Western Independent Banker - January/February 2008 - (Page 27)

By James DeFrantz The Intersection of Equal Credit Opportunity and Sub-Prime Loans “Makes me wanna holler!” – Marvin Gaye AS THE SUB-PRIME housing market continues to melt down, the public outcry will likely put political pressure on lending institutions to allow for a “soft landing” for people who have these loans. It is very likely that federal, state and local intervention will occur that will mitigate some of the losses resultant from the downturn in the market. We have already seen the start of programs designed to help borrowers caught in “sub-prime hell.” For example, as early as April 2007, the U.S. Senate made public pronouncements about federal money being set aside to assist lower income borrowers in danger of foreclosure.1 Ohio, one of the states hardest hit by foreclosures, is planning to sell $100 million worth of taxable bonds to make new, 30year fixed-rate loans at 6.75 percent to Ohio homeowners who can’t afford their existing mortgage but have not yet entered foreclosure. 2 For California, “We have proposed a $1 billion loss mitigation fund,” says Bob Gnaizda, general counsel for the Greenlining Institute, an advocacy group.3 There are many other examples of governments and private corporations developing funds to assist sub-prime borrowers facing foreclosure. In addition to the government programs, many sub-prime lenders have undertaken the process of rewriting the terms of their loans to ease the pressure of distressed borrowers. The Aftermath As always, the outcry will eventually die down and the public will be left with a discussion of how this happened and what can be done to keep this from happening again. There can be little doubt that a great deal of finger pointing and characterizations will continue for some time. Sub-prme lenders continue to be called “predatory” by consumer advocates while many decry the characterization of adults who chose to enter into a legally binding contract as “victims.” Hopefully, there will eventually be some calm analysis of the root causes of the problem coupled with some thoughtful solutions. Unfortunately, many in the banking industry will be associated with sub-prime loans despite the fact that very few banks actually participated in this form of lending. In the long term, the sub-prime debacle points to a larger fundamental problem; the market for sub-prime loans is made up largely of women and minorities. 4 This is the same group of people that Equal Credit Opportunity Act (ECOA) was first designed and enacted to protect. The ECOA was first enacted in 1974 as a means of protecting the credit rights of women. The amendments of 1976 added protections for minorities and several other protected classes. Coupled with the Community Reinvestment Act and the There will eventually be some calm analysis of the root causes of the problem coupled with some thoughtful solutions. Unfortunately, many in the banking industry will be associated with sub-prime loans despite the fact that very few banks actually participated in this form of lending. Western Independent Banker January/February 2008 27

Table of Contents for the Digital Edition of Western Independent Banker - January/February 2008

Western Independent Banker - January/February 2008
Contents
A Message from the President
Compliance Administration
Four Realities of Data Security Policy, Enforcement
Managing Internet Banking Risks
Understanding Data Breach Notification Laws
The Effect of Business Continuity Management on Compliance Programs
Bridging the GAAP
Top 10 Compliance Fitness Steps for De Novo Banks
Common OFAC Errors and How to Avoid Them
The Intersection of Equal Credit Opportunity and Sub-Prime Loans
Location-Based Tax Credits for Banks
Protect Your Bank and Your Customers
WIB Calendar
Welcome New Members
Index to Advertisers
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Western Independent Banker - January/February 2008

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