Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Archive for the ‘Predatory Lending’ Category

Listen to Interview on Predatory Lending with NAACP VP of Economic Programs From July 5 Economic Perspectives

Posted by Hopeton on July 3, 2010

The interview with Monique Morris, the Vice President for Economic Programs for the National Association for the Advancement of Colored People (NAACP) from the July 5 edition of Economic Perspectives on KAZI 88.7 FM is now available.  To listen click here: Monique Morris Interview.

Monique Morris

Morris discussed the NAACP’s strategy to combat predatory lending.  Since 2007, the NAACP has filed lawsuits against more than a dozen of the largest financial institutions alleging violations of the Fair Housing and Equal Credit Opportunity Acts and racial discrimination. She also provided an overview of the NAACP’s 101st National Convention being held in Kansas City, Missouri, July 11 – 15.

Morris has nearly 20 years of professional and volunteer experience as a scholar advocate in the areas of civil rights and social justice. Prior to joining the NAACP, Morris was the Director of Research and Senior Research Fellow at the Thelton E. Henderson Center for Social Justice at the University of California, Berkeley School of Law.

Morris is the author of the paper, Countering Discrimination in Mortgage Lending: An NAACP Guide to Fair Lending, and the principal author of the NAACP’s 2009 white paper, Year One: Toward Safe Communities, Good Schools, and a Fair Chance for All Americans, which was featured in the New York Times. Her paper, Discrimination and Lending in America: A Summary of the Disparate Impact of Subprime Lending on African Americans (NAACP), was featured for Congressman Al Green’s (D-TX) brain trust at the 2009 Congressional Black Caucus and was the focus of her presentation to the National Conference of Black Mayor’s 35th Annual Convention.

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Listen to Interview: Broke, USA: From Pawnshops to Poverty Inc. – How the Working Poor Became Big Business, From June 21 Economic Perspectives

Posted by Hopeton on June 19, 2010

Gary Rivlin, author of Broke, USA: From Pawnshops to Poverty Inc. – How the Working Poor Became Big Business, was one of the June 21 guests on Economic Perspectives.  Listen to my interview with Rivlin by clicking Gary Rivlin Interview:

Summary of Book from the Publishers Web Site

For most people, the Great Crash of 2008 has meant troubling times. Not so for those in the flourishing poverty industry, for whom the economic woes spell an opportunity to expand and grow. These mercenary entrepreneurs have taken advantage of an era of deregulation to devise high-priced products to sell to the credit-hungry working poor, including the instant tax refund and the payday loan. In the process they’ve created an industry larger than the casino business and have proved that pawnbrokers and check cashers, if they dream big enough, can grow very rich off those with thin wallets.

Broke, USA is Gary Rivlin’s riveting report from the economic fringes. From the annual meeting of the national check cashers association in Las Vegas to a tour of the foreclosure-riddled neighborhoods of Dayton, Ohio, here is a subprime Fast Food Nation featuring an unforgettable cast of characters and memorable scenes. Rivlin profiles players like a former small-town Tennessee debt collector whose business offering cash advances to the working poor has earned him a net worth in the hundreds of millions, and legendary Wall Street dealmaker Sandy Weill, who rode a subprime loan business into control of the nation’s largest bank. Rivlin parallels their stories with the tale of those committed souls fighting back against the major corporations, chain franchises, and newly hatched enterprises that fleece the country’s hardworking waitresses, warehouse workers, and mall clerks.

Journalist Gary Rivlin is the author of four previous books. His first, Fire on the Prairie: Chicago’s Harold Washington and the Politics of Race, won the 1993 Carl Sandburg Award for Best Nonfiction; his second, Drive-By, was a New York Times notable book of the year and a finalist for a PEN-West award. He has worked as a staff reporter for The New York Times, where his beats included Silicon Valley and New Orleans after Hurricane Katrina, and his work has appeared in The New York Times Magazine, GQ, Salon, Newsweek, and Wired, among other publications.

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Access to Capital for Black Firms Focus of Economic Perspectives January 11

Posted by Hopeton on January 9, 2010

Note: If you’d like to be informed when the interview with Alicia Robb is available for download please email hopeton@econpers.com.

Alicia Robb, co-author of the research paper Financial Capital Injections among New Black and White Business Ventures: Evidence from the Kauffman Firm Survey, will be the January 11 guest on Economic Perspectives , 5:30 p.m. – 6 p.m. central time on KAZI 88.7 FM.  Listen to the interview live online at http://www.live365.com/stations/kazifm?site=pro&play

Robb has co-authored numerous papers on access to capital for Black businesses including Access to Financial Capital among U.S. Businesses: The Case of African American Firms, published in the Annals of the American Academy of Political and Social Science in September 2007 and Why Are Black-Owned Businesses Less Successful than White-Owned Businesses: The Role of Families, Inheritances, and Business Human Capital, published in the Journal of Labor Economics in April 2007.

Alicia Robb

Robb, a senior research associate at the University of California at Santa Cruz, co-authored the Financial Capital Injections paper with Robert Fairlie, a professor of economics at the University of California at Santa Cruz ,and David Robinson, a professor of finance at Duke Unversity.

In the paper Robb and her co-authors write:

“We find that black-owned businesses face persistent difficulty in accessing external capital markets. Black-owned businesses rely much more on owner equity than do white-owned businesses indicating that black-owned businesses face more difficulty in raising external capital. Direct evidence on average levels of external capital reveals large racial disparities between blacks and whites.”

Robb is the co-author with Robert Fairlie of the book Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States.   She is also a senior research fellow at the Kauffman Foundation and a senior economist at Beacon Economics.  Formerly, Robb was an economist for the Federal Reserve Board of Governors and the Office of Economic Research at the U.S. Small Business Administration.

She completed her Ph.D. in economics from the University of North Carolina in 2000 with the dissertation The Role of Race, Gender, and Discrimination in Business Survival.”

Posted in African American, Banking, Books, Business, Interview, minority business, Predatory Lending, Radio | Tagged: , , , , , | Leave a Comment »

The Community Reinvestment Act Did Not Cause the Subprime Mortgage Meltdown

Posted by Hopeton on May 14, 2009

By Hopeton Hay

With the crisis in the American banking and finance system, there is a growing chorus of voices attempting to lay some of the blame for the subprime mortgage meltdown at the feet of the Community Reinvestment Act (CRA) and efforts to promote homeownership for low income and minority families.  Last October in a column on the financial crisis called The Roots of Our Disaster in the Austin American Statesman, columnist Scott Burns referred to the Community Reinvestment Act as one of the “Four Horseman of Our Apocalypse.”   He blamed “innovations to mortgages to comply with CRA” charging that it forced “the institutional reduction of lending standards.”

Hopeton Hay

Hopeton Hay

Others have argued that the efforts by Congress, the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, and others to increase homeownership in low income and minority communities played a significant role in the subprime mortgage debacle.  At the same time however, CRA advocates expressed strong concern about the growth of subprime lending in low income and minority communities

If CRA and promoting increased homeownership in the minority community played major role in the subprime disaster, why did that occur now?  CRA has been around since 1977, enforced in earnest since 1989, and enjoyed unprecedented federal support during the Clinton Administration. It was in 1989 that Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), which amended the CRA, giving it more teeth, and required collection of data on home loans by race.  In 1994 HUD launched the National Homeownership Strategy. 

When one reviews the rules of CRA and the concerns expressed by CRA advocates with subprime mortgage lending to minorities it renders those arguments baseless.

So what is CRA and does it require financial institutions to loosen underwriting standards loans to comply?  According to the Community Reinvestment Act and Interstate Deposit Production Regulations, CRA requires federal financial supervisory agencies “to assess an institution’s record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency’s evaluation of an application for a deposit facility by the institution.”

Well the first thing of note is that CRA applies to depository institutions. According to testimony on CRA provided to the U.S. House of Representatives Financial Services Committee on February 8, 2008 by University of Michigan Law Professor Michael Barr, more than half the subprime mortgages were originated by independent mortgage companies in 2005.  That is half the subprime mortgages were made by lenders not being examined for compliance to CRA. 

The second important fact from the CRA rules is the expectation that credit needs are met in a safe and sound manner.  Now the rules do encourage some underwriting flexibility.  The rules state that “Banks are permitted and encouraged to develop and apply flexible underwriting standards for loans that benefit low- or moderate-income geographies or individuals only if consistent with safe and sound operations.”   Yes, flexibility is encouraged, but not mandated, but it still must be done in a safe and sound manner.  There is a section in CRA rules called safe and sound operations that says “the CRA does not require a bank to make loans or investments or to provide services that are inconsistent with safe and sound operations. “ 

Some of the leading CRA advocates expressed concern about the use of subprime loans long before the meltdown.  Many of them felt that racial minorities and low income communities were being disproportionately targeted by subprime lenders.  In 2002, the Center for Community Change’s Neighborhood Revitalization Project published a report, Risk or Race? Racial Disparities and the Subprime Refinance Market.  In the executive summary of the report, the Center for Community Change declares its concern thathigh foreclosure rates for subprime loans indicate that many subprime borrowers are entering into mortgage loans they cannot afford.”

Also in 2002, the Southwest Regional Office of Consumers Union published the report, Minority Subprime Borrowers.  Like the report from the Center for Community Change, the report focused on the disproportionate number of subprime loans being made in minority communities, but examined it from a Texas perspective and looked only at home refinancing. The report recognized the danger of subprime lending saying that,  “Subprime lending can have disastrous consequences for low income and minority communities.”  Consumers Union went even further recommending state legislation that would “require loan counseling for any borrower getting a high cost loan during the existing 12 day waiting period before the loan closes” and “prohibit lending without due regard to repayment ability.”

In the 2005 report by the National Community Reinvestment Coalition (NCRC), The 2005 Fair Lending Disparities: Stubborn and Persistent II, concern about the impact of subprime lending was again the major focus. “Our analysis revealed a disproportionate amount of high-cost lending targeted to vulnerable borrowers and communities…,” wrote NCRC.

“Further,” comments NCRC, “ the pervasiveness of subprime lending in communities of color, in all regions and in metropolitan areas of all sizes, raises important public policy concerns about possible adverse implications stemming from these heavy geographic concentrations.”

As the information above clearly reveals, CRA advocates identified the threat of subprime lending long before it threatened the financial stability of our banking industry and were concerned about its heavy concentration in low income and minority communities.  They clearly did not support market driven subprime lending with little regulation.  Also, while CRA did give banks permission to modify underwriting to meet the lending needs of low to moderate income communities, it was not a requirement, and the regulators made it plain that it should be done in a safe and sound manner.  As articles written recently in the New York Times document, it was the desire for quick and easy profits more than anything that drove many of the decisions that led to the subprime meltdown.

Hopeton Hay is editor and publisher of the Economic Perspectives blog and chairman of the Economic Development Committee of the Texas NAACP.  He also spent 5 1/2 years working for the NAACP Community Development Resource Center, a CRA partnership between the NAACP and Bank of America.

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