Rather Predictable
It's not even ironic that in the wake of a massive financial crisis driven by the Federal government's relentless pressure on lenders to relax lending standards and make more home loans to minorities, one of the few actions Eric Holder's Justice Department has taken in this sphere is to charge a bank with unfair lending practices to minorities. And not just any bank, of course, but the Typhoid Mary of minority-outreach lending, Countrywide. I'm not surprised - are you? No, I didn't think so - saw it coming a mile away.
The specific allegation - that Countrywide "steered" black and Hispanic customers to higher-fee, higher-rate loans compared to whites (with allegedly equivalent qualifications), is not entirely implausible. Given Countrywide's "$Trillion Pledge," some serious recruitment of minority candidates was needed. To really ramp up minority lending, you can't just sit behind a desk and wait for the customers to line up. You've got to go out and find them, convince them that they could indeed get a loan, and assure them that that dishwasher's salary won't be a problem, trust me. These recruits need a little heftier commissions to get the job done, so it's hardly shocking they might just convince the prospective borrower to pay a bit more in interest and a bit higher fees than a customer who comes knocking on your door with LendingTree data in hand.
Yet, despite a plausible scenario to explain it, I seriously doubt the allegations are backed up by the data. Typically these "equivalent qualifications" fail to take into account borrower's net worth. And more important, is there any data showing that minority borrowers performed better with subprime loans than white borrowers? I doubt it - if there were such data, it would have been revealed long ago. In fact, the Federal Reserve has carefully guarded any such data, leading me to believe the exact opposite is true - that minority performance was actually worse. Bank of America - which owns Countrywide - settled the complaint without a fight, of course.
The specific allegation - that Countrywide "steered" black and Hispanic customers to higher-fee, higher-rate loans compared to whites (with allegedly equivalent qualifications), is not entirely implausible. Given Countrywide's "$Trillion Pledge," some serious recruitment of minority candidates was needed. To really ramp up minority lending, you can't just sit behind a desk and wait for the customers to line up. You've got to go out and find them, convince them that they could indeed get a loan, and assure them that that dishwasher's salary won't be a problem, trust me. These recruits need a little heftier commissions to get the job done, so it's hardly shocking they might just convince the prospective borrower to pay a bit more in interest and a bit higher fees than a customer who comes knocking on your door with LendingTree data in hand.
Yet, despite a plausible scenario to explain it, I seriously doubt the allegations are backed up by the data. Typically these "equivalent qualifications" fail to take into account borrower's net worth. And more important, is there any data showing that minority borrowers performed better with subprime loans than white borrowers? I doubt it - if there were such data, it would have been revealed long ago. In fact, the Federal Reserve has carefully guarded any such data, leading me to believe the exact opposite is true - that minority performance was actually worse. Bank of America - which owns Countrywide - settled the complaint without a fight, of course.
Labels: Diversity, Financial Crisis
posted by ziel | 12/21/2011 08:10:00 PM
1 Comments:
What changed around 1999? The change in trend is quite dramatic.
Post a Comment
<< Home