Racial Discrimination In Mortgage Lending

I'm reading this new book by economist Thomas Sowell — The Housing Boom and Bust.

For more than a decade, US newspapers have editorialized that banks are more conservative than they should be about lending money to blacks. The current foreclosure debacle suggests otherwise.

A 1991 Federal Reserve study found that blacks and whites with the same income had different mortgage loan acceptance rates. Is this racism? It's not clear. Income is only one factor in determining whether someone is a good bet to repay a mortgage loan. Blacks and whites with the same income tend to have very different levels of wealth.

The same Federal Reserve study found that whites were denied conventional home loans more often than Asians and resorted to subprime loans more. This fact did not make it to most news reports.

As Tom Sowell writes: "What such omitted facts might imply was that financial and behavioral differences among groups can lead to differences in mortgage loan approval rates… Credit history is another of the factors influencing mortgage loan approval, and credit ratings differ among groups. Just as whites average higher credit scores than blacks or Hispanics, so Asian Americans average higher credit scores than whites."

The same methods that would lead some to conclude that blacks are discriminated against in mortgage lending would force one to conclude that whites are discriminated against in favor of Asians.

Who really believes that banks are discriminating against whites?

Lenders have no stomach for bruising legal fights over discrimination. They could win and still be out millions of dollars. Banks are particularly vulnerable to government regulatory agencies because they have to get permission to do things that other businesses are free to do without government permission.

Land-use regulations that cause skyrocketing prices tend to hurt minorities. In San Francisco, for example, the black population has been cut in half since 1970. Between 1990 and 2000, black populations in four counties — Los Angeles, San Mateo, Alameda and San Francisco — declined by more than 10,000 each.

Few people would get excited about land use restrictions if they were not verbally packaged as "open space" laws "protecting the environment," or policies "preserving farmland" for future generations, preventing "urban sprawl" or "preserving" places that are "historic."

Why a particular status quo should be protected is seldom investigated.

We have scarce resources. Why should the government direct their allocation? Why should these issues be settled by rhetorical and political skills when the contending parties can put their money where their mouths are, and bid for the resource?

Salinas, California, has the most unaffordable housing in the nation — housing costs take up 60% of average income. The amount of land off-limits to building in Monterey County, where Salinas is located, is three times as much as all the land owned by county inhabitants. "Vast amounts of land for which the local inhabitants have paid nothing is nevertheless controlled by them politically for their own benefit, to provide a buffer zone between themselves and less affluent people." (pg. 112)

"The idea of freezing land use patterns in upscale communities, where people want to keep things the way they are, means denying other people the same rights as the existing inhabitants had when they decided where they wanted to live."

The free market is voluntary while social programs proceed from government fiat.

A study of land-use restrictions in the name of "smart growth" had added costs of more than $100,000 per home in 50 cities.

"Crusades for land use restrictions, whether in the name of "open space," "smart growth" or other rationales, are never cast in terms of how many hundreds of thousands of dollars this will add to the price of an average home."