Monday, November 05, 2007

Acting White: Sub Prime-Time For Blacks

When we take a hard look at who is bearing the brunt of the sub-prime lending melt-down, there are three relevant constituents; the investment houses, the consumers, and the rest of the world that gets whip-sawed when corrections happen.

Do I care about investors who take unreasonable chances with lenders in order to scoop up inordinate profits? Hell no! Let’m bake I say. Do I care about the rest of the world that gets slammed by some inevitable destabilizing flavor-of-the-month world event? Hell no (again), I believe in free markets and we all know that stuff happens. But what does matter to me is the people in the middle, disproportionately poor and/or black in ethnicity, who are loosing their homes. They are worth talking about.

Now it would be easy to say that the lenders are simply predatory racists and should be strung up. Did I say strung up? No, no, I meant drawn and quartered. But hold on a second. Greed is surely a motivator, but where does racism fit? Adjustable rate (ARM) and interest-only mortgages help more people qualify for home purchases and represent a relaxation of requirements, albeit balanced with mechanisms of higher risks. This would seem to be good for the poor as many more can buy homes, but goodness only arrives if the money is invested into real estate that performs, or at least holds it value. And herein lies part of the rub.

Black-owned real estate cannot escape certain historical behaviors of its owners, with the most influential being the propensity for blacks, in my experience, to carry a higher level of deferred maintenance on their properties, too often by choice. From my earliest recollections as a kid, and anecdotally to the present, I am amazed at the quality of automobiles that grace the streets and driveways of houses crying out for the attention of their black owners. The pristine neighbor’s 'Hog' of my youth is now replaced with a Mercedes-Benz, but the result is the same - fences remain broken, roofs crumbling, paint peeling, and lawns languishing. All the while, monies that could encourage appreciating properties are poured into rolling, depreciating 'status' assets, themselves destined for the ravages of the deferred maintenance ethos.

Now is the Mercedes-Benz dealer racist because he sells you a car that he only suspects will keep you from fixing your house, or paying the mortgage? Is the banker racist because he charges higher interest to off-set a higher default rate associated with these behaviors? No, these trade offs fall to the buyer and where they see themselves and their financial future. Unfortunately, many blacks are not looking out far enough to see the financial fallacy in their choices. These mortgages are opportunities to build a good credit ‘bridge’ from the past to cheaper credit, but borrowers are not using them this way.

I still believe that banks indirectly red-line neighborhoods by race. This is most easily accomplished by simply not being available to those consumers. I also believe that certain types of high-interest lending are indeed predatory and should be outlawed. And if the Fed is willing step in to help interest rates and the economy, they should also let their teeth find the back sides of some of these scum-bag lenders, ahead of the abuse. But every borrower must take it upon themselves to ‘give to get’ – that is, they must give up some style points to get some financial advancement.

Yep, that’s it, give to get, easy to say, harder to do, but worth the sacrifice.

James C. Collier

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2 comments:

Eddie G. Griffin said...

It is, however, racist to look at a person and prey upon them because they look black and stupid... not racist if they look green and stupid.

Julie Post said...

People think I'm nuts because I choose to spend my money fixing up my home, as opposed to getting the next shiny new car that rolls on to the market. They also think I'm nuts because I haven't moved to the suburbs. I took an honest look at myself (and my wallet) and with the times we're living in, I can't afford the risk of ruining my credit. I realize some people have no choice but to move (growing family, levels of crime, poor school system), but other times, It's better to work on improving the area where you live as opposed to leaving.