NAACP Sues Mortgage Lenders

The NAACP is suing several major mortgage banks because the organization believes blacks have been steered in to high cost mortgage loans.  The NAACP is citing the Home Mortgage Disclosure Act (HMDA) data that is collected on all mortgage applications which identifies the racial make up of mortgage applicants.  A study of the data collected by the Federal Reserve by the National Community Reinvestment Coalition (NCRC) claims that blacks are more likely to have higher cost loans even when controlling for income.  Click here for a full copy of the study.

As a black mortgage broker, I am going to go on record and say that this lawsuit is bunk for a number of reasons:

Lack of Data 

First, the organizations completing the study are not analyzing the entire data set to come to their conclusion.  HMDA data does not include the other factors that go into underwriting decisions which may also impact interest rates such as loan-to-value, credit scores, debt to income, assets, etc.   While the data suggest that blacks are more likely to have higher interest rate, it does not necessarily mean that blacks are being purposely steered into higher cost loans.  The first thing learned in any statistics class is that a correlation does not imply causation.  In other words, just because two points are seemingly related to each other, does not mean that they cause each other.   Simply pointing out that blacks are more likely to have higher interest rates while ignoring the other factors does not qualify as indepth statistical analyses in my book.

The Wealth Gap 

The NAACP and the NCRC also cite that blacks with similar income are still more likely to have higher cost loans.  Based on my experience, this isn’t surprising either, but hardly indicates racism.  Having looked at the financial assets of hundreds of clients, I can without a doubt say that on average white borrowers tend to be better off financially and credit wise than black borrowers of similiar incomes.  What this is highlighting is a generational wealth gap that is just now being resolved. 

Blacks are barley one generation removed from Jim Crow laws and blatant racism.  My parents are old enough to have experienced drinking out of “colored” water fountains.  One of the results of our ugly past in this country is a generational wealth gap that is primarily caused by blacks being denied a lack of economic opportunity in the past.   This wealth gap often times negates benefits from high incomes which I theorize is one of the reasons the data suggest that even when controlling for income that blacks are still more likely to have higher interest rates.  

I deal almost exclusively with A paper borrowers and my average client probably has a household income of approaching $200,000.  Nearly all of my clients are first time home buyers.  A fairly large percentage of my white clients often receive gifts from their parents for down payments or already have substantial assets from inheritances and trust funds.  However, in nearly $100 million of closed loans over the past several years and having a decent number of black clients, I have yet to have a black client receive a gift for a down payment from their parents.   From my unscientific observation, my black clients tend to have more debts such as student loans and fewer assets available for purchases.  They are also much more likely to want 100% financing.  So while the incomes may be the same, the overall profile of the borrower is not.

Who is Doing the Steering? 

Finally, I have to ask if it is racism if the steering into high loans is being done by other blacks?  I wonder if any analyses has been done on the race of the loan officer providing the mortgage loans?  HMDA does not collect data on the loan officer’s race.   For the most part, mortgages are a relationship business.  People often work with others they trust.  It is not uncommon in this business for people to find a commonality and exploit it to the fullest.  Some of the worst con artist I have seen in this business focus on working with others of like races or associations.  For instance, I know of a mortgage brokerage here in Chicago that targets hispanic borrowers.  Most of the loan officers are hispanic and every loan probably is pushing the barriers the maximum legal fees allowed.   My guess is if one were to dig much deeper, this might be something the NAACP won’t want to admit – many of the loan officers sticking it to black consumers are also black.

While the NAACP has worked tirelessly to ensure opportunities and justice for all, I do have to say that this lawsuit is misguided and their time could be better spent elsewhere.