Did They Cause the Credit Crisis?

blame game too, including black conservative Thomas Sowell. On the Fox News program Your World, host Neil Cavuto pinned the crisis on “more minority lending.” He theorized that “loaning to minorities and risky folks” was “a disaster.”

It’s a convenient story but far from true. Certainly, there are African Americans who received subprime loans, but many of them tell stories like Leon Harrison’s. When a real estate agent approached the 79-year-old retired bill collector about buying a new home in a luxury retirement community in 2006, his first thought was, “no way.” First of all, Harrison and his 81-year-old wife, Janette, a retired government worker, had lived in their Lanham, Maryland, home for 31 years. The couple still had a mortgage, only because they had refinanced to pay for their children’s education. They were comfortable and had enough space to entertain their five grandchildren and two great-grandchildren regularly. More importantly, recalls Harrison, “I said, ‘We can’t afford this.’” Harrison saw that his monthly mortgage payments would double from about $1,500 to $3,000 if they purchased the $422,761 home—more than they could afford on a fixed annual retirement income of $51,000.

But the couple’s real estate agent and mortgage broker told them differently, explaining that if they bought the house, they could get a reverse mortgage six months later. The move would allow them to use the equity in the home to supplement their income, the agent and broker explained. But six months after the Harrisons bought the house in early 2007, “the bottom dropped out,” Harrison says.

With an interest-only adjustable rate mortgage, “I owed more on the house than it was worth. The reverse mortgage was definitely out of the question.” In addition to that, the broker had steered the Harrisons to a subprime loan, though they qualified for a prime loan, says Julia Rodgers, a mortgage adviser for the National Community Reinvestment Coalition, a Washington, D.C.-based group that helps distressed homeowners negotiate with lenders. And in August, money from the sale of the old house, which the Harrisons had been using to subsidize their current mortgage, ran out. “Now I’m two months in arrears, the first time in my whole life that my wife and I have been delinquent in making mortgage payments,” Harrison says.

The Harrisons’ plight is hardly unique. Indeed subprime mortgages are more likely to end in foreclosure when compared with conventional loans. Still, the recent financial turmoil is hardly a black problem. The best way to refute those charges is to examine the evidence.

The Majority of Subprime Loans Didn’t Fall Under the Community Reinvestment Act
Nowhere in the act’s language does it tell lenders to offer subprime products. In fact, it calls for loans that utilize “safe and sound banking practices,” points out Warren W. Traiger, a partner with Traiger & Hinckley L.L.P., a law firm based in New York City. In a January 2008 study, Traiger & Hinckley found that banks subject to the act are two-thirds less likely to offer borrowers high-cost mortgage loans, compared with

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