Alternative Causes For High NYC Minority Mortgage Foreclosure Rates

A New York Times' recent article claims that the mortgage default and foreclosure rates are higher for minorities than for non-minorities. Alternative causes for higher minority mortgage defaults exist and data needs adjustment to make NY Times article's claim of higher mortgage default and foreclosure rates statistically valid.

Minorities' percentages of home ownership were increasing so have greater percentage of minority homeowners with mortgages and with higher remaining principal balances as percentage of home value and in dollars than in non-minority group.

Unemployment, loss of income, and uninsured medical expenses are also primary causes of mortgage defaults. Minorities have higher unemployment rates during this recession and are more likely not to have health insurance. Also, maybe more likely to work in jobs where hours are cut backed in recession and their weekly wages have declined.

Need to compare minorities against similar group. Need to adjust non-minority default rate for lower unemployment, lower mortgage balances and lower unexpected medical expense costs.

When two groups are balanced, default rate will most likely be the same, which is why just about every time Fed researchers look at problem they do not find a minority, mortgage discrimination problem.

Higher mortgage foreclosures are not as much due to a subprime problem as it is due to other social and economic factors.

Additionally, credit scores are not a very good way to judge what a loan's interest rate and default rate should be across demographic groups. Credit scores have more validity for assessing risk of default within demographic groups.

An August 2007, a Federal Reserve study, "Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit" received a lot of press.

The report found, "Consistently, across all three credit scores and all five performance measures, blacks, single individuals, individuals residing in lower-income or predominantly minority census tracts show consistently higher incidences of bad performance than would be predicted by the credit scores. Similarly, Asians, married individuals, foreign-born (particularly, recent immigrants), and those residing in higher income census tracts consistently perform better than predicted by their credit scores." (p. 89).

PDF version of Federal Reserve report

HTML version of Federal Reserve report