This article illustrates the entire problem with the lending industry in this country. You don't have to read the entire article, just read the executive summary on page 3. Basically what this article expresses is: Definition of a good lender: A kind hearted lender that makes low-interest high-risk loans to less qualified applicants without increasing the rate for the additional risks. In fact, these kind-hearted lenders are stupid and engaging in unsound lending practices. Definition of a bad lender: A mean spirited lender (probably a damn Republian) that actually has the nerve to adjust the rate to compensate for the additional risk. In fact: These mean spirit lenders are using sound lending practices.
This line of bleeding heart thinking is typical of the mentality in this country. The entire purpose of collateral valuation and risk management is to protect the lending industry. We have all kinds of appraisal and lending regulations to insure the soundness of the banking system, but then the bleeding hearts come out with this kind of crap and undermine the entire process.
The article talks about lending to women and minorities. Why would these two groups be singled out for special consideration? The obvious answer is they present much higher risks. So here is what is happening: One branch of the regulatory structure is passing rules and regulations to protect the integrity of the system while the political wing at the same time is undermining the entire process by forcing the lending industry to circumvent and corrupt the spirit and intent of the entire process.
I will confess, at one time many years ago I felt the same way but got over it. I was working in our family brokerage firm and doing some appraisals in the early 70's. Our next-door tenant in a community shopping center was a company named C.I.T. Financial services. They made second mortgage loans to high-risk clients. Market interest rates were around 8% at the time and these sharks were charging 11%. We looked down on then and considered them loan sharks.
One day their regional manager came into our office asked if we would be willing to do their appraisal work. Against my wishes, my dad volunteered me for the job. It didn't take me long to get educated. After about two months of dealing with these clients I came to the conclusion that an 11% interest rate was to low. Every loan is with some off the wall property and the vast majority of clients are the day-late and dollar-short crowd. They don't show up for appointments, lie like hell, own substandard properties in and have a nack for finding screw deals, you name it. Working with this crowd is a totally different experience.
I remember one instance when I did an appraisal for a businessman for a CIT loan. About two months later I was talking with the LO. The LO told me the borrower's business was in trouble and the only asset he had left was $5,000 equity in his home. He floated the loan, got his $5,000 equity, went to a horse-race track in WV, and put the entire $5,000 on a 10 to 1 long shot, and believe it or not won! That pretty well sums up the thinking of that crowd.
Another thing I learned a long a time ago is that you are not doing people a favor when you over appraise a property, actually you are selling them into slavery in the short term and undermining the market to further exclude them in the long term but I have never been thanked for my efforts in their behalf.