Friday, March 30, 2007

Off the deep end

The usually excellent and entertaining Tanta goes off the deep end in this post on Calculated Risk.In the NYTimes, Austan Goolsbee (one of my favorite professors at U Chicago) writes that innovations in the mortgage market have helped people who wanted to and could own houses, own houses, by making lending more efficient. Tanta disagrees. She thinks that mortgage lenders are a better judge of how able an individual is to carry a loan than the individual.

To support his argument, Austan refers to the dramatic increase in homeownership amongst Blacks and Latinos, thanks to subprime loans. Tanta thinks Austan is being "revolting disingenuousness" and "dishonest".
In other words, CRL is suggesting that a pattern of finding subprime loans given to minority borrowers with similar credit, income, and equity profiles to non-Latino whites who get prime loans may imply a certain “inefficiency” in the mortgage market somewhere. For Goolsbee to use this data to buttress an unregulated free-for-all by claiming that it helps out the traditionally disadvantaged is, well, dishonest.
Tanta does not know what she is talking about. Just because the CRL finds a pattern of Latinos and Blacks getting subprime loans when, by credit, income and equity profiles alone, this does *not* means that lendors are being racially discriminatory. To find evidence of racial discrimination, you would have to show that a portfolio of subprime loans given to a Black or Latino was *more profitable* than a portfolio of loans given to a white person. Racial discrimination is like yogurt, you buy it where it's cheapest, and given how Tanta's been going on and on about how the subprime market is collapsing, how subprime lenders are losing their shirt, etc. etc. etc. I doubt she thinks that subprime portfolios have higher profits because they only made loans to the highest quality subprime borrowers.

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