“The Chicago Reporter’s detailed analysis of this data raises huge questions about the fairness of lending practices in the Chicago region. Over the coming months, my office will continue to take a hard look at this data and investigate whether the number of high-cost loans, which generally equate to subprime loans, is attributable to questionable lending practices and whether these practices violate any Illinois fair lending or civil rights laws.”
– Illinois Attorney General Lisa Madigan, quoted in The Chicago Reporter. The Reporter‘s investigation, which is creating some buzz, found that the Chicago metro area leads the nation in “high-cost” loans.
The Chicago Reporter’s “detailed analysis” – which is not available to us, only its conclusions – raises huge questions about the fairness of its analytical approach.
CR seems to have focused narrowly on issues of race and ethnicity. Credit-pricing decisions take many variables into account, including the amount of equity, the value of the home, the nature of the housing stock, the amount of the loan, a borrower’s other debt obligations, FICO scores, etc. etc. etc. We’re given no clue as to whether CR analyzed or controlled for any of those factors in its “detailed analysis.”
We’re also not provided the kind of baseline data necessary to understand the meaning of CR’s analysis or to question the conclusions so glibly drawn from it. Subprime lending expanded significantly during the past several years. Many people who had previously been shut out of homeownership and home equity credit markets had doors opened to them.
The “doors closed now open” crowd, we’ve been told for years, consisted disproportionately of African-Americans and Latinos. Now we’re being told that there was something malevolent about the doors being opened, based on the fact that a disproportionate number of people flooding through the doors were African-American and Latino and poor. Well – who else was left?
Nor are we told that Chicago’s significantly higher rate of homeownership than Los Angeles equates to a significantly higher number of mortgages, and a significantly smaller pool of non-owners who are good risks for ownership. So we have more subprime mortgages than LA – we also have more mortgages. So what do we learn from the CR number? Not much.
The CR “detailed analysis” can probably be taken at face value in concluding that some groups pay higher prices for credit than others. That really tells us nothing. The real question is, all other things being equal, was the credit fairly priced in terms of the risk? We’re told nothing on that score by the CR “detailed analysis.”
I’m hoping that CR did a more sophisticated analysis of the data than they’ve reported having done. Based on what’s been reported all that I can conclude is that saying you’ve done a “detailed analysis” doesn’t mean you have. Take a look at this study of subprime lending in Los Angeles and California (pdf file), for example, and then compare it with the Chicago Reporter’s “detailed analysis.”
I’d also invite everyone to spend some time reading back issues of the Chicago Reporter. Its approach is evident, and its conclusions in this instance unsurprising. It always comes to the same conclusions.
Due to lax lending standards, people were given loans they couldn’t afford. When housing prices were rapidly rising, they could just keep refinancing to delay the day of reckoning. Now that prices aren’t rising much anymore, these people face certain foreclosure when the loan resets catch up to them.
That’s really all there is to it. High rates of homeownership are only a good thing if the owners can realistically afford what they bought.
Exactly! The Chicago Reporter is a pinko commie rag bent on destroying Chicago’s housing market for their own personal gain!