Community Forum on Lending – Why do African Americans pay more in Central Virginia? Part 4

So, we understand what has happened, heard from the panelists and understand some of the discussion at our roundtable.

What should we do from here?  I don’t pretend to have all of the answers and it will take many of us to make meaningful change.  It will take community organizations to say to its members, “Do not let a loan officer take advantage of you.”  It will take education provided by groups like CVaMP (archived: 2014) to underserved African American, Hispanic and Asian area residents.  Virginia’s General Assembly must act.

Here’s what one loan officer suggests:

CVaMP should reach out to our minority Charlottesville area loan officers to join our organization.  None of the loan officers in attendance, as one observant participant noted, included any “brown faces.”

As our Realtors are typically the gateway to home ownership, Charlottesville Area Association of Realtors should play a large part.  The current Strategic Plan (no longer available) (PDF) does not call Realtors to better serve the underserved communities.

Our Commonwealth’s delegates from this area, Del. David Toscano, 57th (D) and Del. Rob Bell, 58th (R) should, with input from local loan officers, submit bills to restrict out-of-state predatory lenders, and require loan officers to pass a rigorous examination to obtain a license to originate loans.  Now is the time to start the public discourse, find out where we agree, compromise where we don’t and shine the light on those who are reluctant to improve our industry’s practices.

Congress has several bills under consideration right now.  I promised in a previous post to address Josh Silver’s unqualified support for all each of the following bills: S 1299, HR 3081 and a yet-to-be filed bill from Rep. Barney Frank.  The Borrower’s Protection Act of 2007 seems innocuous, but limits stated income loans.  There is a place for these loans.  For example, for a newly self-employed borrower, with a long history in the same line of work, stated income is appropriate.

House bill 3081, aka Fairness for Homeowners Act of 2007 again sounds good on the surface, but includes a provision prohibiting prepayment penalties on conforming adjustable rate mortgages.  The sub-prime lenders, who typically require prepayment penalties must do so in order to make their product attractive enough to investors.  Prepayments for a 2/28 ARM typically exist for the first two years.  I helped a single woman earlier this year refinance out of a 2/28 ARM one day after the prepayment ended.  Those two years gave her the time to improve her credit rating in order to get a prime loan from me.

Rep. Barney Frank’s (archived: 2017) potential legislation may include a prohibition from receiving a Servicing Release Premium (SRP) (no longer available), which is how my company typically receives compensation.  This is an efficient method for delivering “0” point loans to my clients, and this usually delivers the best interest rate options also.  So, Congress means well, but all legislation must be analyzed for benefits and unintended consequences.

My own firm should set firm goals for minority loans originated in 2008.  Further, we should seek to originate these loans on prime terms.  In an un-audited examination of our own loans, I found that we may have originated as much as 6% of our loans as “high cost” in 2005.  Not one was to a minority.  Further, as we view our average Annual Percentage Rate (APR) (archived: 2011) for 2005, 19% of the minority loans that we originated exceeded that APR average, while 81% were below the average.  I’m not claiming to be a saint, mind you, I’m just glad that our company’s vision, which encourages all clients to be treated fairly and equitably, actually was met.

Finally, loan officers need to involve ourselves in our community.  We must get out of our comfort zone and meet people who are unlike ourselves, either because of race, national origin, age, marital status, sex, color or any other of the traits that differentiate us.  We should forge relationships in Charlottesville that will benefit all.  I’ll keep you informed as we make progress.

Ed Note: This is part four of a four-part series of posts authored by Matt Hodges, a mortgage broker in Charlottesville (archived: 2009). This matter is of vital importance to the Charlottesville area real estate market, and all citizens and real estate professionals should know as much as possible about it. That so many members of the community are talking is surely a positive sign.

Part 1 is here.
Part 2 is here.
Part 3 is here.