News-Record.com

Having done an essentially identical analysis in 1993 and gotten essentially the same response from both lenders and readers, I would only ask the (federally insured/regulated) banking industry to provide documentation of its claims that credit history is at the root of the problem. If that is in fact the case, I'm certain such documentation could be produced without violating any individual borrower's privacy.

This is a no-win situation for the lending industry. If they were to come forth with data to prove the assertion that certain racial groups have worse credit histories on average, then they would be subject to various other lines of attack.

There is one major aspect of the story which does not ring true. The lending industry, like many others, is intensely competitive. Money is made by lending money. It would make no sense for organizations which comprise this industry to exclude entire groups of individuals and thereby shrink their market share and potential profitability if these individuals are truly creditworthy. Why would a bank or lending institution, in these times, deny credit to a person who appears to be a good credit risk, thereby denying itself a potential source of revenue and profit?

It is doubtful that the markets that corporations function within today are even remotely like those that existed fifty years ago. The assertion behind the story, however, is that nothing has changed.

Perhaps the inverse should be required-- that the burden should be on the reporter to demonstrate objectively that all groups are equally creditworthy.

The issue, Joe, is not that more loans = more profit. It's that for many banks, some loans are not profitable ENOUGH.

As for why the newspaper doesn't attempt to demonstrate that all groups are equally creditworthy, it's simple: Federally insured banks are chartered by the federal government -- i.e., the people of the United States -- and are thereby privileged in the marketplace relative to other financial institutions. As a consequence, they are required under the Community Investment Act, among other laws and regulations, to serve all parts of the communities in which they do business. If they don't like that requirement, they can give up federal insurance. The burden is on them to prove they are complying with the law, not on racial or ethnic groups to prove they are, AS A GROUP, equally creditworthy.

Several points:

1. Some mortgage loans may not be as profitable as others; but throughout other sectors of the economy, loans are made with alacrity for items which may not yield nearly as much long term profit-- appliances, technology items, furniture, automobiles. What differentiates mortgage loans is that they typically carry a bigger ticket-- and thus more financial risk for the institution. They warrant a higher degree of care. The savings and loan crisis of the late 1980's is a useful example. When bad loans are made, it reverberates in other areas as well. Taxpayers have to bail out failing banks, and the economy is indirectly impacted. Also, bad loans lead to higher foreclosure rates; which in turn causes property devaluations in the neighborhood of the foreclosed property, as well as a bad hit to the lending institution.

2. The Community Reinvestment Act does not require lenders to make bad loans. It grants lending institutions the discretion to make loans consistent with "safe and sound banking operations". It grants these institutions some degree of flexibility to make decisions based on its own circumstances and local conditions. It does not prohibit the process of evaluating the creditworthiness of applicants, and making appropriate decisions based on these evaluations. The statement that the law requires them to "serve all parts of the community", while true in a broad sense, is a misleading oversimplication which misrepresents the lending institution's prerogatives.

3. The premise that "all parts of the community" are not being served is untrue. Many homes throughout Greensboro are owned by African Americans, including many in East Greensboro. This demonstrates that large numbers of loans have been made. Increasing numbers of African Americans appear to be finding a stable place in the middle class and attaining home ownership, and that is a good thing.

4. The American system generally seeks to provide equal opportunity, but does not guarantee equal outcomes. It is important to make this distinction.

5. My problem with the article is that it was a de facto accusation of discrimation. This is a very serious charge, with significant implications. I am not in any way connected to the lending industry. The American way, as demonstrated in our legal system, is that accused parties are considered innocent until proven guilty, and that the burden of proof is on the accuser (or the plaintiff). The scientific process requires that hypotheses be proven before they are represented as true. The newspaper cannot support the charge of discrimination, as alleged by the manner in which the presentation of the article was made, without examining the credit history and employment stability of applicants; without comparing these variables between those approved for loans and those rejected; and also by comparing these variables among ethnic and racial groups. The burden to do this is on the paper, not the lending institutions, because the newspaper made the charge. It should not ethically make the charge until it has proven its case, because making false accusations is a terrible thing which should be avoided. The recent episode of the woman injured at Wal-Mart is an example. A poor police officer was dragged through the mud unnecessarily for several days while the process unfolded.

Again, false accusations of this magnitude, even when merely implied, are terrible; and avoiding this requires an approach which emphasizes logical rigor, objectivity and doing the required footwork and research before going to print.

Joe, I'll let Matt Williams speak for his own work, but as a reader I think your claim that the article is a "de facto accusation of discrimination" is a classic straw-man argument.

The article identifies a discrepancy that is not attributable to random chance. It eliminates some, but not all, possible explanations for the discrepancy while pointing out that some possible explanations (e.g., credit history) that can be neither confirmed nor disproved on available evidence.

An interesting read! I'll consider what you said over my christmas holidays. I want The Sims 2 for Christmas!

An interesting read! I'll consider what you said over my christmas holidays. I want Grand good Theft Auto: San Andreas for Christmas!

An interesting read! I'll consider what you said over my christmas holidays. I want The Sims 2 for Christmas!

An interesting read! I'll consider what you said over my christmas holidays. I want The Sims 2 for Christmas!

An interesting read! I'll consider what you said over my christmas holidays. I want Grand good Theft Auto: San Andreas for Christmas!