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It seems like there's a business opportunity for someone who wants to set up a lending company that offers black families fair and favorable terms on mortgages.

• jtchang 10y ago
  Why would there be a business opportunity here? Banks can already do this but they don't. Maybe it is more risky so they charge higher rates.
  • maerF0x0 10y ago
    Or maybe racism falsely informs that risk model? If that's the case then one can likely deploy capital like its low-risk to "higher-risk" (and thus higher APR) loans. Of course competition will eventually destroy this model, but initially it could be profitable.
    • angry-hacker 10y ago
      I don't think the models for giving loans are racist, they are based on facts and reality.
      • pwinnski 10y ago
        Sadly, this is demonstrably untrue. A purely-math-based approach would still bear the weight of past racist policies and their residual effects, but that's not even what we have today.
  • stult 10y ago
    It's something of a self-fulfilling prophecy. Denying minorities equal access to lending limits demand for houses in minority-dominated areas, which in turn limits the return on housing in such areas. Similarly, when white people start fleeing a neighborhood because of increased minority (especially black) residents moving in, that drives down house prices, driving further white residents out. The resulting price spiral guts what once made the neighborhood desireable. Thus, it is actually rational for a white home owner to sell immediately after minority residents move into their neighborhood, even if they aren't motivated by any racial animus. It is correspondingly rational for bankers to price loans to minorities at higher rates because of the increased risk they represent. So to a certain extent, bankers don't loan to minorities because bankers don't loan to minorities. Someone, somewhere needs to break the negative feedback loop. That was the intention of the Fair Housing Act, but it hasn't been enough. Partially because of inadequate enforcement and partially because home ownership is only one tiny aspect of the vast and complicated beast that is race in America. Even if black Americans had perfectly equal access to lending and housing, the racial income gap would still exclude them from many of the least integrated areas, which also happen to be where the best schools and opportunities for improving income are. It's shitty and I don't pretend to have any inkling of how to address these problems. But I don't think you can justify bankers or white flighters or blockbusters or whomever by saying they are responding rationally to real risks and incentives. That just means the risks and incentives need to be changed, because the social consequences have been awful for Americans in general and minorities in particular.
• new_hackers 10y ago
  This already happened with predatory lending and sub-prime mortgages.
  • iamdave 10y ago
    Unless I misunderstood various explanations of the sub-prime crisis, this is a Mount Olympus sized characterization is it not? "Favorable terms" doesn't implicitly mean a repeat of the multivariate conditions that caused the housing collapse, just as the housing collapse can't be strictly pinned on "favorable" mortgages. Welcome to correction here from a more informed perspective.
    • new_hackers 10y ago
      I'm saying that there at one time was a business opportunity for someone who wanted to setup a lending company that offers black families fair and favorable terms on mortgages. (Granted, there may be some gray area on 'fair and favorable'). Partially because of Fannie Mae and Freddie Mac and the Community Reinvestment Act, banks were incentivised. Black families were targeted by predatory lenders who knew the rules well enough to get the loans for the individuals, individuals who perhaps were not in an economic position to be able to fulfill the agreements of the loans, then resell them in mortgage backed securities. At the micro level, the Community Reinvestment Act was "a good thing". We as a society want everyone to have a home. However, it did have negative consequences at the macro level. So there was a business opportunity at one time. Is there today? I don't know. And yes, it was probably an over-characterization.