Minority Mortgage Housing Goals — What’s The Truth?

I was at a dinner event in Washington recently and the speaker told the assembled rich and powerful that President Clinton had weakened the lending system by increasing minority financing goals to more than 50 percent. The implication was that a big part of the current mortgage meltdown is a by-product of federal efforts expand minority lending, an implication which ought to be examined.

For decades the banking community refused to lend to minorities. There was redlining and there were gentleman’s agreements. Discrimination was so ingrained that it was literally written into the lending system.

Institutional Bias

For example, it wasn’t until 1977, according to The Washington Post, that basic appraisal textbooks were updated to say “it was once common practice to examine the racial, religious or ethnic composition of a neighborhood in an effort to detect any sign of nonconformity or change. Such an approach is now regarded as misdirected and the use of factors relating to the racial, religious or ethnic composition of a neighborhood in arriving at a conclusion of value is now deemed an unreliable practice.” (See: Appraisers Institute Settles Suit, Nov. 19, 1977)

In 1980, the appraisal industry finally agreed to a policy which said that “the value attributed to the property is not dependent upon the homogeneity of racial, religious or ethnic characteristics of the neighborhood…and the lack of such homogeneity in a neighborhood does not cause a diminution of value.” (See: Agreement Set In Rights Case Against Lenders, The Washington Post, Jan. 26, 1980)

Under the old rules merely by integrating, neighborhood home values would automatically go down — indeed, values were required to go down — not because of the worth of bricks and mortar but because of the people who lived in the community.

Given this background, efforts were made to reduce discrimination within the mortgage lending industry. One idea was to require Fannie Mae and Freddie Mac to buy more loans from lenders that had been made to minority borrowers, thus the development of goals.

Clinton Versus Bush

So what were the goals? The Federal Housing Finance Agency (FHFA), the government regulator now running Fannie Mae and Freddie Mac after they were seized in 2008, recently provided a chart that showed the goals for 2009 and back to 2004. But what about earlier goals? We asked FHFA to go back to the year 2000, the last year President Clinton was in office, and FHFA’s response is illuminating.

As you will see, the goal was substantially less than 50 percent under President Clinton (his last full year in office was 2000) and was raised significantly under President Bush — something our dinner speaker neglected to mention. Here are the figures from FHFA:

Minority Loan Purchase Goals

2000 — 42%

2001 — 50%

2002 — 50%

2003 — 50%

2004 — 50%

2005 — 52%

2006 — 53%

2007 — 55%

2008 — 56%

2009 — 51%

Goals Reduced Under Obama

In April 2009, FHFA announced that goals for 2009 would be reduced.

“FHFA has determined that in light of current market conditions, the 2009 housing goal and home purchase subgoal levels previously established in regulation are not feasible unless they are adjusted,” said agency director James B. Lockhart. “Restrictions on the availability of private mortgage insurance for borrowers with lower down payments, a surge in refinancing, particularly by higher income borrowers, the increasingly important role of FHA in the mortgage marketplace and a slowdown in the multifamily market, among other factors, mean fewer goals-qualifying loans in 2009.”

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