Minorities worse affected by sub-prime loans ?

By Kunal Jaggi
According to a recent report published by the Federal Reserve on Sept 12, minority borrowers received higher-cost mortgages than whites more frequently when they refinanced their homes last year.

Bloomberg

• "African-Americans received high-cost loans 52.8 percent of the time when they refinanced home loans last year, versus 49.3 percent in 2005. Hispanic borrowers received high-cost refinancings 37.7 percent of the time, up from 33.8 percent in 2005. The rate for white borrowers was 25.7 percent last year, compared with 21 percent in 2005.
  
• The figures for foreclosures are similiar - black homeownership fell nearly 2 percentage points in the first six months of this year to 46.3 percent, compared with a half-percentage point drop for whites, to 75.4%. "

Out of curiosity, I looked up foreclosure data in 4 different areas - Metro Orlando, Memphis, Chicago & suburbs, LA on Google news to find smaller dailies reporting similar data.

• Orlando Sentinel:
• "Upper income African-Americans in Metro Orlando were 2.4 times more likely to receive a high-cost mortgage loan than high-income whites in 2006, the study of dederal data found (which is lower than the 3 times from the previous year though). Higher-income Latinos were also found to be 2.4 times more likely than higher-income, non-Hispanic whites in Orlando to get higher-cost loans last year. Nearly a third - 33.1 percent of last year's home mortgages in Metro Orlando were of subprime variety, as opposed to the national rate of 27.5 percent. (Figures provided by ACORN - Association of Community Organizations for Reform Now).

• Memphis Daily News: "Foreclosure Exposure - a comprehensive look at adjustable-rate mortgages loans in 172 metro areas, showed that minorities - regardless of income - received a higher percentage of high-risk loans during the past decade and are at a higher risk of foreclosure.
  
• African-Americans homebuyers were 2.7 times and Hispanics were 2.3 times more likely to be given high-cost loans than whites nationwide.
  
• In 2006, 70.6 percent - almost three out of four - home refinance loans made to blacks were high-cost loans. And 37.6 percent - or more than one out of four - home refinance loans made to Hispanics were high-cost loans.
  
• Memphis ranked No. 1 in the country for metro areas most at risk during the housing crisis with thousands of more ARM's locally about to reset to higher interest rates."

• Suburban Chicago News: "According to 2005 data compiled by the Woodstock Institute, a Chicago - based community economic policy research organization, in Will County
• 60 % of mortgages to African-Americans and 46% percent to Hispanic families were high-cost loans. About 25 % to white families were high-cost loans.
  
• Overall, foreclosures in Will County rose 45% from 2005 to 2006, with a 36% rise in foreclosures in the Chicago area.
  
• The study found that a low-income black borrower is more than three times more likely to receive a high-cost loan than a low-income white borrower.
  
• A black earning more than $135 K annually was more than five times more likely to receive a high-cost loan compared to a white borrower with similar annual income, according to the study by the Woodstock Institute."

• LA Daily News: "ACORN (refer above) study showed that during 2006
• African-American and Latino home buyers were three times more likely than white home buyers to get a high-cost loan.
• African-American and Latino refinance borrowers were about twice as likely as whites to get a high-cost loan.
• Upper-income African-American home buyers were 3.6 times more likely to receive a high-cost loan than low-income whites; and upper-income Latinos were 2.8 times more likely to receive one than upper-income whites.
  
• 27.2 % of all loans made were high-cost loans in LA."

Also, I found this Jon Stewart video interesting

http://www.comedycentral.com/motherload/player.jhtml?ml_video=90948&ml_collection=&ml_gateway=&ml_gateway_id=&ml_comedian=&ml_runtime=&ml_context=show&ml_origin_url=/shows/the_daily_show/videos/most_recent/index.jhtml&ml_playlist=&lnk=&is_large=true

When Cramer flipped out on CNBC

By Kunal Jaggi

If you haven't already seen it, here's a video of Jim Cramer "The media's most electrifying market pundit" (according to USA Today) rant about the fed not cutting interest rates sometime after the Bear Stern funds fell apart.

http://www.youtube.com/watch?v=rOVXh4xM-Ww

I think Cramer can be amusing at times. However, I've read two of his books and some of his theories do make sense. Why did he flip out like he did ? Well, mostly people seem to be going with the most obvious explanations - that he was long in the market at that point of time and betting on the Fed to cut rates. Or that his friends at big hedge funds were losing too much money which troubled him. Valid as these theories sound, here's another perspective. Cramer in his book "Real Money: Sane Investing in an Insane World" is a proponent of riding and benefiting from both sides of interest rate changes. Oversimplifying, he basically says that cyclical (typically high growth tech, pharma etc) stocks that are more susceptible to economic cycles must be purchased at precisely the moment when they are trading at their highest multiple. Conversely, non cyclical stocks (steady behemoths like P&G) should be sold when their multiple is at its highest.
The rationale to do this is that as economy slows down, investors typically seek the safety of P&G kind of companies and are willing to pay a higher P/E ratio for their stable earnings. They will sell a stock like RIMM (totally fictitious example) because they figure that it's trading at too high a ratio and the slowing economy will drag down its earnings. But once the economy shows significant depression, the Fed usually moves in to lower interest rates to re-boost the economy. The process then works in reverse - and as the economy improves, analysts who downgraded RIMM will now start anticipating increased earnings and there is a demand again for it - at which point you sell. Then you re-position yourself into P&G, which everyone is discarding because they want to be a part of the growth story. Now, after time, the economy will start overheating and the Fed, in their noble mechanism of controlling inflation, will hike up rates causing a slowdown yet again. Voila, there is a demand again for the P&G that you bought when everyone was selling to get into growth. Of course, you can't time these cycles exactly, but according to Mr. Cramer, you can keep playing this counter-intuitive game.
Now maybe that theory has something to do with his outburst. I don't think he has personal big positions in the market. He keeps a $3 Million portfolio, the proceeds of which are donated to charity. Even with that, he has a 30 day restriction of not being able to touch the stocks since he emails out his weekly positions in this newsletter that you can subscribe to at TheStreet.com
Like I said, I don't think its about money. He's been in the market for 25+ years, made enough and now makes more through his media acts. I think its more ego - maybe he bet real hard on which way the Fed was going to roll and it just aggravated him that he couldn't predict it perfectly like he did for the last 25 years.
Here's his response to the CNBC video by the way -
http://videoplayer.thestreet.com/?clipId=1373_10372626&channel=Cramer+On+Demand&cm_ven=&cm_cat=&cm_ite=&puc=&ts=1186504576694

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