While certainly not conclusive, the interviews suggest both are true. First, mortgage brokers in Oakland and Stockton were specifically targeting their services to borrowers with lower FICO scores, and much of the marketing focused on reaching borrowers with poor credit records. (Figure 6) Second, borrowers with lower credit scores actively sought out mortgage brokers who they had heard would help them wade through the paperwork and get a mortgage approved. What was less clear from the interviews was whether or not brokers had intentionally duped borrowers into taking on irresponsible loan products.

In Reid's sample, four of her 80 interviewees were also mortgage brokers themselves. They all felt fine about what they did, and few of her other minority interviewees blasted their brokers. Most felt pretty warmly about their brokers still. The affinity part of affinity fraud really works.

Affinity scams in which people are duped into trusting that a promoter has their best interests in heart because he's a fellow whatever are sadly common. Affinity fraud and Ponzi schemes (which the Housing Bubble was a variant of) frequently go together.

Yet, I'm not sure if anybody has previously pointed out how the government, media, activist, and social pressure to diversify the mortgage industry turned places like Stockton into a government-endorsed affinity fraud Ponzi scheme?

Minority Mortgage Meltdown in Prince George's County

Since 1975, the federal government has been collecting data to make sure that minorities get enough mortgages, but nobody set up a system to see if minorities were paying back their mortgages. Thus, when the mortgage market collapsed in 2007-08, there wasn't much data readily available on who was defaulting on their loans. I started pointing out in 2007 that the circumstantial evidence pointed to this being heavily "diversity-driven." After all, the government and the media had been making a huge effort to keep minorities from getting too few mortgages, so the most likely mistake was they had gotten too many.

Slowly, academic studies are emerging of who exactly defaulted, and it turns out ... I was right. For example:
Analyzing Foreclosures Among High-income Black/African American and Hispanic/Latino Borrowers in Prince George’s County, Maryland 
Katrin B. Anacker, James H. Carr, and Archana Pradhan 
Abstract 
Although Prince George’s County, Maryland, is the wealthiest Black/African American county in the nation, the national foreclosure crisis has had a profound effect on it. Using a merged data set consisting of Home Mortgage Disclosure Act (HMDA), U.S. Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyzed the likelihood of foreclosure in Prince George’s County in the Washington, DC metropolitan area. We found that the borrowers in Black/African American neighborhoods with high-income were 42% more likely and Hispanic/Latino neighborhoods with high income were 159% more likely than the borrowers in non-Hispanic White neighborhoods to go into foreclosure, controlling for key demographic, socioeconomic, and financial variables.

These race differences are after they statistically adjust the heck out of everything. I think it's also useful to highlight the raw foreclosure rates in Prince George's County, Maryland:

White: 1.91% (372 foreclosures)
Hispanic: 6.42% (3.4X the white rate, 1,091 foreclosures)
Black: 3.62% (1.9X the white rate, 4,219 foreclosures)

That's a lot of Hispanic foreclosures for a county famous for its black population.

One thing to keep in mind about these studies is that the national racial gaps might turn out to be even bigger than the regional ones because the studies are typically done of places with a lot of foreclosures, which tend to be pretty vibrant. I haven't seen anybody yet do a study of defaults in, say, the Dakotas.

Minority Mortgage Meltdown in Atlanta Metropolis

Here's another paper on the role of diversity in the mortgage meltdown:
Analyzing Determinants of Foreclosure of Middle-Income Borrowers of Color in the Atlanta, GA Metropolitan Area 
Katrin B. Anacker
George Mason University - School of Public Policy 
James H. Carr
Federal National Mortgage Association (Fannie Mae) 
Archana Pradhan
National Community Reinvestment Coalition (NCRC) 
July 14, 2012
GMU School of Public Policy Research Paper No. 2013-01  
Abstract:    
Foreclosures have disproportionately affected borrowers and communities of color. Many studies have concentrated on the nation and specific metropolitan areas, but few academic studies have focused on Atlanta. Using a merged data set consisting of Home Mortgage Disclosure Act (HMDA), U.S. Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyze the likelihood of foreclosure in the Atlanta, GA metropolitan area. We find that African American borrowers are 52 percent and Hispanic borrowers 159 percent more likely to go into foreclosure, controlling for key financial variables. We also find that African American middle-income borrowers are 35 percent more likely to go into foreclosure. Moreover, we find that exotic mortgage products, such as balloon mortgages, adjustable rate mortgages (ARMs) and mortgages with a prepayment penalty have a higher likelihood of foreclosure than standard 30-year fixed rate mortgages.

The raw, unadjusted results for the large Atlanta metropolitan area are that foreclosure percentages were:

White: 1.74% (5,692 homes in foreclosure)
Hispanic: 4.65% (2.7X white rate -- 395 homes in foreclosure)
Black: 5.82%  (3.3X white rate - 8,271 homes in foreclosure)

March 29, 2013

Hispanics delinquent on mortgages 4.7 times as often as whites

Going on a half dozen years after the mortgage meltdown that began in 2007, the evidence continues to trickle in about the key role of diversity in the disaster. Granted, there's very little demand for hard-headed analyses. Here, for example, is a paper finished in 2011 that has, according to Google, been cited once:
Mortgage Default by 2009: Effects of Race, Ethnicity and Economic Standing During the Boom Years  
Heather Luea
Vanderbilt University  
Adam Reichenberger
Bureau of Labor Statistics  
Tracy Turner
Kansas State University 
Abstract: This paper examines the determinants of 2009 mortgage delinquency by race and ethnicity using new household-level data on mortgage distress from the Panel Study of Income Dynamics. Controlling for homeowner and loan characteristics as well as residence in a nonrecourse state, we find startling differences in mortgage delinquency rates that cannot be explained by observables. The unexplained black/white gap corresponds to a 44% higher likelihood that black homeowners will be delinquent on their mortgages relative to non-Hispanic white homeowners. The unexplained difference in Hispanic mortgage delinquency relative to non-Hispanic white homeowners is even greater, at double the black/white delinquency gap.

... The economic decline that began in 2007 was preceded by nearly two decades of government-aided, rapidly rising homeownership rates among minority households (Bostic and Lee, 2007). Given this and the severity of the recent economic crisis, it is important to understand the extent to which minority households have weathered the crisis as well as non-Hispanic white households, all else equal. Indeed, the recent and historical role played by the US government and nonprofit agencies in boosting access to homeownership by underrepresented groups makes understanding these groups’ outcomes particularly relevant.4 
Footnote 4: As recently as June 2002, President Bush announced a goal of closing the homeownership gap for minority households by 5.5 million households by the end of 2010 through innovatiosn such as zero-down-payment loans. That administration's efforts followed more than a decade of housing market interventions, including President Clinton’s National Homeownership Strategy, a trillion dollar commitment by Fannie Mae, the Campaign for Homeownership of the Neighborhood Reinvestment Corporation, and expanded lending to low-income and minority households in part as a result of the implications of the Community Reinvestment Act (Turner and Smith, 2009). 
... As a preview of our findings, we find that black and Hispanic households that own their housing in 2005 are significantly more likely to become delinquent on their home loans by 2009 than non-Hispanic white homeowners. We find an unconditional, weighted likelihood of delinquency of 11.3%, 16% and 3.4% for black, Hispanic, and non-Hispanic white homeowners, respectively, making black homeowners 7.9 and Hispanic homeowners 12.6 percentage points more likely to be delinquent than non-Hispanic white homeowners. 

Let's break those delinquency-by-2009 rates out:

Whites: 3.4%
Blacks: 11.3% (3.3X the white rate)
Hispanics: 16.0% (4.7X the white rate)

The sample sizes of 2005 homeowers in the PSID are not huge: 2344 for whites, 810 for blacks and 263 for Hispanics (the number of Hispanics in a long-running longitudinal study naturally lags behind their number in the population). Also this study design excludes the 2006-07 vintage of new mortgages, which were the bottom of the barrel. However:
While the sample size of the PSID may be considered small compared to loan-based samples (for example, in the 2009 survey, there are roughly 8,000 households), the PSID has a number of advantages over larger samples that are either not household-based or not longitudinal. First, importantly, the unit of observation is the household, and the PSID collects extensive household-level data on employment, income, wealth, and housing costs and characteristics. In 2009, for the first time in the history of the PSID, survey respondents were also asked questions regarding mortgage delinquency and foreclosure, making this a dataset well suited for our study. Second, the PSID is a longitudinal dataset following families from as early as 1968 to present. Using the PSID, we have borrower and loan characteristics overtime, which to our knowledge are data not available in any other single dataset. Third, once sample weights are applied, the PSID is a nationally representative sample of the US population.

Statistically adjusting for all the info in the PSID, it turns out that there are still substantial racial gaps in staying current on mortgages:
Conditioning on extensive borrower and particularly loan characteristics reduces the race and ethnicity gaps in mortgage sustainability considerably, but does not entirely eliminate these gaps. In the full specification, we find that black and Hispanic homeowners remain 1.5 and 3 percentage points more likely to be delinquent than non Hispanic white homeowners, respectively. These unexplained effects are  large relative to the underlying mortgage delinquency rate of 3.4% for non-Hispanic white households.

In other words, statistically adjusting for everything they can come up with (e.g., income), there are still unexplained racial gaps:

Whites: 3.4%
Blacks: 4.9% (1.44X the white rate even after adjustment)
Hispanics: 6.4% (1.88X the white rate after adjustment)

In many ways, the first set of numbers is the more important. As the population shifts from whites to Hispanics, the delinquency rate would tend to get worse. 

But the second table can help explain why money-hungry but politically true-believing lenders like Angelo Mozilo of Countrywide could mess up so badly. You are not allowed to use race/ethnicity in credit modeling, but it turns out that race/ethnicity still matters a lot even in cases where the facts you are allowed to look at are all the same. During the 1990s, Mozilo became convinced that it was sheer racism to worry that Hispanics could default at higher rates than the model predicts.
We find startling differences by race and ethnicity in mortgage delinquency rates that cannot be fully explained by observables ...
The homeownership rates of black and Hispanic households have been and remain substantially below that of non-Hispanic white households. That certain groups experience low homeownership rates is cause for concern particularly to the extent that these gaps are involuntary and in light of the possibility that homeownership generates private and community benefits (i.e., Turner and Luea, 2009; Haurin, Dietz, and Weinberg, 2002). Belief in the positive externalities of homeownership has motivated substantial efforts in the past two decades to boost the homeownership attainment of underrepresented groups, and these efforts have generated relative gains in minority homeownership (Bostic and Lee, 2007). Evidence is mounting that the Great Recession has adversely impacted minorities to a greater extent than non-Hispanic white households. It is likely that the economically disadvantaged households that are losing their homes are some of the same households propelled into homeownership through federal assistance to begin with. If there is a silver lining, it may be that, according to recent work by Molloy and Shan (2011), post-foreclosure households on average do not end up in either less desirable neighborhoods or more crowded living conditions than what they experienced as homeowners. Determining the extent to which housing policy may have fueled the 2009 differential delinquency rates by minority status and why, and whether these households are nonetheless better off for their homeownership stint, would be valuable information for future policy design.

This might also be valuable information for current immigration policy design.

January 16, 2013

Crown Heights gentrification and the salvation of Oak Park

Here's a long article at a website called Narratively:
The Ins and The Outs 
Along one of New York's most rapidly changing boulevards, a look below the surface exposes what—and who—is really driving gentrification in Crown Heights. 
By Vinnie Rotondaro and Maura Ewing

It's predictable for awhile, but gets interesting toward the end. 

What goes unmentioned in the article, but which all New York readers above age 40 will instantly recognize is the significance of the name "Crown Heights." In retrospect, the 1991 riot in Crown Heights was the Gettysburg or Stalingrad, the historic turning point in New York City.

My recent surmise that the Powers That Be in contemporary New York City can be summed up with some accuracy as a conspiracy to drive out African-Americans doesn't seem too far off the mark.

You definitely want the real estate agents in your neighborhood to be on your side, whatever your side is. When I was a gentrifier in Chicago's Uptown neighborhood in 1988-2000, the local real estate lady organized most of the neighborhood parties and encouraged residents to talk up the merits of that overlooked neighborhood. It was almost worth that she hustled you into a lowball price if you hired her to help you sell your condo. 

On the other hand, local real estate agents actively destroyed my wife's parents' Austin neighborhood on the West Side of Chicago from 1967 onward by stoking white panic selling in order to make fast commissions. Austin had been a terrific place for families to enjoy the benefits of urban living: safe, densely populated, excellent public transportation, tons of kids playing on the sidewalks and walking to school or to their grandparents' apartments. All gone ...

Frank Lloyd Wright's Moore House
(The house where my father was born is visible
in the background to right.
I'm reminded of one of the most occluded events in recent American history: the salvation of Oak Park, IL, where my father was born in 1917 (next door to Frank Lloyd Wright's Moore House). Oak Park is directly adjoining Chicago's doomed Austin neighborhood.

In contrast to the superb upkeep of the house where my father was born in Oak Park (a constant stream of international tourists walks past it to visit all the Wright houses on the street), the two-flat where my wife was born a couple of miles away in Austin appeared to be abandoned when she drove past it a few years ago.

The destruction of Austin next door threatened to spread to Oak Park, with its spectacular stock of Frank Lloyd Wright Prairie-style homes. But the city fathers responded with a wise (if presumably wholly illegal) racial quota system. The "black-a-block" system restricted real estate agents in Oak Park to selling only one home per block to a black family. 

Yet, as James Kabala pointed out once, it's hard to find any mention on the Internet of Oak Park's "black-a-block" quota, presumably because it violated federal law, but was winked at because important people felt it worthwhile to save Oak Park's architectural heritage.

The free market was allowed to run amok in Austin, but government regulation of real estate agents was deftly used in Oak Park to keep the black population down to a manageable number. You can see why this isn't talked about all that much, but, damn, it's an important bit of history to know about.

Fortunately, I discovered that The Encyclopedia of Chicago explains how Oak Park was saved in some detail:
Oak Park's eastern neighbor, Chicago's Austin neighborhood, had long been characterized by tree-lined streets of gracious homes and small bungalows, with residents who had lived in the community for generations. Both communities, however, also had aging housing stock and weak zoning and building codes. Over 50 percent of Oak Park's housing comprised apartment buildings, most concentrated along its eastern border. Oak Parkers watched first-hand in the 1960s as Austin's residents fought desperately to defend their community from a destabilizing influx of African American home-seekers, with little success—resegregation was rapid and tumultuous.

I.e, most of Austin went black and underclass. There have been 450 homicides in Austin over the last 12 years according to this New York Times map.
Oak Park devised a different strategy, which would use planning to ensure that desegregation would not lead to resegregation. The village board created a Community Relations Commission charged with preventing discrimination, forestalling violent neighborhood defense mechanisms, and setting a high standard of behavior as the community prepared for imminent racial change. 
Village officials, often joined by clergymen, visited blocks to which families of color might move and carefully sought to control the fears and rumors generally associated with neighborhood succession. They identified white families who would welcome the newcomers. They encouraged African American families to disperse throughout the village to counter concerns of clustering and ghetto formation. In 1968, after lengthy and angry debate, and the passage of the federal Fair Housing Act, the village board passed an open-housing ordinance allowing officials to control many aspects of racial integration that otherwise were likely to lead to resegregation. Real-estate agents were banned from panic-peddling, blockbusting, and the use of “for sale” signs. A community relations department would address rumors, monitor the quality of services and amenities throughout the village, and establish block clubs to promote resident cohesion and local problem-solving. The police force expanded by one-third, with a residency requirement whose impact was magnified because police generally lived in areas most likely to be threatened by resegregation. An equity assurance program for homeowners would reassure residents that they were financially protected against a downward spiral of property values. Leaders acted on a vision of Oak Park as a community strong enough to achieve integration, and able to challenge the Chicago pattern of block-by-block resegregation with a policy of managed integration through dispersal. 
The most controversial policies involved racial steering. A group of residents led by Roberta (Bobbie) Raymond established the Oak Park Housing Center, which retrained real-estate agents to prevent racial steering and encouraged black home-seekers to live throughout Oak Park. The center worked with the village to improve areas that white home-seekers or residents might find unattractive and steered whites towards these areas to limit the concentration of black residents in a particular neighborhood. A public relations campaign targeted white home-seekers across the country to promote an image of Oak Park as a multicultural, cosmopolitan middle-class community, close to the city, with good transportation and schools. 
Despite these programs, during the 1970s the village experienced a net loss of 10,000 white Oak Parkers, coinciding with a net increase of only 5,500 black residents. Urbanologists' predictions that the ghetto would roll over Oak Park, however, proved inaccurate. Oak Park maintained its majority white population through extensive and white-oriented planning, and has remained an integrated village. Pockets of racial segregation have persisted, but the community has succeeded in maintaining a public culture that takes pride in racial diversity.

I believe Oak Park has a sizable white gay population, attracted by the fabulous aesthetics.

In 2012, Obama won 82.5% of the vote in Oak Park.

Look, you can whine about the hypocrisy of white liberals all you want, but you'd be better off studying their methods.

Race quotas have been popular with the Establishment in hiring and college admissions, so why, since they worked out well in Oak Park, weren't they encouraged elsewhere in housing?

"Who? Whom?" of course. Race quotas to increase the numbers of Designated Victim Groups are good, race quotas to limit their numbers are bad, and that's all you need to know.

I can recall reading about Oak Park's "black-a-block" quota in a newsmagazine, probably Newsweek in 1988. As a young idealist, I was totally against racial discrimination. Yet, having taken my father and uncle to visit their boyhood home, driving through the endless desolation of un-quotaed Austin only to suddenly arrive in suburban paradise as imagined by F.L. Wright in Oak Park ... well, maybe there are worse things than racial quotas ...

October 13, 2012

Awardable Housing news: "Petition Calls for 'Shulamith Firestone Memorial Apartment' for Low-Income Feminists"

The New York Times reports:
Petition Calls For ‘Shulamith Firestone Memorial Apartment’ For Low-Income Feminists 
By MARY REINHOLZ 
Acquaintances of Shulamith Firestone want the rent-stabilized apartment where the author and activist died this summer to be preserved as a residence for a low-income feminist, according to a petition obtained by The Local.
The petition, which can be read below, outlines a plan to earmark her fifth-floor walk-up at 213 East 10th Street for tenants doing “important” feminist work, who cannot afford current market rates in the rapidly gentrifying East Village. The rent would be no more than $1,000 a month. 
Women’s liberation stalwarts like Kate Millett along with East Village literary agent Frances Goldin and Annette Averette, co-director of Sixth Street Community Center, are among those who have signed the petition directed at landlord Robert Perl, owner of Tower Brokerage. 
Written by Fran Luck, executive director of the WBAI radio program “Joy of Resistance: Multi-Cultural Feminist Radio,” it notes that owners and developers of housing in formerly working-class neighborhoods have for decades “set aside” affordable rentals. Ms. Firestone paid about $400 a month, according to Mr. Perl, who said he had been planning to increase the rent of the next tenant in order to offset rising taxes imposed by the Bloomberg administration. A one-bedroom in the building, between First and Second Avenues, was recently leased for $2,095, according to StreetEasy.

Ms. Firestone, who in the 1960s helped organize women’s liberation groups such as Redstockings, New York Radical Women and New York Radical Feminists, was found dead in her apartment in late August. She was 67 and had long been afflicted with mental illness in the years following the 1970 publication of her influential feminist treatise, “The Dialectic of Sex.” Her book embraced technology as a way of freeing women from “the tyranny of their biology.”
“I think she was a difficult tenant,” said Ms. Goldin. “She was a disturbed person and would leave the water on and flood other apartments. She didn’t mean to do this, but if we could persuade the landlord that we could guarantee him a reasonable tenant, maybe he could become a hero. It’s worth a shot.” 

For some reason, I'm reminded of Nick Lowe's 1978 song Marie Prevost
PETITION 
September 30, 2012 
Because…The Feminist world, the Art world and the Lower East Side/East Village Community have just lost one of our great visionaries–Shulamith Firestone–a woman who was able to remain, work and survive in her/our neighborhood for many years because she paid a relatively low rent…. 
Because…the average rent being charged new renters in our neighborhood is about $2,100., and had Shulamith tried to rent here today, it would have been impossible for her to find, live and work in an apartment she could afford…
Because… the Lower East Side/East Village environment is all the poorer for the loss, due to skyrocketing rents, of the kind of creative spirits that formerly gave the neighborhood its unique character–but who are now being priced out… 
Because… Shulamith’s sister feminists, friends and admirers would like to memorialize her by making it possible for a feminist(s) coming after her to be able to live in this neighborhood and do feminist work here–such work usually being either unpaid or poorly paid, and therefore requiring an affordable rent… 
Because.. it is well within “fair housing practices” developed over decades for developers/owners of housing in formerly working class neighborhoods to create “set-asides” of affordable rental units for those who cannot pay market rates… 
Therefore…We, the undersigned, do hereby Petition Robert Perl, owner of 213 East 10th Street, and do strongly urge him to work with us to create a “Shulamith Firestone Memorial Apartment” that would, in perpetuity, remain well below market rates and which rent would, at this time, not exceed $1,000. per month; this apartment would be reserved for a woman who is making an important contribution to the feminist movement that is not well remunerated. 
Candidates for residence in such an apartment would be vetted by a committee of feminists drawn from the list below and would meet the same standards as any other tenant–with the exception of paying a lower-than-market-rate rent. 
Signatures (so far)
Kate Millett, Feminist, Author: Sexual Politics
Frances Goldin, Co-Founder Cooper Square Committee, Literary Agent for Mumia Abu Jamal
Carol Giardina, Professor of Hisory, Queens College, CUNY, Author: Freedom for Women
Kathie Sarachild, Director, Redstockings Archives for Action
Ti-Grace Atkinson, radical feminist
Nellie Hester Bailey, Director, West Harlem Tenants Council
Annette Averette, Co-Director, Sixth Street Community Center
Howard Brandstein, Co-Director, Sixth Street Community Center
Rosalyn Baxandall, Distinguished Professor, SUNY-Old Westbury
Fran Luck, Executive Producer, Joy of Resistance Multicultural Feminist Radio @ WBAI
Erin Mahoney, National Women’s Liberation(NWL)
Allison Guttu, Organizer, NWL, Women of Color Caucus of NWL, Malcolm X Grassroots Movement
Amy Kesselman, Professor Emerita, SUNY-New Paltz
Roxanne Dunbar Ortiz, Professor Emeriti, California State University
Ann Snitow, Network of East-West Women
Marisa Figuereido, Redstockings
Jennifer Sunderland, Redstockings
Pete Dolack, Former Editor, New York State Green Party Newspaper
Bill Koehnlein, Brecht Forum
Marie-Claire Picher, Co-Founder,Theater of the Oppressed Laboratory
Nancy Kogel, MNN TV Producer, Reaching Out for Animal Rights (ROAR)

September 24, 2012

Charter Cities Setback: Who could have imagined?

The econosphere has been abuzz for several years with NYU professor Paul Romer's plan to bring the benefit of Good Institutions to Central America by building "charter cities" in the banana republic of Honduras. (Here's Romer's 2011 TED talk.) As economist Daron Acemoglu has explained, the only thing that differentiates a rich country from a poor country is that the former has Good Institutions. So, what the Third World needs is for American economists to plan for them private chartered cities with world class Good Institutions. It's a no-brainer.

Thus, Romer worked out a deal with the government of Honduras to turn state of the art development economics theorizing into reality by building three private cities in Honduras.

What could possibly go wrong? Who could object to such a high-minded, altruistic initiative? 

Well, there are always petty carpers everywhere. For example, a Honduran peasants rights lawyer named Antonio Trejo Cabrera disliked Romer's proposal. The Montreal Gazzette reported yesterday:
Trejo had also helped prepare motions declaring unconstitutional a proposal to build three privately run cities with their own police, laws and tax systems.

In Honduras, however, they have time-honored ways of cutting through red tape and nuisance lawsuits:
Antonio Trejo Cabrera, 41, was shot five times while attending a wedding in the capital, Tegucigalpa, the Peasant Movement of the Valley of Bajo Aguan said in a statement. 
Trejo was a lawyer from three peasant co-operatives in the Bajo Aguan, a fertile farming area plagued by violent conflicts between agrarian organizations and land owners. More than 60 people have been killed in such disputes over the past two years. The lawyer had recently helped farmers gain legal rights to several plantations.... 
Just hours before his murder, Trejo had participated in a televised debate in which he accused congressional leaders of using the private city projects to raise campaign funds.

Meanwhile, Professor Romer has announced (see Marginal Revolution) that he has been frozen out of his oversight role by the government of Honduras, so he's washing his hands of the whole deal.

An earlier American intellectual who had had big plans for Honduras, the filibuster William Walker, who wanted to add Central American countries to the United States as slave states, died by firing squad in Honduras in 1859. Professor Romer should be glad he's out of there without enduring the fate of Walker and Trejo. 

It almost seems as if land ownership in Central America is very serious stuff. (Remember the Death Squads of the 1980s?) Maybe it's hard for American theoreticians to figure out what's really going on in places like Honduras because the truth is only whispered about among locals for fear of ending up like the brave Attorney Trejo.

Perhaps political power does come out of the barrel of a gun.

This fiasco resembles a miniature version of how the Harvard econ department helped provide intellectual air cover for budding oligarchs stealing much of the assets of Russia in the 1990s. Isn't it about time for economists to do some soul-searching and collective self-criticism?

September 10, 2012

Kerwin Charles on the Housing Bubble

Kerwin Kofi Charles and others at the U. of Chicago have a paper out documenting that, yes, the Housing Bubble temporarily papered over the impact of hollowing out America's industrial base:
We study the extent to which the U.S. housing boom and subsequent housing bust during the 2000s masked (and then unmasked) the sharp, ongoing decline in the manufacturing sector. We exploit cross-city variation in manufacturing declines and housing booms and jointly estimate the effects of both shocks on local employment and wages. Between 2000 and 2007, we find that a one standard deviation negative manufacturing shock increases the non-employment rate of non-college men by 0.9 percentage points, and a one standard deviation positive housing price shock is enough to fully offset this effect. We find that roughly half of the offsetting comes from increased construction employment and that other demographic groups are affected by both shocks, as well, though to a lesser extent. We also find that positive housing price shocks significantly reduce college enrollment, with the largest effects concentrated among community colleges and junior colleges. Finally, we use our estimates to assess how aggregate employment would have evolved absent the housing boom/bust cycle, and we find that roughly 35 percent of the increase in nonemployment between 2007 and 2011 can be attributed to the decline in manufacturing employment during the 2000s. In particular, we find that much of the recent increase in non-employment would have occurred earlier had it not been for the large temporary boom in local housing prices.

Not much good news here.

July 12, 2012

Cue Dr. Evil: "175 Mmmmmmillion Dollars!"

For the longest time we've been hearing about how racism caused the subprime mortgage meltdown by causing financial companies to charge blacks and Hispanics more fees and interest. And that's why they couldn't pay back their loans: not because they didn't have enough money but because they were being charged too much for their loans. This is in contrast to the more realistic view [i.e., mine] that the main cause was imprudent financiers like Angelo Mozilo using the War on Redlining as an excuse to get out from under traditional regulations on mortgages, like requiring documentation of income.

But when the Obama Administration settles on these discrimination charges, it's always for a pittance compared to the hundreds of billions involved.

From the New York Times:
Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second largest residential fair-lending settlement in the department’s history.
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
Wells Fargo brokers also steered more than 4,000 minority borrowers into costlier subprime mortgages when white borrowers with similar credit risk profiles had received regular loans, a Justice Department complaint found. The deal covers the subprime bubble years of 2004 to 2009. ...
Thomas Perez, the assistant attorney general for the civil rights division, said the practices amounted to a “racial surtax,” adding: “All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less.”

I don't see any mention of the race of the mortgage brokers who were getting bad deals for minorities. The financial industry had, in cooperation with the government, made a huge effort to bring in more minority brokers and salesmen. This giant Minority Outreach wasn't just to please the politicians, of course. As with buying cars, where salesmen notoriously exploit the insecurities and lack of financial acumen of black and Latino customers, NAMs tend to be easy meat for mortgage brokers of their own race. The problem is that they are also less likely to pay off their loans.
... The Justice Department estimated that the minority borrowers who had been steered into costly subprime loans would receive an average of $15,000, while the victims who had been charged more costly fees would receive $1,000 to $3,500. In addition, the bank has agreed to give $50 million to a program that assists people in making down payments or improving their homes in eight metropolitan areas: Baltimore, Chicago, Cleveland, an area east of Los Angeles, New York, Oakland/San Francisco Bay Area, Philadelphia and Washington. 
Lending data showed, for example, that in 2007 customers in the Chicago area who borrowed $300,000 from Wells Fargo through an independent broker had paid an average of $2,937 more in broker fees if African-American, and $2,187 more if Hispanic, compared with white borrowers with a similar credit risk, the complaint said. 
Similarly, it said, the data showed that nationwide, an African-American borrower who had qualified for a regular loan was 2.9 times more likely to be steered into a subprime loan, and a Hispanic borrower was 1.8 times more likely, than were similarly creditworthy white borrowers. Subprime loans, which are intended for riskier borrowers, carry higher interest rates.

Of course, the article doesn't mention the default rates by race.
Wells Fargo was also facing lawsuits by several entities beyond the Justice Department, including the city of Baltimore, the state of Illinois and the Pennsylvania Human Rights Commission. It settled with all of them as part of the deal, putting to rest its fair-lending cases from the bubble years. 
The focus of the settlement is Wells Fargo’s failure to police the behavior of its independent loan brokers. The complaint said that the bank had set basic credit guidelines but then had allowed the brokers discretion to charge higher rates or steer people into less attractive loans without ensuring there was no discrimination based on race or national origin 
Wells Fargo and the Justice Department were unable to agree on whether the data had showed any evidence of discrimination in the lending practices of the bank’s in-house “retail” mortgage agents. Instead, they agreed to a methodology to evaluate that data further. If it finds evidence of discrimination, the victims would receive similar compensation on top of the $175 million Wells Fargo has already agreed to pay. 
Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, even without evidence of discriminatory intent.

Allow me to make a prediction. Financial firms will cut back on their Minority Outreach for awhile, until such point as the Good Times are rolling again, at which point politicians will demand it and we'll go through the whole cycle all over again.
... In December, the division settled a similar lawsuit with Bank of America for $335 million over loan discrimination by its Countrywide Financial unit. In May, SunTrust Mortgage agreed to pay $21 million in a similar case.

Countrywide was the biggest mortgage lender in the country, so that puts some perspective on the Discrimination Caused the Meltdown theory.