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Saturday 28 February 2004

Foreclosures: Blacks, Latinos Worst Hit

The Washington Post has a story today on what appears to be a rising number of foreclosures on residences because people are not making their mortgage payments.

To walk Thayer Street in northeast Philadelphia is to count, door by door, the economic devastation afflicting a working-class neighborhood. On a single block, 18 of the 42 brick rowhouses have gone into foreclosure in the past three years.

But wait, there’s more:

Allegheny County, which includes Pittsburgh, had record auctions of foreclosed homes and officials speak of a “Depression-era” problem. The foreclosures fall particularly hard on black and Latino families.

‘The foreclosures fall particularly hard on black and Latino families’. This is obvious nonsense. It’s no easier for a ‘white’ person to be foreclosed on and evicted from their home than for a black or Latino person. I think what the Post writer means to say is that black and Latino families default on their mortgages at higher rates than white families — which has quite a different ring to it.

Officials at Fannie Mae, the federally chartered mortgage giant designed to expand homeownership, suggest that the solution lies with more counseling and fine-tuning of mortgages for lower-income families. But the Pennsylvania Banking Department is skeptical. It commissioned a study of 14 counties — urban, suburban and rural — and found that foreclosures had spiked in each county in the past four years.

“We’ve had a national agenda that’s putting people into homeownership who are not ready for it,” said A. William Schenck III, Pennsylvania’s secretary of banking and a former bank president. “This is a fact that the nation must deal with unless we want to wreck the credit of a lot of middle-class Americans.”

Please give a cigar each to Pennsylvania’s secretary of banking and a former bank president, whoever the latter might be (does the Post even employ copy editors any more?) However, please make sure that it is a cheap cigar, as he characterizes as ‘middle-class’ these people who are one problem away from defaulting on their mortgage.

What’s going on is Fannie Mae, which is effectively if not officially subsidized by the government (which means that the cost of this subsidy appears on no balance sheet, anywhere) can raise capital more cheaply than would be possible in a totally free market. Fannie Mae then has an interest in lending this money out: since pretty much everyone who wants to and who can afford to buy a house already has one, Fannie Mae is going after the vast market of people who can’t really afford to buy a house by such ridiculous things as declaring all of Fairfax County, Virginia ‘transit-friendly’ and thus justifying a loosening of income requirements for borrowers.

But back to the story at hand.

At first glance, the high foreclosure rates in Pennsylvania seem paradoxical. The average Pennsylvania homeowner has one of the highest credit scores in the nation, saves more than the average American, and is less likely to be unemployed or divorced.

I don’t know why this should be paradoxical. In all states, a ‘homeowner’, i.e. someone who has managed to convince a bank to lend him scores or hundreds of thousands of dollars, is less likely to be unemployed than the average. Think about it for about, oh, two seconds: even in Dick Cheney’s America, banks don’t lend money to the unemployed.

But the Reinvestment Fund, a Philadelphia-based think tank, analyzed 22,979 foreclosures for the state Banking Department and found a more problematic profile. Those homeowners, most of whom are blacks, Latinos or working-class whites, live close to the economic margin.

Just what the hell does this mean? Most foreclosed homeowners are ‘blacks, Latinos or working-class whites’ who live ‘close to the economic margin’. By definition, anyone who cannot make their mortgage payments lives ‘close to the economic margin’. The farthest reach of that ‘margin’ is the point at which you cannot make your mortgage payments.

But let’s examine the other characteristics of the foreclosees: to begin with, they tend to be ‘black’, ‘Latino’, or ‘white’. On the 2000 census, 75.1% of Americans described themselves as ‘White’, and 12.3% as ‘Black or African-American’. 12.5% described themselves as ‘Latino or Hispanic’. This adds up to 99.9%, but of course you can be ‘Latino’ and ‘Black or ‘White’ at the same time. No matter how you look at the numbers, though, at the very least, over 90% of Americans are ‘black’, ‘white’, or ‘Latino’. Most anything in the United States is done mainly by or to people who are ‘black’, ‘white’, or ‘Latino. Most chefs in sushi restaurants are probably ‘Asian’, and most cheap computer stores seem to be run by a different kind of ‘Asian’ (half the world’s population, only one term!). The vast majority of al police officers, politicians, bankers, television personalities, garbagemen, criminals, school teachers, and prison inmates, though, are ‘black’, ‘white’, or ‘Latino’. So this is another totally meaningless factoid.

But you will notice that the Post actually refers to ‘blacks’, ‘Latinos’, and ‘working-class whites’. This, my friends, is the quiet, pervasive racism of the Left. Somehow I doubt that black or Latino millionaires were foreclosed on at higher rates than white millionaires: so why doesn’t the Post say ‘working-class [i.e. poor] blacks, Latinos, and whites’? Because the Post just assumes that all blacks and Latinos are poor, uneducated fuckups. Evidence seems to suggest that blacks and Latinos are poor at a greater rate than whites, but it seems strange that a well-respected newspaper like the Washington Post would just make this kind of assumption. Tsk, tsk.

So, anyway, we know that most of the people being foreclosed on are not Asian, and that they tend to be poor or to live ‘on the economic margin’. Still no actual information.

Fannie Mae, the home loan giant, has devised several programs to help distressed homeowners. It also has started its “American Dream Commitment,” which aims to drive the percentage of homeowners still higher. Spokesman Alfred King acknowledges that many lower-income homeowners are experiencing trouble but says his company has no plans to temper its homeownership push.

“Sure, some people are being done a disservice when they get mortgages when they are not ready for it,” he said. “But the desire for ownership is there. And there’s compelling evidence that there’s probably a mortgage product that works for them.”

‘The desire for ownership’, ladies and gentlemen, ‘is there’. And people in hell want ice water. It’s all very well and good to talk about ‘driving’ or ‘pushing’ ‘homeownership’, but what they’re really talking about here is driving people into debt. Debt is something you can’t afford when you’re ‘living on the economic margin’: not only are you at serious risk of default should something in your life go even a little bit wrong, but you’re not very flexible. When you’re ‘on the margin’, you might well need to move somewhere else to find work: this isn’t easy when you’ve got mortgage payments to make on a house in no-job city.

And yet people still don’t see it. This article in the Post is about how poor people get screwed when they go into debt to buy a house, but the writer and most of the people he quotes still drink the Kool-Aid about home-ownership being the path to wealth.

Philadelphia Sheriff John D. Green has a front-row seat as these dramas play out. In mid-June, he will auction another thousand or so foreclosed homes. “My staff and I watch the suffering every day,” he wrote recently in a letter to residents posted on his Web site. He said they “witness the heart-wrenching scenes as families lose their primary means of wealth building and face eviction.”

Wealth building? These people are being thrown out into the street, and hit with thousands of dollars in foreclosure costs besides. These houses are not means of wealth-building for these people, Q.E.D.

Repeat after me: You don’t get rich by going into debt. You don’t get rich by going into debt. Jesus H. Christ on a pogo stick, you don’t get rich by going into debt. Could Philadelphia Sheriff John D. Green please explain to me how, exactly, one is supposed to make money by paying interest on a loan secured by a house in the ghetto? I always thought that you made money by having other people pay you interest. This might be why I’m not the sheriff of Philadelphia.

For some people, buying a house and taking advantage of the mortgage-interest income-tax deduction is a better plan than paying rent — particularly if the house you buy is in a place with increasing demand and hence appreciating prices. For people with low incomes, and for houses in areas with relatively flat or declining demand, this is a sucker bet.

Housing is an expense. If you can discount your mortgage interest by reducing your income-tax burden, and if you buy somewhere where prices are rising rapidly, you can often ‘buy’ a house and effectively live in it for free, when you figure in the money you get when you later sell it — which is not to be sniffed at. But to suggest that going into debt to buy a $100,000 house is a wealth-generation sceheme, you have to be insane. Let’s assume a mythical no-money-down loan at 5.75%. This results in a house payment of $583, which seems reasonable for the down-at-heel set: it’s certainly lower than you’d pay in rent for similar accommodations.

After ten years, you have paid over $70,000 in mortgage payments, but your principal balance on such a loan would still be over $83,000. To simply not lose any money on this deal, your house will have had to appreciate 53% in ten years. This isn’t impossible, but it’s unlikely in poor neighborhoods (which are the only places where you’d find $100,000 houses these days anyway): and at the moment the country is enjoying near-record-low mortgage interest rates and near-record-high housing appreciation rates. In a less superheated market, it would be impossible.

So why, again, are these loan-hucksters allowed to get away with suggesting that what poor people need to do is go into debt? Lenders like credit card companies and those terrible paycheck-advance places are called ‘predatory’; Fannie Mae is ‘progressive’ for doing the same thing but on a much larger scale.

Posted by tino at 19:12 28.02.04
Wednesday 18 February 2004

The View From Here

This is what I’ve been doing instead of writing things here. Drag your mouse around inside the image:

(You need a recent-ish version of Quicktime for this to work.)

Posted by tino at 16:43 18.02.04
Sunday 01 February 2004


The front yard, as seen this morning.

The Front Yard

Posted by tino at 22:32 1.02.04