Mortgage & Loan: Race, Class, and Lending

The mainstream coverage of the subprime lending sector's collapse has unearthed some interesting, and not unexpected angles--chief of which is the notion that tightening lending standards and reducing access to available credit will put the dream of homeownership out of the reach of middle-class, low-to-middle-income (chiefly Black and Hispanic) families.

But it was that very same "easy access to credit" that's ended up suckering thousands of new home buyers into taking on toxic mortgages. Take this article on increasing foreclosures from the Christian Science Monitor:

Investors profited from the high interest rates that consumers were paying. "Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier," says Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C. "They didn't care that ... people were getting loans they couldn't afford because there was so much money to be made."...And the market is already correcting itself, says Kurt Pfotenhauer, the MBA's senior vice president for government affairs. Investors are now requiring stricter standards and mortgage companies are weeding out overly aggressive brokers. "Government regulation of this market will result in fewer people having access to credit," he says. "If you care about people having access to credit you shouldn't regulate the market."

Now that the sector is no longer profitable, these people are being cut off. The spigot is closed and the very system that encouraged people to push their finances well beyond the breaking point is now punishing them for having the audacity to live beyond their means. The Washington Post's coverage has a similar tack:

But lenders warned that the new requirements would make buying a home more difficult for low-income, minority and first-time buyers. Subprime mortgages made up about one-fifth of all new mortgages last year, according to the Mortgage Bankers Association. "These are extremely valuable products to some consumers," said Steve O'Connor, senior vice president of public policy for that association.

Only in America is the notion of putting yourself in debt with a home you can't afford considered a valuable service. Luckily, the Los Angeles Times takes a different view, putting forth the notion that the subprime collapse and the housing slump will be a boon to Cali's middle class:

But high-end buyers and elite workers alone cannot sustain large-scale economies. Most companies require a broad range of workers, from highly skilled tradespeople to technicians and middle managers. These are the workers, especially if they live elsewhere or don't own a home here, whom executives frequently complain are difficult to recruit or retain in Southern California...This helps explain why between 10 to 14 condo developments downtown — and similar projects in other cities — have been mothballed or downsized. Yet here too, the bad news may prove to be good news. Lower condo prices might renew the attraction of the inner city for those — singles, young childless couples and artists — who started the back-to-downtown movement.

Dropping prices and encouraging "workforce housing" will bring people back to the cities and inner suburbs, buying more homes and putting more dollars in the community. Proper education of the risks of credit, and a focus on traditional fixed-loan products, as well as greater encouragement of savings and investing, will help keep the dream of home ownership in the hands of all Americans, and not just a product of entitlement for the idle rich.

Posted at March 4, 2007 02:04 PM

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The mainstream coverage of the subprime lending sector's collapse has unearthed some interesting, and not unexpected angles--chief of which is the notion that tightening lending standards and reducing access to available credit will put the dream of homeownership out of the reach of middle-class, low-to-middle-income (chiefly Black and Hispanic) families. But it was that very same "easy access to credit" that's ended up suckering thousands of new home buyers into taking on toxic mortgages. Take this article on increasing foreclosures from the Christian Science Monitor: Investors profited from the high interest rates that consumers were paying. "Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier," says Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C. "They didn't care that ... people were getting loans they couldn't afford because there was so much money to be made."...And the market is already correcting itself, says Kurt Pfotenhauer, the MBA's senior vice president for government affairs. Investors are now requiring stricter standards and mortgage companies are weeding out overly aggressive brokers. "Government regulation of this market will result in fewer people having access to credit," he says. "If you care about people having access to credit you shouldn't regulate the market." Now that the sector is no longer profitable, these people are being cut off. The spigot is closed and the very system that encouraged people to push their finances well beyond the breaking point is now punishing them for having the audacity to live beyond their means. The Washington Post's coverage has a similar tack: But lenders warned that the new requirements would make buying a home more difficult for low-income, minority and first-time buyers. Subprime mortgages made up about one-fifth of all new mortgages last year, according to the Mortgage Bankers Association. "These are extremely valuable products to some consumers," said Steve O'Connor, senior vice president of public policy for that association. Only in America is the notion of putting yourself in debt with a home you can't afford considered a valuable service. Luckily, the Los Angeles Times takes a different view, putting forth the notion that the subprime collapse and the housing slump will be a boon to Cali's middle class: But high-end buyers and elite workers alone cannot sustain large-scale economies. Most companies require a broad range of workers, from highly skilled tradespeople to technicians and middle managers. These are the workers, especially if they live elsewhere or don't own a home here, whom executives frequently complain are difficult to recruit or retain in Southern California...This helps explain why between 10 to 14 condo developments downtown — and similar projects in other cities — have been mothballed or downsized. Yet here too, the bad news may prove to be good news. Lower condo prices might renew the attraction of the inner city for those — singles, young childless couples and artists — who started the back-to-downtown movement. Dropping prices and encouraging "workforce housing" will bring people back to the cities and inner suburbs, buying more homes and putting more dollars in the community. Proper education of the risks of credit, and a focus on traditional fixed-loan products, as well as greater encouragement of savings and investing, will help keep the dream of home ownership in the hands of all Americans, and not just a product of entitlement for the idle rich.