Confessions of a Loan Officer

by Audrey Farber

Three cheers for your lucid article on "The Idiocy of Today’s Racial Rhetoric."

As a former mortgage broker and auto loan officer I've never understood why the media refuses to look at the real reasons people are turned down for loans. Having seen thousands of credit bureau reports from the extremely diverse Atlanta area I can tell you in two words, bad credit.

Bad previous credit overshadows net worth and every other reason loan applications are rejected. And, dare I make this politically incorrect remark? You’ll never hear this anywhere else but more blacks have a lousy credit history, at every income level, than any other group I’ve encountered. Not just occasional late payments, but few payments made on time and worse, not paying off the debt at all. The next most common reason for a loan to be turned down is that the borrowers debt to income ratio is insufficient. Asians and Hispanics, usually recent immigrants, are more often turned down because they have insufficient or total lack of credit history; if they have previous credit it’s almost always good.

Lenders and businesses dependant on loans are often accused of poor service to blacks but it has nothing to do with the amount of light reflected from their skins. It's simple economics; a lender makes money when the loan is repaid, a car salesman or realtor only gets paid when the deal is closed. Salesmen don't want to give away their time only to find that the customer can't buy anything because they've never paid back any of their previous creditors. Most borrowers fail to understand this because they usually get paid just for showing up on the job; actually producing something is only incidental to receiving a paycheck.

Lenders are in business to make a profit; they don't get paid on the loans they turn down; they lose money on the loans that go bad. When they see a loan application, they look only at their risk of losing money versus making money. The loan applicant is judged on two nearly equal criterion, ability to pay (proven by stability of income) and desire to pay (proven by past credit history). Net worth or collateral is only used to bolster a weakness in the previous; the lender does not want to foreclose or repossess, this loses money, just not as much.

In fact, the vast majority of mortgage loans end up being sold by the lender to Fannie Mae, yup, that's right, the imperial federal government, defender of the discriminated. Except for a few self-funded lenders a mortgage lender can not approve a loan that can't be approved by and resold to Fannie Mae, plain and simple.

Every few years we hear of some lender accused of charging (primarily) black borrowers unbelievably high interest rates. This always amazes me. One, the borrower would have borrowed elsewhere if they could have only been approved. Two, in order to loan the money and not go bankrupt the lender has to purchase various types of insurance against default, repo, etc., this costs money. Three, everyone understands that life insurance is going to cost more if your risk of death is high. Why should high risk of not repaying the loan be different? The alternative to the high interest rate loan is no loan at all.

Maybe Al Gore can get Fannie Mae to start an affirmative action loan policy. They won't have to worry about the loans being repaid; after all Fannie Mae isn't a business that has to make money to stay alive; they can just take the money from the taxpayers.

By the way, I found your great article through a link from Neal Boortz's, Nealz Nuze page. I've bookmarked your archives and can't wait to read what else you have to say; I just couldn't resist talking a moment to share the lenders view with you.

"Audrey Farber" is the pseudonym for a former mortgage broker and auto loan officer in Atlanta, Georgia. She now has her own company.