In the aftermath of the recent financial crisis, one of the biggest claims against financial industry participants was "predatory lending," which I understand to be making subprime mortgage loans to uncreditworthy individuals who then find themselves trapped in mortgage payments they can't afford. As recently as November 2013, JP Morgan agreed to a settlement of no less than $13 billion over alleged "predatory lending" practices. More or less all of the big banks have also settled claims based on allegations of such practices, although the JPM settlement is the biggest one I can find.
Now you would think that the financial meltdown and hundreds of billions of dollars of defaults on subprime mortgage loans would have taught everyone not to go there again. But instead, assorted housing advocates are out there right now pressing for another round of the same. Yesterday's New York Times contains a typical article entitled "Race Gap on Conventional Loans," bemoaning the fact that a recent study showed that black and Hispanic borrowers have been found less likely to qualify for so-called "conventional" mortgage loans than white borrowers.
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.
The Times then goes for comment to one of its usual suspects, Julia Gordon, "director of housing finance and policy at the Center for American Progress, a liberal research group." Here's her take:
“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.”
Good question how people seeking 3.5% downpayment loans come to be called "creditworthy people who should be able to get loans in the conventional market but can't."
Now of course 3.5% downpayment loans are going to come with various higher fees than 20%+ downpayment "conventional" loans. As soon as housing prices take even a small decline, these small-downpayment loans will immediately go into default in large numbers, and the cries of "predatory lending" based on the high fees will be right back.
The Times article also contains a few poorly-thought-out liberal ideas on how to "help" prospective minority homeowners acquire a downpayment (basically through some kind of government giveaway, natch). If I might make one suggestion, it is that failure of minorities to save might arise not from any bad financial habits on their part, but rather might have a lot to do with perverse incentives of the various government handout programs to which they are already subject. For example, Medicaid requires you to spend down your assets before you can qualify. Food stamps also have asset tests -- bizarre ones, where home equity in unlimited amount and retirement account in unlimited amount don't count, but a bank account does. So it goes without saying that people who have once been lured onto Medicaid and food stamps cannot save up money for a downpayment. It's not allowed! Congratulations, you have locked the so-called "beneficiaries" out of conventional loans. So I know the answer: Predatory lending!