The BK Live segment on Mortgage Inequities in Brooklyn has been posted to the web. Mark Winston Griffith (Brooklyn Movement Center Executive Director), Alexis Iwaniszie (New Economy Project) and I discuss mortgage inequities and how they effect Brooklyn (and beyond). REFinblog.com gets a nice shout out from BK Live.
Tag Archives: predatory lending
Reiss on Mortgage Inequities
I will be appearing on a segment on BK Live on BRIC , the Brooklyn Public Network, about “Mortgage Inequities/Fair Housing in Brooklyn” on Thursday, February 13th at noon (running again at 2pm, 8pm, 9pm and 10pm (Cablevision Ch 69, Time Warner 56, RCN Ch 84, Verizon Ch 44 or online at: www.bkindiemedia.bricartsmedia.org).
I will be appearing with Mark Winston Griffith, Executive Director of the Brooklyn Movement Center, a community organizing group based in Bed-Stuy and Crown Heights, and Alexis Iwanisziw of the New Economy Project.
We will be discussing The New Economy Project’s recent study about inequities in mortgage lending based on race in NYC:
Mortgage lenders made markedly fewer conventional home mortgage loans in communities of color than in predominately white neighborhoods in New York City, according to a series of GIS maps published today.
The maps show unequal lending patterns based on the racial composition of communities in New York City, controlling for the number of owner-occupied units in each neighborhood. New Yorkers who live in predominantly white neighborhoods on average receive twice as many conventional home purchase loans as New Yorkers who live in predominantly black or Latino neighborhoods, for every 100 owner-occupied housing units in the neighborhood.
“The maps show that banks continue to redline communities of color across New York City,” said Monica M. Garcia, Community Education Coordinator at New Economy Project, which produced the maps. “For decades, banks have excluded neighborhoods of color from fair access to mortgage financing, allowing predatory lenders to flourish right up to the financial crisis. Now it’s déjà vu all over again, with banks failing adequately to provide conventional mortgages to people in predominantly black and Latino neighborhoods.”
“The maps highlight the profound and continued need for strong government action against banks that violate fair housing and fair lending laws,” said Sarah Ludwig, Co-Director of New Economy Project.
The series includes a map of New York City and borough-level maps of Brooklyn, Queens and Bronx.
To produce the maps, New Economy Project analyzed home mortgage lending data for 2012, the most recent year for which the data are publicly available. New Economy Project received partial funding to produce the maps from the U.S. Department of Housing and Urban Development’s Fair Housing Initiatives Program.
Reiss on Predatory Online Lending
E-Commerce Times quoted me in CFPB Suit Targets Predatory Online Lending Practices. It reads in part:
The Consumer Finance Protection Bureau this week put online finance companies on notice that it will not overlook them merely because they operate in cyberspace. Specifically, the bureau sued CashCall for collecting money consumers allegedly did not owe. In its suit, the bureau charged that CashCall and its affiliates engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void.
CashCall and the associated companies are reportedly owned by J. Paul Reddam, a race-horse owner and philosophy professor-turned-businessman.
The Background
Beginning in late 2009, CashCall and its subsidiary, WS Funding, entered into an arrangement with online lender Western Sky Financial, according to the CFPB. Western Sky Financial has asserted that the laws in the state in which it is based — South Dakota — did not apply to it because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.
The CFPB maintains Western Sky still must comply with state laws when it makes loans over the Internet to people in other states.
The loans ranged from US$850 to $10,000 and came with upfront fees, lengthy repayment terms and annual interest rates from nearly 90 percent to 343 percent, the CFPB said. Many of the loan agreements allowed payments to be debited directly from the borrower’s bank account.
By September 2013, Western Sky had become the subject of several states’ investigations and court actions, and it began to shut down its business. CashCall and its collection agency, Delbert Services, continued to take monthly installment payments from consumers’ bank accounts or otherwise sought to collect money from borrowers.
After its own investigation, the bureau concluded that the high-cost loans violated either licensing requirements or interest-rate caps, or both, in Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina, meaning the consumers did not owe that money that was being collected.
As part of its suit, the CFPB is seeking monetary relief, damages, and civil penalties.
The CFPB did not respond to our request for further details.
* * *
‘Particularly Weak’
While there might not be much controversy over the CFPB’s suit against an online lender, CashCall is certainly defending itself using other arguments.
Clearly, the action falls within the CFPB’s broad mission of protecting consumers from predatory behaviors in the financial services industry, asserted David Reiss, a professor of Law at Brooklyn Law School.
However, CashCall’s attorneys, Neil Barofsky and Katya Jestin, have said that the CFPB does not have a mandate to impose rate caps.
“Of all of CashCall’s arguments, this one seems particularly weak,” Reiss concluded, “as the CFPB is just seeking to enforce existing state laws that have been allegedly violated across the country.”
Shadowed by the Shadow Inventory
My former colleague at Seton Hall, Linda Fisher, has posted Shadowed by the Shadow Inventory: A Newark, New Jersey Case Study of Stalled Foreclosures & Their Consequences on SSRN. The paper presents the findings of a small, but interesting empirical study. The study “tests the extent to which bank stalling has contributed to foreclosure delays and property vacancies in” one neighborhood in Newark, New Jersey. (6) Fisher states that this “is the first study to trace the disposition of each property in the sample through both public and private sources, allowing highly accurate conclusions to be drawn.” (6)
Fisher reaches “a similar conclusion to the previous studies with respect to stalling: without legal excuse or ongoing workout efforts, banks frequently cease prosecuting foreclosures.” (7) Fisher also finds that the stalled foreclosures in her study “do not strongly correlate with property vacancies.”(7) Fisher claims that her findings “are generalizable to similar urban areas in judicial foreclosure states,” but I would like to have seen more support for that claim in the paper. (45)
As a side note, I found her description of foreclosure in New Jersey interesting:
The New Jersey foreclosure system provides a representative example of a judicial foreclosure regime, albeit one with heightened procedural protections for borrowers enacted into the state’s Fair Foreclosure Act. For instance, lenders must file a notice of intention to foreclose containing information about, inter alia, the lender, servicer and amount required to cure, before filing a foreclosure complaint in court. Once borrowers are served with process, they may file a contesting answer and litigate the matter, as with any civil case. Because ninety-‐four percent of New Jersey foreclosures in a typical year are not contested, the process is largely administrative and handled through a statewide Office of Foreclosure. Court personnel scrutinize bank evidence in support of default judgments. Borrowers may file late answers, and are responsible only for curing arrears and paying foreclosure fees up until the time of judgment. (14-15, emphasis added, citations omitted)
Because this blog has as one of its main focuses downstream litigation judicial opinions, it is important to remember how few cases actually reach a court room, let alone result in a written opinion by a judge.
On Fairy Tales for the Subprime Era
Practicum has posted my short article, The Emperor’s New Loans: A Cautionary Tale from the Subprime Era, today. It begins
A body of folk tales from the subprime mortgage era is now being written. Some are in PowerPoint. Some are in video format. Some appear in the guise of a non-fiction account. After all, isn’t The Big Short just Jack the Giant Slayer—with the little guys not only ending up with the gold, but also with the big guys dead on the ground? And some stories, like the one below, are just plain old fairy tales.
You might ask why a complex financial crisis needs such folk tales. And I would tell you that they are necessary because they help us to identify the essence of the crisis. They can also make the significance of the crisis clear to non-experts. And they can help shape government responses to the last crisis in order to avert potential future crises. Luckily, noted storyteller Philip Pullman offers us some guidance on finding the essence of a story.
The rest of the article can be found here.
Empirical Evidence of Predatory Steering in the Mortgage Market
Agarwal and Evanoff have released a draft of Loan Product Steering in Mortgage Markets. They sought to determine whether there was empirical support for the frequent anecdotes of credit steering in the literature about predatory lending. They find such support. They find evidence
consistent with institutions steering customers to affiliated lenders that provide more-expensive loan products. Specifically, we find that steered loans have an annual percentage rate (APR) 40–60 basis points higher than that of non-steered loans after controlling for various borrower and loan characteristics. Given the average APR for the sample of loans is 6.5%, a rate 40–60 basis points differential is economically significant. We also find that the steered customers perform better on their mortgages—consistent with them being lower-risk, better-qualified borrowers than those normally associated with their eventual loan products. Specifically, we find that the probability of steered loans being delinquent is 1.4–2.0 percentage points lower than that of non-steered loans. Again, given an average delinquency rate of 5%, this differential is also an economically significant result. (22, footnote omitted)
While I am not in a position to evaluate their empirical findings, I question the following: “We also find that steered loans are often placed in private securitized pools—much more so than being held in portfolio or sold to the housing GSEs. This is consistent with the steering taking place in an attempt to satisfy the demands of investors looking for highly rated mortgage-back securities.” (22) This assertion does not appear to take into the robust literature about the market for lemons which would suggest that originators would try to keep the lower risk mortgages for their own portfolios. It also does not appear to account for how securitizers actually structure MBS in order to achieve a high rating (using techniques such as overcollateralization, subordination and insurance to do so). In other words, securitizers do not need low risk mortgages to make low risk MBS if they can otherwise provide credit enhancements as part of the structure of the MBS.
The authors state that their results are “the first explicit evidence of systematic mortgage lending abuse during the run-up in the housing markets.” (1) They also demonstrate the difficulty in regulating away predatory behavior from the mortgage markets as profit-seeking holding companies appear to have developed techniques to achieve net profits even while one subsidiary took actions that appeared to be inconsistent with its own quest for profits. This should give regulators at the CFPB something to think about.
