Minority Meltdown

By Larry Keller, Southern Poverty Law Center

It was a stunning revelation: Illegal immigrants hold 5 million bad mortgages in the United States. Conservative commentators pounced on the statistic last October. Many of them were already blaming immigrants for the subprime mortgage mess. Now they had numerical proof, and from no less an authority than the U.S. Department of Housing and Urban Development.

Just one problem: It wasn't true.

Although HUD immediately debunked the bogus factoid, it nevertheless spread rapidly on popular blogs, syndicated radio shows and major cable networks.

This wasn't the first time that immigrant bashers with virtual megaphones ignored the facts in spreading misinformation about the ongoing financial crisis. Unless media outlets of all stripes tighten their fact-checking standards, it won't be the last.

As the nation's housing crisis worsened last fall, right-wing radio hosts, bloggers and columnists became increasingly strident in blaming it on the Community Reinvestment Act of 1977, a federal law aimed at spurring FDIC-insured banks to lend money to people living in lower-income communities. They claimed the CRA forced lenders to make risky loans to non-whites including illegal immigrants, causing the mortgage meltdown.

Never mind that there was ample credible evidence that, like the HUD statistic, this wasn't true either. The CRA falsehood easily jumped from the far-right fringe to more mainstream, presumably more credible conservative media outlets, illustrating how sloppy fact-checking or no fact-checking at all have become increasingly common in the midst of fierce competition among speed-obsessed media.

"Everything is going so fast, there really is less time to think," says Howard Rosenberg, a Pulitzer Prize-winning former television critic at The Los Angeles Times and co-author of No Time to Think: The Menace of Media Speed and the 24-Hour News Cycle. "Everybody is trying to beat somebody else. It gets out there before anyone has a chance to check it, or wants to check it. It gets picked up by everybody."

A Fish Tale Goes Viral

The histrionics over the supposed 5 million bad mortgages is a prime example. On Oct. 9, the conservative online news site Drudge Report included a link to a story on the website of conservative talk radio KFYI-AM in Phoenix that said HUD had reported that 5 million illegal immigrants held bad mortgages. That same day, the Phoenix Business Journal posted an article stating that a HUD spokesman said there was "no basis" for the 5 million figure, and that the agency had no data reflecting the number of bad mortgages held by illegal immigrants.

But a few hours later on CNN's "Lou Dobbs Tonight" -- a primary venue for the airing of false allegations about undocumented immigrants -- San Diego radio show host Roger Hedgecock cited the bogus HUD statistic as a hard fact. By the following day, others were engaging in the journalistic equivalent of fabricating a "big fish" tale, embellishing the falsehood with their own extravagant claims. Rush Limbaugh stated on his radio program that HUD was "admitting 5 million illegal aliens were given mortgages ... with fake Social Security numbers and so forth to go out and purchase homes that they didn't have to pay back." Over at Clear Channel's "The War Room with Quinn & Rose," Jim Quinn claimed that while there were some excesses on Wall Street, the bigger problem was the issuance of "5 million mortgages to illegal aliens who didn't even have to come up with an ID."

Quinn neglected to cite a source for that claim about identification, which turned out to be just as bogus as the 5 million figure. The fact is that banks can make mortgage loans to immigrants who do not have a Social Security number if they have been issued something called an Individual Tax Identification Number. "In general, the borrower must have a history of paying income taxes and a steady work history," said Ellen Seidman, who was an economic adviser to President Clinton and has held senior positions at Fannie Mae and the U.S. departments of Treasury and Transportation.

KFYI posted a subsequent story on its Web site explaining that a HUD spokesman had contacted the station to say its number was inaccurate. The station said its source for the original story was not HUD, but an unnamed retired Immigration and Customs Enforcement agent. By then, the fictitious figure had been widely reported as fact by the nation's radio ranters and blogosphere fulminators.

Blaming the CRA

Conservative commentators also didn't let facts stop them from continually repeating the fallacy that the Community Reinvestment Act had forced lenders to make high-risk mortgage loans to illegal immigrants and other minorities. Created during the Carter Administration, the CRA required financial institutions that receive federal deposit insurance to do a better job of serving the credit needs of their communities, including low-income neighborhoods, in a manner consistent with safe and sound banking practices.

Many of these neighborhoods had historically been subject to "redlining" -- the practice of designating specific lower-income or minority neighborhoods as off-limits for credit.
The CRA regulations were tightened in 1995 when Bill Clinton was president. Critics contend that left-wing activists -- especially at the Association of Community Organizations for Reform Now (ACORN), which became embroiled in controversy during the presidential campaign when it was investigated for voter registration fraud -- began to use data showing how CRA banks performed to petition regulators to deny lenders' plans to expand or merge with other institutions. This, they say, coerced banks into making risky, poorly documented loans -- including to illegal immigrants -- resulting in large numbers of defaults, which in turn caused the mortgage morass.

"The thousands of mortgage defaults and foreclosures in the 'subprime' housing market ... is the direct result of 30 years of government policy that has forced banks to make bad loans to uncreditworthy borrowers," Thomas DiLorenzo, professor of economics at Loyola College in Maryland, wrote at the right-wing LewRockwell.com Web site in September 2007.

Extremist immigration critic Steve Sailer skewered the recognition of Washington Mutual as a top employer by Hispanic Business magazine, implying that the bank's efforts to recruit Latino employees and reach out to Latino consumers contributed to its being placed in receivership and declaring bankruptcy. Wal-Mart, Sailer wrote, "takes money from lower-and-middle-class customers, while [Washington Mutual] gave money to them."

As the mortgage crisis worsened in 2008, more diatribes followed regarding what syndicated columnist Michelle Malkin called "the massive illegal alien mortgage racket." In September, she wrote that it was "no coincidence" that the areas hardest hit by the wave of foreclosures "also happen to be some of the nation's largest illegal alien sanctuaries." Rick Oltman, a former top official of the Federation for American Immigration Reform (FAIR) now with the anti-immigrant Californians for Population Stabilization, wrote on that group's website that foreclosures are highest in border states and cities "swollen with illegal aliens." Still, he added charitably, "illegal immigration didn't cause this, it just made it worse."

Although studies show that risky subprime loans have been concentrated in predominantly minority neighborhoods, such loans were typically issued by mortgage companies or other lenders not governed by the CRA. These companies often charge minority borrowers higher interest rates than they would qualify for at CRA-governed banks. When banks don't provide enough affordable loan opportunities to non-white families, predators move fast to fill the gap, according to the National Council of La Raza, a leading Latino rights organization. That's why a coalition of fair housing advocates from seven cities released a report last March urging policymakers to expand CRA obligations to cover more lenders and communities.

Even so, mainstream commentators and organizations soon hopped aboard the anti-CRA, anti-immigrant bandwagon. "Loaning to minorities and risky folks is a disaster," veteran business journalist Neil Cavuto declared on his Fox News program. In the Boston Globe, Jeff Jacoby said the CRA caused banks to make "increasingly shoddy loans." Jonathan Hoenig made the same point on Fox News' "Cashin' In," where he is a regular contributor. Stanley Kurtz added his CRA gripes in the online edition of National Review. Investor's Business Daily, which has a history of publishing highly questionable material about immigrants, opined that the CRA "forced banks to make many more subprime loans."

Who's Making Loans?

What the critics ignored was that, rather than mandate risky mortgage loans, the CRA stipulates that loans are to be made only if they are "consistent with the safe and sound operation" of financial institutions.

There was plenty of evidence this was generally being done. Much of it was published well before the anti-CRA media barrage.

In January 2008 -- several months before the flurry of CRA harangues and the phony HUD statistic gained currency -- the New York law firm of Traiger & Hinckley LLP published a detailed study of CRA banks' performance in 15 major population centers.

"We kind of anticipated it might become convenient to blame minorities for loans that shouldn't have been made," said Warren Traiger, a partner in the firm, which counsels banks on CRA compliance. "I think in a crisis, people look for scapegoats ... that meet their ideological outlook."

The study's conclusion: CRA banks were 66% less likely to make subprime loans than other lenders. When they did make subprime loans, CRA banks did so at significantly lower interest rates than other lenders, according to the law firm's study of 2006 data.

The Traiger analysis concluded that, as part of their mandate to serve their local communities, CRA banks weren't recklessly making high-risk loans, but in fact were more closely scrutinizing the credit histories of borrowers than were other mortgage lenders with less federal oversight. "One you've scratched the surface, it's just the opposite" of what critics claim, Traiger said. None of those critics has repudiated the report's findings, he added. "The conclusions are supported by the facts."

The Traiger report also pointed out that CRA banks have a relatively small portion of the mortgage market, accounting for less than 25% of all mortgage loans in the 15 major population centers. And CRA banks are more than twice as likely as other lenders to retain loans that originated with them. That's significant because financial experts say that selling loans to other institutions, rather than retaining them as CRA banks more often do, was a major factor in the mortgage crisis.

"I think they are very confused," Graciela Aponte, La Raza's wealth-building legislative analyst, said of the CRA critics. "They don't know what they're talking about. The facts are against them."

Beyond the Traiger findings, there were other credible experts who said the CRA and subprime loans to immigrants were not the cause of the mortgage malaise. Just a month after the Traiger report came out, University of Michigan law professor Michael Barr testified before the House Committee on Financial Services that more than half of subprime loans were made by independent mortgage companies that did not undergo the same extensive federal oversight as the CRA banks. Mortgage brokers are paid for getting borrowers to pay higher interest rates than those for which a borrower could qualify through a conventional lender, and African Americans and Latinos typically paid higher premiums than whites, he said.
"Pushing further into low-income markets under CRA has not weakened banks' profitability and soundness," Barr testified.

In March, Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, said that studies showed "that the CRA has increased the volume of responsible lending to low-and-moderate-income households." But, echoing Barr, she said data showed that minorities were more likely to be given higher-priced loans than similarly situated whites, increasing the odds of them becoming delinquent in making payments.

Despite assurances from Yellen, Barr and others, and despite the Traiger report findings, conservative blabbers and bloggers stuck to their claims that illegal immigrants routinely got high-risk mortgage loans thanks to the CRA, angering many of those who knew the facts. "This is patent nonsense," Ellen Seidman wrote for the nonpartisan New America Foundation think tank in September. "The subprime debacle has many causes, including greed, lack of and ineffective regulation, failures of risk assessment and management, and misplaced optimism. To blame a statute enacted in 1977 for something that happened 25 years later takes a fair amount of chutzpah."

Seidman and Traiger both told the Southern Poverty Law Center's Intelligence Report that lax enforcement of CRA regulations during the Bush administration contributed to the mortgage problems. Both said that CRA critics like Limbaugh, Malkin and Cavuto never solicited their views.

'A Convenient Target'

Some of the critics who rail against the CRA and efforts to make mortgage loans more accessible to lower-income people do so because they are "trying to deflect attention from the fact that their philosophy -- deregulate at all costs -- is actually a major cause of the problem," Seidman said. If she's right, pesky irritants such as facts may continue to be ignored by those who blame minorities for the mortgage muddle.

"It's disturbing," Traiger said. "I hate to see lower-income folks bashed because they're a convenient target."

Whether it's slapdash reporting or deliberate distortions -- and both occur -- unsubstantiated rumors and outright propaganda will continue to be easily and widely disseminated, said Rosenberg, speaking generally and not about immigration critics specifically.

"You're not going to turn back technology," Rosenberg said. The Internet, in particular, has "made it much easier for malevolent types to follow their agendas. You throw it out there, it ... gets picked up by everybody. The news hole is infinite. You can not possibly fill it."

And that's a fact.

This report originally appeared in the Southern Poverty Law Center's Intelligence Report.