Why are minorities disproportionately affected by foreclosures? There's a lot of quasi-anecdotal evidence along these lines that indicates they're more likely to currently be in arrears on an unaffordable mortgage. After decades of worrying about redlining, why are we suddenly worried that too many minorities were buying expensive houses with expensive loans?
The New York Times suggests that the problem is the mortgage brokers; immigrants and African Americans don't trust banks for a variety of reasons. And they did trust mortgage brokers who were members of their communities, and steered them to expensive loans that earned fat commissions.
I don't say that this isn't the problem--I'm sure it's a least some part of it. But there's a problem with this sort of analysis. There are a number of different metrics that go into loan quality, and therefore what a buyer should pay for their loan:
- Expenses, especially outstanding debt
- Credit score
- Loan-to-value ratio
Most of the studies I've seen indicating that minorities are steered into pricier loans look at just one, or at most two, of these factors. But they all matter, particularly the size of the loan.
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