Los Angeles Times Pumps Up Yet Another Meaningless Story About Racial Disparities
The L.A. Times reports:
A racial disparity in mortgage lending rates appears to be sharper in Los Angeles and other California metropolitan areas than the rest of the country, according to an analysis of federal data to be released today.
The study by the Assn. of Community Organizations for Reform Now, an advocacy group for the poor, looked at the percentage of higher-cost loans issued in minority communities compared with nonminority neighborhoods in the same metropolitan area.
My immediate reaction upon reading that was: of course. Assuming that there is a racial disparity in lending rates to begin with — a situation that is likely to result from non-racial factors — that disparity will naturally be magnified in an area where housing prices are higher, because higher-cost loans will be used much more commonly. So I was hardly shocked to see this:
California’s high housing costs are probably one reason behind the findings, said Raphael W. Bostic, a former economist for the Federal Reserve now at USC, who was not involved in the study.
Gee, ya think?
One paragraph temporarily seems to suggest that discrimination could be a factor:
The Federal Reserve, in its own study of the disclosure act data released this month, determined that African Americans and Hispanics were far more likely to get sub-prime loans than whites and said the gap could not be fully explained by factors such as income.
Until you learn this:
The federal loan data do not include information about borrowers’ creditworthiness and other basic factors that would provide a more complete picture of the lending process, Hobbs [Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn] said.
In other words, there are no controls. This so-called study does a comparison with no controls. How in the world the Federal Reserve was able to determine that “the gap could not be fully explained by factors such as income” when they didn’t have access to basic control data like creditworthiness, I have no idea. And the intrepid reporter who wrote the story apparently didn’t ask, probably not wanting to gum up a story that he knew would be on the front page of its section.
I just have one question: does anybody ever do a study of alleged racial disparities, with respect to any topic, who knows how to do a proper study with proper controls?
Because it sure doesn’t seem that way. Race disparity researchers seem to be uniquely ignorant of the need for controls, if the widely reported racial gaps in areas like criminal justice and lending practices are any indication. It’s as if these researchers all go to schools where the statistics classes completely omit any discussion of the concept of controlling for relevant factors.
We see this all the time, of course.
I am used to seeing studies splashed all over the front pages of the newspaper discussing alleged racial disparities in areas like credit and criminal justice.
In the credit area, we are constantly treated to stories that say, for example, that banks turn down loans for blacks that they would approve for whites. In other words, banks are accused of being more selective with blacks than they are with whites. If this were true, blacks would have a lower default rate, since only those who clearly and indisputably qualify for the loans are getting them. In fact, the default rate among blacks is consistently slightly higher than that of whites. This indicates that the banks are, if anything, taking a chance with blacks slightly more often than they should according to the cold numbers. But you never see that little fact reported.
In areas like treatment by the criminal justice system, these “studies” almost universally fail to control for the one of the most important factors in a person’s treatment by the system: his criminal record. Prosecutors routinely give better deals to those who have no criminal record than they do to those with long rap sheets. I am confident that society wants it that way. Yet you see studies all the time — generally by liberal interest groups, though their affiliation is not always disclosed — detailing alleged gaps in the way that the system treats blacks and whites. These “studies” almost never control for the defendants’ criminal records.
But they’re generally splashed on the front page of the section, just as today’s story is on the front page of the Business section. You’ll never find a story highlighting alleged prejudice against blacks buried inside the paper. That would be foregoing an opportunity to inflame the black community. And we can’t have that.
Controls are the white man keeping other cultures down.
Shame on you for your racial-cultural colonialism, patterico.
Angry Clam (fa7fff) — 9/29/2005 @ 7:46 amWhat all of these credit studies don’t tell you is that the human factor, i.e., the loan officer, is an anachronism. They basically do not exist anymore. Almost all loan decisiions are made by the applicant themselves. The credit scoring systems in place now in conjunction with the credit report, decides which applicant receives credit and at what rate.
It is very difficult today to racially discriminate unless that person is sitting across from you at application time. I’m sure that the area of residence enters into the equation somewhere, but that would be more like “red lining” than racial discrimination.
rls (0516f0) — 9/29/2005 @ 10:20 amOdd. I seem to recall that ACORN was doing more than “advocacy for the poor” last year. Voter fraud comes to mind.
Robert Crawford (9eef80) — 9/29/2005 @ 11:28 amWhat you are leaving out here is that refinancing is the issue – in the form of predatory lending:
ACORN, however, said its study raised concerns that minority group members might be paying unfairly high interest rates and thousands of dollars in extra upfront costs by being pushed into refinancing their homes in the sub-prime market. Refinance loans make up a dominant share of the market for high-cost loans — 75% in Los Angeles, according to ACORN.
So the original loan, according to ACORN, is usually fine. Then some heartless lending company comes along and takes advantage of people’s ignorance. (Capitalism at its finest.)
This USA Today article talks about it too: http://www.usatoday.com/money/perfi/housing/2004-12-07-subprime-day2-side_x.htm.
Also, controls are not always necessary. What is the question that the study is trying to answer? If the question is simply “Do minorities have to pay more for their loans,” then no control for criminal records, poverty, etc. is needed. In fact, in that case the controls would skew the results.
Tillman (1cf529) — 9/29/2005 @ 5:20 pmI thought Tillman was a parody. I read it again. He/she is serious.
Incredible.
moneyrunner (a7f92b) — 9/29/2005 @ 5:30 pmComplements will get you nowhere moneyrunner.
Tillman (1cf529) — 9/29/2005 @ 5:35 pmThis is nothing new. I recall reading a HUGE series in the Atlanta Journal-Constitution in the early 1990’s (one that had Pulitzer-bait written all over it), claiming to prove that blacks got longer prison sentences than whites for the same crimes. In something like the 44th graf, there was a sentence that said something to the effect that, “The study did not control for prior convictions.” All those trees, dead for nothing.
piper1 (ef0643) — 9/29/2005 @ 7:59 pmYour hometown paper, the Fort Worth Star-Telegram, had a similar story that took up an awful lot of space on Sunday a couple of weeks ago.
Almost the exact same sentence appeared in the Startlegram’s article, with about as much elaboration as appeared in the Dog Trainer.
Having spent 11 years as a bank examiner for the Dallas Fed, my reaction was just about the same as yours.
Diffus (24b9a2) — 9/29/2005 @ 8:02 pmTillman and other left wingnuts,
Listen up. The only equality there is in this life is equality under God and before the law where the law is not a respector of persons.
Laws that give preferences for one subgroup over another, charge higher rates on one subgroup because it is more successful than others, laws that price people out of the market, and laws that basically have envy or jealousy at their core are immoral.
Charles D. Quarles (5d11c1) — 10/1/2005 @ 2:15 amThe second thing that always gets me about this type of story is never brought up. Let’s say for the sake of argument that the implication of the report is true, that there is some discrimination in lending. They are talking about an underserved market, or what a businessperson would call an “opportunity”.
In my own small business (nothing to do with banking), I am constantly looking for markets that the big boys don’t satisfy well, especially those where they “overcharge” for the value of what they provide. If I figure I can serve that market for less and still make decent money, I hop in. While in my case the differences between markets are not about race or class, the business dynamics are the same. In a competitive capitalist economy, opportunistic players like me are the response to market disparities (which can exist).
I have been waiting for years to hear about the new bank opened with great splash to provide lower-cost loans to inner-city residents. I’m not holding my breath.
Curt (9eaae2) — 10/1/2005 @ 10:08 amI think that the reason for the disparity is because minorities are financially unsophisticated and consequently make poor choices when selecting financial services products. Taking out an equity line is not something a consumer should do on an impulse, Just because you get an offer from a dubious, bottom-fishing mortgage company doesn’t mean you have to take it. My credit score is excellent, yet I still get dozens of those offers every month, which end up in the trash can where they belong. I have a second mortgage at a very good rate because I shopped around before I got it.
ACORN wants to protect minority consumers from making bad financial choices by going after the subprime lenders. In doing so, they could dry up the market and reduce or eliminate credit to the group they are trying to help. ACORN would do better to partner with the financial services industry to promote education in minority communities about how to make smart choices. But that would take work. It’s much easier to point fingers, and if minorities were educated to make sound financial decisions themselves, they wouldn’t need ACORN to “protect” them.
Patrick (ebd576) — 10/1/2005 @ 11:59 am