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Community Reinvestment Act

June 30, 2016

The details of the settlement made by BancorpSouth with the DOJ and the CFPB are shocking. The complaint outlines how a bank developed an explicit policy of not making loans in minority neighborhoods. The DOJ and the CFPB rightfully called out BancorpSouth for violations of the Equal Credit Opportunity Act and the Fair Housing Act. But why was BancorpSouth able to have these policies in place and then receive a "Satisfactory" on its CRA exam?

September 24, 2015

Following up on earlier reports covering loans made from 2008 to 2013, the new HMDA data shows that Bryant Bank only made three home loans to African-American borrowers in 2014.

June 1, 2015

Square 1 Bank holds more deposits in Raleigh-Durham than any other bank. Given that, they should be held to a high standard for their Community Reinvestment Act obligation. From a purely quantitative perspective, they have done what their regulators asked. But even a simple review of that track record shows that their impact has been minimal. Until PacWest shows that it can do better, the FDIC should block this merger.

October 15, 2014

When CRA examiners hold banks accountable, they respond by making more mortgage loans to LMI borrowers. When the examiners let the banks off easy, banks tend to take their CRA obligations less seriously.

May 23, 2013

"The Power of Yes"

Answer: Kerry Killinger, CEO of Washington Mutual and Long Beach Mortgage. Word is that WaMu's Chief Credit Officer countered that he believed in "The Wisdom of No," but he got shouted down. Kerry Killinger was named "Banker of the Year" by American Banker in

April 18, 2011

Editor's note: This is an account, written by a local businessman, about how a small town was able to keep a bank. Lake Lure, North Carolina is a forested community in the mountains of Western North Carolina.

They once had two banks. In 2010, one branch closed as part of an effort by a regional

August 26, 2010

The Dodd-Frank bill will require lenders to disclose more data about their lending, but the fundamental problems with HMDA remain largely unresolved. Dodd-Frank says that it will collect, and then disseminate, the following new categories within an updated HMDA by no later than 2012:

  • age of borrower
  • borrower credit score
  • total points and fees payable at origination
  • the spread between the loan's interest rate and the corresponding treasury note of similar maturity
  • value of the collateral pledged against the loan
  • non-amortizing loan features
  • length before loan reset (months)

Those are some good ideas. I think that there is going to be a substantial discussion about

August 4, 2010

The Federal Reserve must not read much. Why else would they act as if a few more details in Home Mortgage Disclosure Act data would constitute a privacy concern?

You may been reading the recent series in the WSJ about privacy in the digital age. The basic message is: there is no privacy. Here are a few of the tidbits:

  • Upon visiting a web site, those companies can pull your data in 1/5th of a second. The price is about 1/10th of one cent. They use that data to suggest a product choice. One visitor (their example is a rural working class senior citizen) is encouraged to buy a $250,000 life insurance policy. Another (college-educated high income suburbanite) is prompted to look at a $2 million policy). The possibilities for steering people into sub-prime loans are pretty obvious.
  • You can remove cookies, but you cannot remove "beacons," which serve as data aggregators. They can cross-tab your visit histories with information in the other beacons that are already on your computer.
  • There is little or no anonymity. Most sites collect specific data so specific that even without a name, the identity is clear: address (from your last online purchase), age, gender, marital status, health concerns (WebMD!), income, zip code, travel interests, and education.  These sites can claim that they do not reveal personal information if they do not pass on your name.

All of this should be considered in the context of how the Federal Reserve is implementing the data directives from Congress that were included in the Dodd-Frank Bill. Congress wants that information to be out there, but the rule-making process will ultimately determine how fully those instructions are implemented.

Precedent for New Data

In the wake of the subprime crisis, people are asking what could be done to give regular people a better chance to understand and comment on problems with mortgage markets. For years, data has been available for the asking to anyone that wanted to analyse how loans were being made. Many people have an interest in knowing what is going on. It isn't just a few wonks. All kinds of people, from homeowners to local governments to neighborhood associations, are known to go to HMDA data for information about their markets.

Unfortunately, that data has fallen behind the times. We know what constitutes a "risky" mortgage - all of those exotic deals that are waiting to cause trouble. That would include the option-ARM, or the loan with the huge balloon payment, or when a lender never checked on the income of a potential borrower. These things were all too common, and now they are the common culprits in our mortgage crisis. "If only we could have known about this," is a common refrain. People want to stop "the fire next time." They want better data.

Unfortunately, the Federal Reserve is pushing back. There are a few essential points to their argument, but they all boil down to this: we don't want to let consumer information get out into the public.

As if.

May 17, 2010

A new study shows that African-American and Latino borrowers were much more likely to get subprime loans, even after important underwriting criteria have been taken into account. A few years later, subprime loans are six times more likely to fall into foreclosure. The authors conclude that the short and tragic lifespan of subprime products should compel legislators to draft a CFPA that protects housing wealth, and indirectly, our nation's economy.

"Foreclosure in the Nation's Capital: How Unfair and Reckless Lending Undermines Homeownership" gathers loan data from 2004 to 2007 in the Washington, DC metro area. A unique feature of NCRC's research is that it has linked HMDA data, a common source for many mortgage studies, with loan performance data available through a proprietary set of servicing records.

Foreclosure Trends in Washington, DC. (NeighborhoodinfoDC)

The chart at left shows trends in foreclosures in DC on a quarterly basis. The blue line represents the inventory of foreclosed homes.  From a low in 2006, DC now has more foreclosed homes than at any time in the last ten years.  Moreover, these numbers may be false positives. It is possible that with a glut of pre-existing REO properties on the market, that lenders have been holding off on starting new foreclosures.

The research used a (ALERT: Data talk ahead!) logistic regression model to identify subprime loans.  No one factor made a loan subprime in their definitions.  Instead, a set of loan terms, borrower credit, and interest rates were used as independent variables that contributed to a nominal label of prime or subprime.

Key findings include:

  • African-Americans and Latinos were 80 and 70 percent more likely, respectively, to get a subprime loan than were white borrowers, after controlling for the credit score, income, loan-to-value, and neighborhood characteristics.
  • Mortgages made to African-Americans and Latino borrowers were 20 and 90 percent, respectively, more likely to enter into foreclosure.
  • Loans purchased by the GSEs were half as likely to enter foreclosure as those held by private MBS investors.
  • The most telling loan terms for gauging subprime: the presence of either a balloon payment (72 percent subprime) or a prepayment penalty (54 percent subprime).

Other data points confound what might be expected.  For example, the share of subprime loans was highest in moderate-income

April 28, 2010

The Office of the Comptroller of the Currency has just released its latest CRA exam results. The news is hardly surprising - everyone passed!

In fact, of the 35 banks evaluated, 4 were given an "outstanding" and 31 were recognized as satisfactory. There were no "needs to improve" or "substantial noncompliance" ratings.

Grade inflation has run amok at the OCC for some time.

The OCC gave an outstanding rating to First National Bank of Audrain, located in Mexico, Missouri. This is in spite of the fact that FNB Audrain made no loans (zero) to low-income borrowers. There were plenty of low-income people in Mexico, Missouri. The OCC reports that it can characterize 16 percent of families in the area as low-income. FNB of Audrain made no loans in low or moderate income census

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