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December 7, 2004

Credit Where Credit is Due

A USA Today story reports on the rapid growth of "sub-prime" mortgage lending - i.e., lending to people with less-than-stellar credit. It's a trend that could benefit the Republican Party long-term as homeowners are more likely to vote Republican than are renters.

Subprime lending - higher-interest loans to consumers with impaired or non-existent credit histories - has been the fastest-growing part of the mortgage industry. Subprime mortgage activity grew an average 25% a year from 1994 to 2003, outpacing the rate of growth for prime mortgages. The industry accounted for about $330 billion, or 9%, of U.S. mortgages in 2003, up from $35 billion a decade earlier.

The growth has attracted accolades and controversy. Federal Reserve Governor Edward Gramlich has said subprime lenders helped push homeownership to record levels, making it possible for a growing number of minorities to buy homes. But he also raises questions about high delinquency rates. And dozens of states have passed laws since 1999 to crack down on predatory lending - loans with high fees, excessive interest or other unaffordable provisions - clustered in the subprime sector.

Still, there's no doubt subprime lending is now a Main Street, mainstream business with sophisticated marketing that promises to deliver the American dream of homeownership, or lower the monthly burden of all-too-American consumer debt.

...

The rise of subprime lending presents something of a dilemma for community and consumer groups. Even while they fight for tougher laws against predatory lending, and accuse some firms of reverse red-lining - targeting minority neighborhoods - they are forming partnerships with subprime lenders. In September, Acorn, a community organization representing low- and moderate-income families, announced an agreement with Citigroup to create an affordable lending program for home buyers, with a special focus on immigrants.

"The partnership with Citigroup had less to do with subprime lending, predatory lending, and more to do with our interest in working with Citigroup and other lenders to extend credit broadly," says Steve Kest, executive director of Acorn. "We see thousands of families who have staked their whole future in this country, have jobs, (but have) only been able to access subprime credit through pretty shady lenders."

You may have seen the name of ACORN before on this blog - they were implicated in some of the voter-fraud incidents on the Democratic side of the partisan divide during the recent election campaign. But ACORN is more than just a voter-registration group, and its efforts to expand home-ownership among immigrants is admirable. But don't they realize that doing so will undermine their partisan-Democratic activities in the long run? Homeownership tends to lead to voting Republican. As Joel Kotkin wrote recently for The New Republic:
Across the country, areas with high levels of homeownership tended to vote more heavily for Bush than areas dominated by renters, according to economist Susanne Trimbath. If Latino voters continue to move into the middle class, buy houses, and relocate to more conservative areas - in other words, if they replicate the patterns of white nuclear families who are leaving behind the childless city-centers - Democrats may have a hard time holding on to them.
Homeownership among minorities reached an all-time high during President George W. Bush's first term - and he was rewarded with big gains among minority voters. Just a coincidence?

The acorn of increased homeownership among minorities may one day grow into a mighty oak of Republican voters.

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Comments

ACORN is a shakedown operation. They approach a business for money. If the business doesn't pay for protection they send rent-a-mobs into their targets with the intent of disrupting operations and scaring customers.

Posted by: John smith at December 7, 2004 10:07 PM

This doesn't surprise me at all. A former poli sci professor of mine did a study on Margaret Thatcher's government's policy of setting up loans enabling folks in council housing (British public housing) to buy their homes. In addition to creating better communities (because people who own their homes are more invested in the neighborhood), he believes it lead to an increase in the number of Conservative Party voters.

Posted by: Winger at December 7, 2004 11:17 PM

Bros. Judd, IIRC, today had an interesting post - middle class/affluent hispanics marked their boxes off as "White," low income hispanics marked "Other."

Posted by: Sandy P at December 8, 2004 01:25 AM

You're talking about a correlation between home ownership and voting Republican, but you're acting like there's causation.

I learned this in one of my science classes in high school: correlation does not imply causation.

Posted by: Joshua Conner at December 8, 2004 02:41 AM

Gee, it's good to know you listened in high school. But nobody is arguing causation here. In fact I would bet that if you asked the quoted economist, she would posit an underlying, common cause for both home ownership and voting Republican. My guesses are twofold. First, the Republican party is considered, in gross generalization, the party of self-reliance over social programs a(for better or worse). Those who strive for self-reliance tend appreciate its value and therefore align with the party that encourages it. And secondly, Bush campaigned heavily on the record rise in minority home ownership. He could have swayed some Hispanics by, in effect, taking credit for their newfound ability to buy a home.

Posted by: mcg at December 8, 2004 03:06 AM

Might there also be a connection to high rental numbers in urban areas, which are typically dominated by the left? When you're paying inflated prices due to open space laws, byzantine zoning issues and attrition as a result of rent-control policies, you're less likely to be able to afford a home. Not knowing what the causes for some of that are might allow the Dems to keep their ranks.

Economic effects aren't always so simple laypersons can grasp them. But when they do...

Posted by: grayson at December 8, 2004 05:25 AM

Yikes. On re-reading of this post I have *no idea* where I got the idea for my first comment.

Guess I was tired.

Posted by: Joshua Conner at December 8, 2004 07:09 AM

Much of the preditory lending that ACORN is fighting has more to do with corrupt contractors and exploitative banks than either party. ACORN is not a shakedown, it is a network of organizers who often find themselves at odds with both parties. I think we should be standing up for groups that fight for low-income equality regardless of the side of the political coin it helps. Predetory lending is nasty and a disturbing example of 'banks gone wild' no matter how you look at it.

also: Home ownership doesn't necessarily lead to voting Republican. I'm thinking now of my parents. Just like living in the inner city doesn't mean voting Democrat. It would be nice if everything were as simple as we'remaking it.

Posted by: reggie at December 8, 2004 07:11 AM

Living in the core (Minneapolis) of the Twin cities *DOES* mean voting Democrat. And at a time when this area is facing a housing crisis we have the following:

a) close to half the blocks have a "community garden" all that is left after a house is condemned.

b) Minneapolis fought hard to get it's own electrical code - a small subset of electricians do enough business in the city to make it worthwhile to pay a second set of fees.

c) The "energy code" requires new housing be built using more expensive 2x6s to allow enough insulation to comply.

ACORN does little or nothing about any of these. In many cases they are part of the problem.

Posted by: Richard at December 8, 2004 11:17 AM

ACORN is a group that uses labor-style organizing techniques to carry a far left message. For the princely sum of $11 an hour, its organizers canvass poor neighborhoods, getting families to join ACORN for a nominal monthly fee.
ACORN agitates against 'big box' stores and for a living wage, but most of its campaigns are co-options of more worthy issues.
Whatever good they accomplish is more than offset by their poisonous philosophy of class hatred and the free lunch.

Posted by: Cris at December 8, 2004 04:15 PM
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