Misguided notions of “social justice” resulted in Hispanic-Americans losing half the value of their homes within four years, according to a new report by the Pew Research Center. Federal policies aimed to stimulate minority home-ownership merely encouraged lending to unqualified borrowers.
Although the 2008 crisis brought hard times upon everyone, the housing market implosion fell disproportionately hard on Hispanics. From 2005 to 2009, the median Hispanic home value declined from $99,983 to $49,145 (a 51 percent drop) while the median White home value decreased from $115,364 to $95,000 (an 18 percent decline). Worse, two-thirds of Hispanic household net worth originated from home equity — thereby causing net worth to decline by 66 percent.
Compounding the politically-driven problem of lax Federal Housing Administration loan underwriting standards and excess lending in Hispanic communities was the fact that non-profit seller organizations like AmeriDream oftentimes covered the already meager 3.5 percent down payment requirement for FHA-backed mortgages. Would-be homebuyers therefore didn’t need to make any down payment whatsoever on their mortgage, thereby rendering incapable any significant efforts by the agency to adequately vet borrowers on their ability to pay. FHA spokesman William Gavin reported that these zero-down mortgages defaulted at almost three times the rate of other loans backed by the FHA.
Gerardo Cadima, a Bolivian immigrant who fell into the allure of a zero-down loan backed by the Federal Housing Administration (FHA), bought a house for $330,000 in the suburbs of Virginia during the housing bubble’s expansion. However, the FHA’s false promise of “homeownership for all” became abundantly clear when he lost his home in the wake of the 2008 housing collapse, as home values fell and the interest on his adjustable-rate mortgage rose.
The chairman of the Congressional Hispanic Caucus, California Representative Joe Baca, vociferously advocated for low FHA lending standards and for seller-financed down payments before and after the housing bubble burst. After President Bush outlawed the latter post-crisis, Baca cosponsored a bill to reinstate seller-financed FHA down payment assistance despite their obvious danger. His fervor to reintroduce such an obvious source of systemic risk makes more sense in light of the $25,000 contribution that AmeriDream made in October 2008 to a charitable organization that Baca founded.
Not only did this attempt at pursuing social justice have the opposite effect than initially intended, but some of the motives that drove such foolish policy reek of ethically questionable backdoor politics. Social injustice is a better term to describe the whole debacle.