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Who would have guessed?

Another non-news headline from the New York Times.

In the days when banks were able to assess loan applications on merit there was little difference between various ethnic groups in the level of loan defaults. If people were unlikely to repay a loan, they didn’t get the loan.

But this meant some minority groups were ‘under-represented’ in their ability to access housing finance.

Then along came Clinton’s 1993 ‘Fair Housing Act.’

In essence, starting with Jimmy Carter, successive Democrat administrations offered incentives to lenders to give home loans to people in minority groups who would not have qualified under normal lending criteria (or penalties to lenders who did not). This is the ’sub-prime’ mortgage market, which consisted of giving loans to people who could not afford to repay them.

If you assume (as seems likely) a complete lack of understanding of basic economics in those who formulated this policy, you can allow that it may have been well-intentioned. In fact it should have been obvious to anyone with half a brain that it would leave those to whom the loans were given worse off in the long run, because they were likely not only to lose their homes, but any money they put into them, and their credit rating.

The end result is: the storm has fallen with a special ferocity on black and Latino homeowners, the analysis shows. Defaults occur three times as often in mostly minority census tracts as in mostly white ones. Eighty-five percent of the worst-hit neighborhoods — where the default rate is at least double the regional average — have a majority of black and Latino homeowners.

The New York Times article suggests that the problems and foreclosures are the fault of the banks. But note that key phrase: where the default rate is at least double the regional average.

The NYT goes on to say:

This holds a special poignancy. Just four or five years ago, black homeownership was rising sharply, after decades in which discriminatory lending and zoning practices discouraged many blacks from buying. Now, as damage ripples outward, black families in foreclosure lose savings and credit, neighbors see the value of their homes decline, and renters are evicted. ..

“There’s a huge worry that this will exacerbate historic disparities between the wealth of black and white families,” said Ingrid Ellen, co-director of the Furman Center for Real Estate and Urban Policy at New York University.

Well, duh, yes. And the answer is, don’t force banks to give loans to people who can’t afford them.

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