Wednesday, May 26, 2010

The Fairness Doctrine Part II

Yesterday's post received an anonymous comment which I thought brought up some very good points, so I wanted to address those in today's post. First, I think my intention in writing as I did was misunderstood. I was not intending to imply that I believe that the rules of underwriting or credit scoring should be tilted in favor of those who have had a rough time in life. I was merely pointing out that bad things happen to a lot of people.

Working in the mortgage industry for 12 years, I have met thousands of people and I have gotten to know them and hear their stories in a way that I would not have in any other profession. And I have met a lot of people who keep their financial lives in a perpetual mess because they choose to, but I have also met people who really have been dealt a bad hand. One reason that a consistent standard of underwriting guidelines which is evenly applied to everybody is critical is that we can't make lending decisions based on emotion, or personality, or likes or dislikes. We have to make decisions about lending based on a set of criteria which is the same for everyone.

The other point that the author made was that I did not define what I meant by fair. That actually set me to thinking, because I had not really thought about all of the nuances of the word's meaning. Growing up, I thought "fair" meant following the golden rule, "do unto others as you would have them do unto you." When I got into the mortgage business, I learned that there is a legal standard for fairness in lending as codified in the Equal Credit Opportunity Act and the Fair Housing Laws. On the wall in my offices, I have a poster printed by HUD which states that "It is illegal to discriminate against any person because of race, color, religion, sex, handicap, familial status, or national origin." This poster, which is required to be displayed in all mortgage lending offices, serves to remind the loan officer and the borrower that all people are entitled to be treated fairly. Tonight I did a quick on line search of definitions for the word "fair." The Encarta World English Dictionary defines "fair" as "reasonable or unbiased; not exhibiting any bias therefore reasonable or impartial; done according to the rules." I think I like that last definition best, "done according to the rules." There should be one set of rules for everyone--evenly applied to all.

However, the point that I wanted to make yesterday was that this is not the definition that consumer advocacy groups have of the word "fair". Their concept of fairness is based on something else entirely.

The first time I attended a legislative conference in Washington D.C. (early spring of 2001) I was very nervous because I was told that the year before activists from ACORN (the Association of Community Organizers for Reform Now) had stormed the conference and protested it saying that all mortgage lenders were a blight on mankind. Long before the rest of the nation was really aware of ACORN's existence, we in the mortgage community knew about them because they constantly fought to destroy mortgage brokers and mortgage lending as it existed in the US. On a google search of ACORN's website, under the Housing Tab, I found posted a list of initiatives which they believe need to be enacted to make lending "fair." Among these is a demand that tax credits for mortgage interest and property taxes be abolished for all but lower income families. We know what ACORN'S ideology is from statements that their Chief Organizer, Bertha Lewis, made in April while speaking to a group of young people, "First of all, let me just say any group that says, 'I'm young, I'm Democratic, and I'm a Socialist is all right with me."

Well, you may say, ACORN has been defunded so it really does not matter what they say. But there are a lot of other groups with the same mindset. A website calling itself Americans for Financial Reform lists links to dozens of organizations which are devoted to seeing financial reform happen. These include various organizations including the AFL-CIO, and AARP and a large number of consumer advocacy groups including the Center for Responsible Lending, which posts on its website a statement supporting Bureau of Consumer Financial Protection as outlined in Senate Bill 3217. The two page statement lists on the first page a breakdown explaining why the Bureau of Consumer Financial Protection will be a wonderful advocate for consumers, and in a box on the bottom of the page it lists some common misconceptions of Bureau. For instance, it says, the Bureau "Won't have unbridled rule-making power. Writes rules, but rules can be vetoed by a 2/3 vote of the newly created council of bank regulators." On the second page of this same document, which was presumably written by the same person or group of people, the document lists Essential Elements for CFPB Success: "Ability to make rules independently. The CFPB [Consumer Financial Protection Bureau] must have the authority to make rules that truly protect the marketplace. Interference by the OCC and banks or disproportionate veto power for regulatory council would compromise the bureau's efficacy. If the legislation authorizes any veto power, it should not allow unlimited discretion, but require any veto to be directly tied to concerns about systemic risk."

Tomorrow we will examine what the Center for Responsible Lending has to say about brokers.

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