Thiebear Posted May 12, 2011 Share Posted May 12, 2011 http://www.businessweek.com/magazine/content/11_20/b4228031594062.htm Community activists in St. Louis became concerned a couple of years ago that local banks weren't offering credit to the city's poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators. Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group's targets, Midwest BankCentre, a small bank that has been operating in St. Louis's predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don't discriminate, Midwest BankCentre's latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices. Lawyers and bank consultants say regulators and the Obama Administration are scrutinizing financial institutions for a practice that last drew attention before the rise of subprime lending: redlining. The term dates from the 1930s, when the Federal Housing Administration drew up maps using red ink to delineate inner-city neighborhoods considered too risky for lending. Congress later passed laws banning lending discrimination on the basis of race and other characteristics. "The agencies have refocused on redlining because, in the wake of the subprime explosion and sudden implosion, they are looking at these disadvantaged neighborhoods and not seeing any credit access," says Jo Ann Barefoot, co-chair at Treliant Risk Advisors in Washington, D.C., which consults with banks on regulatory issues. The 1977 Community Reinvestment Act (CRA) requires banks to make loans in all the areas they serve, not just the wealthy ones. A Bloomberg analysis found the percentage of banks earning negative ratings from regulators on CRA exams has risen from 1.45 percent in 2007 to more than 6 percent in the first quarter of this year. I don't have an issue with 5% increase from 2007 to 2011 in 'unfair' lending if: 2007 = chaos 2011 = too strict You can't say no due to race, but you better say no due to a 615 credit score, 60k a year gross and a 98% loan is needed to put down the 20% on a 350,000 house. Lets not relive the past while it still stings.. 5yr olds and below should be the only to manage that. Link to comment Share on other sites More sharing options...
DRSmith Posted May 12, 2011 Share Posted May 12, 2011 This is sad to me lending money should pretty much be a science, you make this much you owe this much you can afford this much, case closed. Link to comment Share on other sites More sharing options...
zoony Posted May 12, 2011 Share Posted May 12, 2011 There probably always will be a subprime market. What do you think payday advance and car title loans are? Subprime simply means loaning money to people with the low credit scores. If it is done responsibly I don't see a problem with it whatsoever. What, libertarians like Thiebear are against free markets? Link to comment Share on other sites More sharing options...
Bang Posted May 12, 2011 Share Posted May 12, 2011 Ridiculous for citing a bank for not opening a branch in a given area. I'm no buddy of the banks, but that is just stupid. I don't see how they can get away with demanding a bank open a branch in an area they don't want to expand to. ~Bang Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted May 12, 2011 Share Posted May 12, 2011 I think you will only see more claims of redlinning in the near future, even among the big full spectrum lenders. While prices in the DC area are showing signs of stabilization, many other places are not. The huge volume of 'shadow inventory' (homes in foreclosure/owned by bank that are not yet for sale) in many non-prime neighborhoods is putting further pressure on homes prices in poorer areas. This makes the loans riskier than in places where prices have stabilized. Banks would be wise to ensure that if they are making lending decisions based on their fears that a property will depreciate further that they do so using some sort of evenly applied metric. It is still likely that this metric would 'flag' homes in poorer areas as a risky loan more often than more established zones, however, at least they would then have something to fall back on as to why they were not lending. Otherwise, at first glance, it sure would look like racial redlinning. Link to comment Share on other sites More sharing options...
TimmySmith Posted May 12, 2011 Share Posted May 12, 2011 What, libertarians like Thiebear are against free markets?How is a government crackdown on a business practice a free market? Link to comment Share on other sites More sharing options...
Stadium-Armory Posted May 12, 2011 Share Posted May 12, 2011 This bank doesn't want to loan money to people who can't pay it back? Give them an award. Link to comment Share on other sites More sharing options...
Larry Posted May 12, 2011 Share Posted May 12, 2011 I see that we're still trying to push the claim that refusing to do any business whatsoever in minority neighborhoods equals refusing to loan money to deadbeats. Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted May 12, 2011 Share Posted May 12, 2011 I see that we're still trying to push the claim that refusing to do any business whatsoever in minority neighborhoods equals refusing to loan money to deadbeats. Not sure if that was to me, but i more equate it to not wanting to lend in areas that are statistically more likley to continue to depreciate at a greater rate than more established neighborhoods. The rise of lending in poorer areas (both subprime and traditional lending) led to a pretty big spike in home ownership in these areas. Unfortunatly, as a result of them being poorer, they were frequently hit harder by the economic crisis and had more foreclosures which continues to put downward pressure on home prices. I see a legitimate reason to avoid neighborhoods that are greater risks for home prices falling, but you better have your numbers to back it up. Link to comment Share on other sites More sharing options...
TimmySmith Posted May 12, 2011 Share Posted May 12, 2011 I see that we're still trying to push the claim that refusing to do any business whatsoever in minority neighborhoods equals refusing to loan money to deadbeats.That appears to be the position the Government is taking. Link to comment Share on other sites More sharing options...
Stadium-Armory Posted May 12, 2011 Share Posted May 12, 2011 I see that we're still trying to push the claim that refusing to do any business whatsoever in minority neighborhoods equals refusing to loan money to deadbeats. The article says: "disadvantaged areas". I can't fault a bank for not lending to someone who doesn't have the advantage of repayment. Discrimination based on race is unacceptable. Discrimination based on economics is smart business. Link to comment Share on other sites More sharing options...
SnyderShrugged Posted May 12, 2011 Share Posted May 12, 2011 And here I thought the consensus of the housing market crisis was the culmination of high risk debt that was given to people who couldnt pay? Am I reading correctly that the Feds now are investigating banks that DONT want to suffer that fate another go around? Link to comment Share on other sites More sharing options...
Destino Posted May 12, 2011 Share Posted May 12, 2011 The article says: "disadvantaged areas". I can't fault a bank for not lending to someone who doesn't have the advantage of repayment.Discrimination based on race is unacceptable. Discrimination based on economics is smart business. Bank's are federally regulated and redlining has been outlawed for a long time. Banking being essential for upward mobility in the US if you want to operate a bank you can't only operate it in high income areas. Look up the history of redlining for more information on why this is. Also this isn't subprime lending. There are lower income people in the US with little debt and great credit scores. Link to comment Share on other sites More sharing options...
Stadium-Armory Posted May 12, 2011 Share Posted May 12, 2011 Bank's are federally regulated and redlining has been outlawed for a long time. Banking being essential for upward mobility in the US if you want to operate a bank you can't only operate it in high income areas. Look up the history of redlining for more information on why this is. Also this isn't subprime lending. There are lower income people in the US with little debt and great credit scores. Fair enough. I think maybe what I initially missed about this is that banks might not lend to ANYONE in certain areas because of the general economic well being of that area, which of course discriminates against the people in that area who actually are good candidates for credit. I wonder though from a business perspective if it makes sense for a bank to open a branch in an area where many of the inhabitants aren't candidates for credit. It seems that business owners would want to locate their banks in areas that have the highest saturation of possible customers. Link to comment Share on other sites More sharing options...
SkinsHokieFan Posted May 12, 2011 Share Posted May 12, 2011 What, libertarians like Thiebear are against free markets? It looks like the market is saying "we don't want to lend to people with these scores and ratios because of the risk" and the government is saying "yes you will" Not sure how this flies in the face of that? :whoknows: Link to comment Share on other sites More sharing options...
Destino Posted May 12, 2011 Share Posted May 12, 2011 It looks like the market is saying "we don't want to lend to people with these scores and ratios because of the risk" and the government is saying "yes you will" Not sure how this flies in the face of that? :whoknows: My response to that is simple. There are two choices: 1) Banks open branches in all areas so that all people have access to banking. Banking being essential to US upward mobility and frankly day to day life. It's not just about lending! 2) State banks reappear after the big banks fought long and hard to close them down. We aren't talking about a big screen TV store here. Banking is needed. Link to comment Share on other sites More sharing options...
SkinsHokieFan Posted May 12, 2011 Share Posted May 12, 2011 My response to that is simple. There are two choices:1) Banks open branches in all areas so that all people have access to banking. Banking being essential to US upward mobility and frankly day to day life. It's not just about lending! 2) State banks reappear after the big banks fought long and hard to close them down. We aren't talking about a big screen TV store here. Banking is needed. I think in 2011 the neccessity of a branch is not what it was in say the 1960s. There are many ways to bank without ever going into a bank. I make multiple bank transactions a week but probably step into a bank once a month. Link to comment Share on other sites More sharing options...
Stadium-Armory Posted May 12, 2011 Share Posted May 12, 2011 I haven't been in a bank branch in 2 years, since switching to USAA and doing all my banking over the web (scan and upload deposits). Maybe the fact that I have a computer and internet access makes that possible, and I could buy an argument that lower income individuals who don't have teh internets still need branches. I would also argue though that you can't expect private businesses to worry about providing essential services "just because they're essential". Sure people need banks, but if it doesn't make economic sense, you can't expect a private business to do it just because. Things that are THAT essential, could maybe be state run? Link to comment Share on other sites More sharing options...
zoony Posted May 12, 2011 Share Posted May 12, 2011 How is a government crackdown on a business practice a free market? It looks like the market is saying "we don't want to lend to people with these scores and ratios because of the risk" and the government is saying "yes you will" Not sure how this flies in the face of that? :whoknows: I take exception with the way the debate over subprime is being framed. That "subprime is back", i.e. the government forcing private industry to loan to poor people. What a crock of steaming ****. It's a poor substitute for actual knowledge of the subprime crisis and what happened.. ..... Link to comment Share on other sites More sharing options...
Rocky21 Posted May 12, 2011 Share Posted May 12, 2011 I think maybe what I initially missed about this is that banks might not lend to ANYONE in certain areas because of the general economic well being of that area, which of course discriminates against the people in that area who actually are good candidates for credit.THIS is the definition of redlining and it is a big no no for banks. . Link to comment Share on other sites More sharing options...
TimmySmith Posted May 12, 2011 Share Posted May 12, 2011 I take exception with the way the debate over subprime is being framed. That "subprime is back", i.e. the government forcing private industry to loan to poor people.What a crock of steaming ****. It's a poor substitute for actual knowledge of the subprime crisis and what happened.. Anyone who does not hold the government complicit in the sub-prime fiasco wasn't paying attention.And I know your "free market" jab was tongue in cheek, but still it was way off. Link to comment Share on other sites More sharing options...
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