Chapter 12: FAIR LENDING

Stephen M. McGurl, Managing Director

McGurl Risk Advisors LLC

In order to know what fair lending is, it would be useful to know the definition of “unfair lending.” Unfair lending or as it is better known by the term, discriminatory lending, is the practice of banks, governments (local, state or federal agencies), or other lending institutions denying credit, in the form of housing loans,  to one or more groups of people, primarily on the basis of their race, ethnic origin, sex, or religion. (To read the whole Chapter, contact Steve McGurl.)

“The Big Quality”

Adding Quality Can Lead to Cutting Costs

By Stephen McGurl

If you have been in the mortgage industry for more than 10 years, you probably think you know what caused the mortgage meltdown of 2008. If you watched the movie “The Big Short” based on the book by Michael Lewis, you are sure of what was the impetus for a deterioration of credit quality in the mortgage industry. I have my opinion, having been on the front line of the origination wars at that time. I believe it was a proliferation of mortgage products that relied on subprime credit or alternative loan characteristics in order to meet an insatiable appetite for loans to be packaged into mortgage backed securities (MBS). Fannie and Freddie also had government mandated affordable housing goals that compelled them to reach into the subprime markets to meet these ambitious goals. These MBSs, it is shown, were over rated by the Big 3 ratings agencies. (To read the whole article, contact Steve McGurl.)

A Day At The Zoo

By Stephen McGurl

Probably more than 50% of the U.S. population has been to a zoo at some point. It may be a local petting zoo, a metropolis zoo that has a few exotic animals or a large, well known zoo such as the National Zoo in Washington D.C. Recently there were two horrific zoo incidents where people were attacked by animals; one in Chile and one in Cincinnati, Ohio. In both cases, the majestic animals were euthanized. Tragically, in Chile, the man who entered the lion habitat did so on purpose and sealed his fate. (To read the whole article, contact Steve McGurl.)

Second to None

By Stephen McGurl

“Who ate all the chocolate chip cookies that I just finished baking?” said their mother with anguish in her voice. “I only had 2 cookies Mom, but Mikey had 8 cookies, so blame him because he ate more” said Bobby. “You are both going to be punished no matter how many you ate”, replied Mom, who also had another full-time job as a banking regulator. “But Mom…”  Said Bobby, before realizing that he had learned this lesson before.

If you say that something is second to none, you are emphasizing that it is excellent, simply the best, there is nothing in front of it. By their design, second mortgages, home equity loans and home equity lines of credit are second, subordinate or behind another lien. Though there are exceptions when a consumer owns their home free and clear, a second lien is usually hiding in the shadows of it’s much larger first lien cousin. If you remember the lending environment of 2006-2009 many homes were bought with an 80/20 “combo” or “piggyback” where the first mortgage was four times larger than the 2nd mortgage. The second mortgage could be in the form of a loan or a fully extended line. Either way, it was typically dwarfed by the homeowner’s largest debt; their first mortgage. (To read the whole article, contact Steve McGurl.)