The NAACP and the City of Baltimore have both sued banks, alleging practices of racially discriminatory lending and foreclosures.

Says the NAACP complaint: "In 2004, African-American homeowners who received subprime mortgage loans from Defendants were over 30% more likely to be issued a higher-rate loan than Caucasian borrowers with the same qualifications."  (¶ 1.)  Thus, it concludes, the disparity "result[s] from a systematic and predatory targeting of African-Americans."  (¶ 6.)

Similarly, Baltimore's suit argues that Wells Fargo is more likely to foreclose in African-American neighborhoods—and that suit does not even attempt to adjust for similar qualifications or finances, just alleging racial disparity.  Of course, there is a difference between being targeted for a subprime mortgage loan and accepting a subprime mortgage loan.  And I don't believe that African-American homeowners were targeted for subprime mortgage loans because they were African-American.  They were targeted because they were homeowners.

Between 2001 and 2005, I was working at a law firm, making a lawyer's salary, multiples of what I make today at a thinktank.  And, like I am today, I was also white.  And the minute my adjustable-rate mortgage was registered in the title books in 2001, I got several solicitations a week in the mail from fly-by-night mortgage brokers offering to refinance my mortgage with ludicrous financial products.  (And when I made the mistake of investigating on-line options for switching to a fixed-rate mortgage in 2004, I also got several e-mails a day and phone-calls a month on the same basis to the point that I switched e-mail providers.)  Somehow, I resisted refinancing with a mortgage that was not favorable to me in the long run—I took a 5.25% fixed-rate instead.  But I sure was targeted with subprime opportunities, especially as the real-estate prices in my neighborhood skyrocketed about 10% a year.  And if, with my skin-color, income, education-level, and impeccable credit-score, I was targeted, so was every homeowner and their grandmother. 

To the extent a statistical study says minorities were, ceteris paribus, more likely to receive unfavorable mortgages than whites, the study reflects a specification error, perhaps in failing to account for different levels of consumer education.  Another possibility: there is a lot of state-by-state regulation of the mortgage industry.  Are subprime mortgages more likely in states with high minority populations, for example?  Are subprime mortgage brokers more likely to be aggressive in urban areas in states on the coasts where real estate prices were increasing faster than average, and those states correspond to states with high minority populations?

Note that the CRL study that has been driving the debate and is highlighted in the NAACP suit finds that for many types of loans, whites were "disadvantaged" relative to Hispanics, which would seem to count against a racial explanation (unless one believes that bankers hold a racial animus against whites and towards Hispanics) and more towards a geographic explanation.Note also the irony that these same defendants were accused of failing to offer loans to African-Americans just a few years ago.  (See also Point of Law Apr. 1.)

Economist Tyler Cowen has noted reports that show that "as much as 70% of early payment default loans contained fraud misrepresentations on the application."  Yet politicians seek to blame banks for the recent rise in foreclosures rather than the consumers who made poor choices—even as it is clear that the banks are losing billions of dollars for their failure to ensure the financial soundness of their loan portfolios.  Certainly, there were mortgage brokers out there who, because of poor oversight, signed consumers up for loans they could not hope to pay.  But the businesses who purchased these loans are hardly profiting from these defaults, and should hardly suffer from additional punishment from government and the courts.  In April, I wrote in the Wall Street Journal about the dangers of additional litigation and regulation to those of us who are honest consumers and borrowers and homeowners.

(Disclosure: I own less than $15,000 in stock in Citigroup, one of the many defendants in the Baltimore case.  A version of this post appeared on Overlawyered on January 12.)