Davis: Discriminatory lending practices keep black middle class behind

Rep. Artur Davis (D.-Birmingham), the only Harvard graduate in Alabama's congressional delegation, repeats an old, discredited allegation. From the B'ham News:

WASHINGTON U.S. Rep. Artur Davis said Friday that Congress is not doing enough to address the needs of the black middle class, which he says is economically fragile because it is less able to accumulate wealth and assets. ...

Usually, conversations about race and economics focus on poverty. Davis, one of the more moderate members of the all-Democratic caucus, said he was not dismissing the plight of low-income blacks.

"I in no way minimize that issue, but it occurs to me we have not spent nearly as much political capital, time or energy talking about the significant number of African-Americans who got up to work this morning, who are making between $60,000 and $200,000, who still have to ... look at their bank account every 31st to see exactly what's there," Davis said.

Davis cited discriminatory mortgage lending practices as an example of why blacks in the middle class have a harder time accumulating wealth than whites in the same income bracket. A recent study found that black home buyers tend to pay more for their mortgages than whites with similarly flawed credit scores. And home values, normally the single largest asset for a middle-class family, tend to be lower among blacks.

I'm guessing that the study Davis is referring to is the one recently conducted by the U.S. Federal Reserve. It is the subject of this CBS News report, which adds:

The report doesn't provide interest rates charged to the different racial groups. It also doesn't include information, such as the borrower's credit history, which is an important factor in pricing a home mortgage.

Given that, economists and other experts said one should be cautious about drawing any conclusions from the Fed information about discriminatory lending.

Jay Brinkmann, a financial economist at the Mortgage Bankers Association, said the price of a mortgage is based on risk. The rise of high-priced loans in 2005 — the last year of a five-year housing boom — may be related to "borrowers in general having a somewhat higher risk profile on average," he said. "In a sense, the best credit customers stepped in early" in the housing market boom, he said.

So, certain important factors like the borrowers' credit history weren't even considered in the Fed study. That minorities pay more for home mortgages seems to be a fact beyond dispute, but to imply that that is due primarily to discrimination is simply not supported by this study or any other.

In a column from last year, Thomas Sowell commented on two similar studies, both of which noted the same racial gap. Here are some of his remarks:

One of the things that happens when you get old is that what seems like news to others can look like a re-run of something you have already seen before. It is like watching an old movie for the fifth or sixth time.

A headline in the September 14th issue of the New York Times says: "Blacks Hit Hardest By Costlier Mortgages." Thirteen years ago, virtually the identical story appeared in the Wall Street Journal under the title, "Federal Reserve Details Pervasive Racial Gap in Mortgage Lending." ...

Both stories are based on statistical studies by the Federal Reserve showing that blacks and whites have different experiences when applying for mortgage loans -- and both stories imply that racial discrimination is the reason.

Sowell concludes that the studies do not support the contention that discrimination is the culprit for the racial gap in mortgage lending, precisely because they fail to take factors like credit history and net worth into account - just as the study that Davis cited failed to do. You'd think that a Harvard grad would have learned to do his homework.