Foreclosure Disparities
(May 10, 2013; rev. Dec. 22, 2013)
In recent years, in consequence of the foreclosures, increasing attention has been given to racial differences in foreclosure rates. These are the same sorts of disparities that in the 1990 led observers (incorrectly, as discussed in item 4 of the main Lending Disparities page) to regard higher default rates among minorities than whites as the evidence of the absence of credit discrimination. Like other studies of credit discrimination issues, such studies are suspect at least for failing to adjust for credit-related characteristics. For example, the study in the note, [i] which purports to find disparities even after adjustment for income, simply divided borrowers into four income groups. As discussed on the Underadjustment Issues sub-page, no one can reasonably maintain that, even solely as to income, minorities and white within the categories are comparable. That study also gave much attention to the large racial disparities among higher-income groups, but without recognition of the statistical forces leading toward large relative difference in adverse outcomes (though small relative differences in favorable outcomes) where adverse outcomes are less common. See Disparities – High Income subpage of the Lending Disparities page.
A central point of this and other studies is that minorities have been especially impacted by the foreclosure crisis and policies should be implemented to reduce foreclosure rates. I have not seen data on disparities in foreclosures prior to the foreclosures crisis (though there may be such data cited by the commentators referenced in item 4 of the Lending Disparities page). But for reasons discussed on the main Lending Disparities page and many other pages of this site, there is reason to believe that relative differences in foreclosures rates would be smaller (though relative differences in avoiding foreclosures to be larger) following the crisis than they were previously. Similarly, general efforts to reduce foreclosures, if successful, will tend to increase relative differences in foreclosure rates while reducing relative differences in rates of avoiding foreclosure. See discussion in Item 7 of the main Lending Disparities page of the fact that the more effective the Home Affordable Mortgage Program is in reducing foreclosures, the greater will tend to be the relative difference in foreclosure rates.
An April 24, 2013 commentary in the Denver Post styled “Lending Reforms in Colorado Will Bring Justice to Foreclosure Disparities” reflects the view that Colorado Housing Stabilization and Mortgage Accountability Act (HB13-1249), which apparently is intended to guarantee due process in any foreclosure actions in the state, will particularly benefit minority borrowers. While such legislation should reduce relative differences in rates of avoiding foreclosure, it will increase relative differences in foreclosure rates. This will likely hold even if the measures reduce discrimination in foreclosures. See my “Mired in Numbers,” Legal Times Oct. 12, 1996.
A study title “Widening the Gap: How the Housing Crisis Deepened Racial Disparities in St. Paul and How to Fix it,” views a foreclosure mediation program as a means of addressing racial disparities. Again, while reducing relative differences in rates of avoiding foreclosure, such a program will tend to increase relative differences in foreclosures.
The “Widening the Gap” study also presents certain types of information in a way that, as with the discussion of the so-called feminization of poverty, suggest that high concentrations of adverse outcomes in disadvantaged groups as reflecting a worse situation than low concentrations. See discussion on the Feminization of Poverty page concerning the failure to recognize that the less poverty there is the more it will be concentrated in groups particularly prone to poverty. The study, for example, presents data on the disproportionate concentration of vacant buildings in low and moderate income neighborhoods. But the fewer vacant buildings there are, including in low and moderate income neighborhoods, the greater will tend to be the concentration of such buildings in such neighborhoods. If the economy generally improves, one should expect to see a greater concentration in low and moderate income neighborhoods; if the economy worsens, one should expect to see a decreased concentration in such neighborhoods.