Sub Prime Predatory loans?????

One of the stupidest points that gets pushed by the media is the concept of predatory mortgage lending. The story goes that institutions pushed sub prime mortgages on unsuspecting borrowers. Today, there is a study out that is taking this one step further: the predatory lenders pushed sub prime mortgages on unsuspecting minority borrowers. That's right, sub prime mortgages are now racism at work. As Reuters puts it: "African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study. As a result, from 1993 to 2000, the share of subprime mortgages going to households in minority neighborhoods rose from 2 to 18 percent."

This statement is utter nonsense. Let's analyze it. The alternative to getting a mortgage of any sort is not getting the mortgage. So the "predatory" lenders were giving loans to African Americans rather than denying their applications. And the figures cited mean that the so-called predatory lenders were giving loans more easily to African Americans than to similarly situated whites. That's right! the lenders were making loans to African Americans while denying loans whites with the same credit profiles.

This is far from anything that anyone could call predatory. The banks were giving thousands of dollars to blacks so that they could buy homes. Were the borrowers to fail to pay back the loans, it is the banks that would lose. That means that by making sub prime loans, the banks were risking their own money.

But what about Fannie and Freddie? These companies did step in to buy mortgages from the banks. They used their quasi-governmental status to purchase the loans and to push the banks to lend more to minority applicants. That's right, the government was pushing the banks to lend to minorities and then buying the loans to further encourage such lending.

So if the government acting through Fannie and Freddie was the main cause of the higher level of loans to minorities, why is it that the banks are now called predatory lenders? Well there's the rub. If blame is properly assigned to Fannie and Freddie for pushing minority sub prime lending, that let's the banks off the hook. It also means that those people like Barney Frank who pushed relentlessly for these loans and who blocked attempts by the bush Administration to rein in Fannie and Freddie are, therefore, to blame. That would mean blaming congressional liberal Democrats (and we all know that we cannot have that!)

The truth is that but for government meddling in the mortgage market, there would not have been any problem with housing. Banks that have to risk their own funds through loans with no way to lay off that risk onto the government would never lend to uncreditworthy borrowers. If the government had not pushed banks to be more liberal in lending, there would have been no problem. If the government had not set Fannie and Freddie on a course to buy all of the risky loans, there would have been no problem. If Barney Frank and others had not protected Fannie and Freddie from increase oversight by the Bush Administration, the problem would have been much smaller. In short, the meltdown of the mortgage markets resulted from government mistakes -- and those mistakes were essentially all made by liberal Democrats who pushed for results without ever understanding the effect of what they were seeking. (It sounds like Obamacare -- no?)

It is unfortunate that this subject is sufficiently complicated that silly "studies" can now come out and be portrayed as revealing racist predatory lending. Few in the country actually understand the truth. Hopefully, however, the Democrats in congress get it. To the extent that they get re-elected, we need to hope that they will not do more of this mischief.