Comment by stcredzero | Hacker News Reader

Comment by stcredzero | Hacker News Reader

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> What I am saying is that now some lenders — banks — are under rules so tough they can’t support equality-enhancing mortgages

What is an equality-enhancing mortgage?

My wife works at a community bank which has been cited as an important institution for social justice on the west coast. Equality enhancing mortgages could well be mortgages accessible to under-served populations who have the financial means to pay them back, but who face cultural barriers or ethnic discrimination.

Community banks have been railroaded out of the home mortgage business. There are now a lot of timing-dependent requirements and really stiff penalties in the banking regulations. It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.

> It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.

This is a characteristic of nearly all federal regulations since approximately the Nixon administration, across all industries with incumbents large enough to fund lobbying at that level.

The industry does something outrageous, or whips up a media storm about some non-issue, so that calls to regulate come. Then the industry itself pulls a thousand page bill out of a drawer whose title sounds like it's going to do something good but whose details are all written by the industry's lawyers.

The average voter doesn't have the time or domain expertise to understand a thousand pages of dry legal text, so the bill passes and nobody figures out what's actually in it until a decade later when the evidence of what it allowed the industry to do starts to surface. Then we get a renewed call for laws to fix the "unexpected" disaster and the cycle repeats.

Hopefully at some point people are going to figure out that the answer is to remove federal regulations and pass local laws that purposely favor small local businesses with local ownership and ties to the community.

> could well be

Do you have any evidence of that - the discrimination part? Is there evidence that lending institutions choose to lend based on criteria other than ability to repay? Also, do/did smaller lenders fare as well or better than the big lenders during the financial crisis? Or were their loans more risky? I think that would be the strongest evidence either way.

Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?

Do you have any evidence of that - the discrimination part?

The various Chinatown community banks wouldn't even exist (and have greatly succeeded for awhile) if some form of cultural barrier didn't exist. The barrier isn't all the fault of one side or another. However, it's simply historical fact that big banks left a lot of money on the table -- in a way which could be characterized with gross demographics -- which smaller banks made their bread and butter for a few decades.

Is there evidence that lending institutions choose to lend based on criteria other than ability to repay?

Of course community banks choose to lend based on criteria other than ability to repay. Basically, community banks must use their advantage in local intelligence to distinguish between prospects who look a bit marginal but who are really strong, versus prospects who might look a bit marginal to normal but who constitute a risk. Basically, the big banks swoop up almost all of the "normal" customers and leave the smaller banks scrambling for the best of the odd ones left over.

Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?

An informed electorate.

Thanks to Dodd-Frank regulation, banks now don't offer "semi doc loans". Basically, the pendulum swung back to tougher underwriting standards. Before Dodd-Frank, banks and underwrites had huge discretion. So, that discretion was abused.

Now it is almost tough for self-employed, small business owners, to get mortgage through normal channels. When one doesn't get mortgage through normal channels, one goes to a FI(financial institution) that keeps these mortgages on their books. Such FIs charge extra interest rates, demand more downpayment like 30%, etc.

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