Posts tagged ‘fair lending’

State Investigates Mortgage Lending Practices in Buffalo

Governor Cuomo and the New York State Department of Financial Services (DFS) issued a strongly worded report criticizing mortgage lending practices in the Buffalo area.  The DFS’ investigation was based on an analysis of HMDA data comprising the Buffalo Metropolitan Statistical Area (MSA), which includes the Counties of Erie, Niagara and Cattaraugus and the City of Buffalo. 

According to the Governor’s Press Release, “Buffalo remains one of the most racially segregated cities in the United States decades after the practice of redlining and other forms of housing discrimination were banned by law. DFS’ report found a distinct lack of lending by mortgage lenders, particularly non-depository lenders, continues today in Buffalo neighborhoods with majority-minority populations and to minority homebuyers in general.”

Although the report highlighted the Buffalo area, it reflects what is likely to be a strong push on the part of both federal and state regulators to use Fair Market Lending laws to tackle patterns of racial inequality.  For example, the Department begins the report by noting that much of the racial housing patterns in the area have their roots in government policies dating back to the Great Depression. Nevertheless, the Department concludes that mortgage lending practices should better address these disparities.

The report also highlights the fact that much of the lending in Buffalo is done by non-depository banking institutions, which are licensed by New York State.  It suggests that the State Community Reinvestment Act be amended to incorporate non-depository lending institutions such as mortgage banks.

My Good as Tier I Capital Super Bowl Prediction

On a much lighter note, yours truly is ready to make his good as gold Super Bowl prediction after having been half right in predicting that Tampa Bay would be meeting the Ravens this Sunday.  I apologize for underestimating the Buffalo Bills.  The Chiefs are favored by three points.  I say give the points, take the money:  Chiefs 38-Tampa Bay 20.  Enjoy your weekend, folks.

February 5, 2021 at 9:04 am Leave a comment

Why You Need To Know Your Member’s Digital Footprint

Regardless of how big or small your credit union is, its  ability to capture and understand the digital footprint of its members  and use it to make lending decisions is going to be a key determinant of its future success or failure.

This point was crystalized for me Wednesday by Manju Puri of Duke University and the FDIC, who summarized research she conducted which demonstrates just how powerful and important digital information is becoming. Using ten easily accessible variables she and her fellow researchers were able to determine with accuracy comparable and at times exceeding the credit bureaus whether or not an individual is a good lending risk. The relatively limited dataset  included information seemingly  unrelated to lending such as the time of day a website was accessed; the email service provider  used; the email address chosen by the user and my personal favorite, whether a user consistently uses lowercase when writing email. Other more technical information included whether the consumer used a tablet, phone or computer to go online; the operating system they used and if their customer uses settings authorized device tracking.

Using this data, the researchers concluded that the simple variables are reliable proxies “for income, character and reputation and are highly valuable for default prediction.” Furthermore, “variables that proxy for character and reputation are also significantly related to future behavior.” This data set is important because it is information that all but the most technology resistant Luddite is going to generate.

For me, this research crystalizes many of the unique issues involving credit unions and the digitalization of marketing and lending. One of the biggest advantages that credit unions and true community banks have always had: They literally know their members and  have  used anecdotal highly personal information to make judgments about lending decisions which big lenders could never justify based on credit scores alone. Big data wipes out this advantage. It allows the biggest banks to account for character and other intangibles in a way they never could before.

This also  underscores the importance of data access. Imagine if the biggest companies and banks are allowed to maintain a monopoly of the most predictive data? This is a huge barrier to entry and competition. As an industry,  we have to broaden our focus so that we not only have a position on greater data security but on ensuring greater access to data for all institutions.

The final point that comes to mind is how far ahead the computer programmers are  , particularly when it comes to fair lending. Every day, data miners are refining increasingly complex algorithms that will predict precisely who will want and qualify for a loan and under what conditions. Simply put, the days of ecstatic limited set of lending criteria with well understood correlations to race are over. For example, I don’t believe the researchers who discovered a correlation between capitalization and lending are seeking out tricky ways to discriminate but the reality is no one knows if this and similar data will disproportionally exclude otherwise qualified individuals from getting loans on the basis of race. In addition, we certainly don’t know whether more benign criteria could be substituted in its place. For those of you who find this aspect of the debate as interesting as I do, here is another paper that was presented at the conference.

April 26, 2019 at 9:26 am 1 comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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