Racial Bias: Redlining in the Modern Era
…are they behind this modern day redlining?…
The broad definition of an algorithm according to Merriam Webster’s Dictionary is “a step-by-step procedure for solving a problem or accomplishing some end.” It is pretty basic and fully understood, right?
Now think back to those dreaded English classes. When did you learn about acronyms? Grade School, High School, College? Regardless, let’s just say it was a while back, so I will refresh your memory. According to Merriam Webster’s Dictionary, an acronym is” a word formed from the initial letter of words of each of the successive parts or major parts of a compound term.“
Now which came first the chicken or the egg? Confused? Stay with me, it will be clear in just a moment.
Appraisers are analytical, so think outside the box. Do we know if an acronym was developed because of the compound term or was the compound term applied to the word? Do we really know?
Now take the word Algorithm. Is it a real word or is it an acronym for:
A Lined Geographically Optimized Region, Invisible To Housing Market Supervision
Yep, clear as day now. Lenders want to use algorithms to redline neighborhoods, all disguised in the complexity of a computer program.
Yes, that is a bold statement to make, but could there be truth to it? The Ted Talk circulating a few weeks ago that talked about racial bias in facial recognition programs got me thinking. If the program could be used to discriminate against people based on their skin color, then the program could be written to redline neighborhoods. I am not a tech guy, but it seems it would be easy to program and virtually undetectable to the users of the software. Of course anyone analyzing the programming might be able to detect the bias.
Seriously think about this:
The lender uses a third party to produce an Automated Value of a property; the third party program includes a redlining bias of certain neighborhoods, Bingo! the lender either has an unreliable biased value (not that any AVM is reliable) and is able to obtain higher pricing on the mortgage or is able to deny the loan entirely. Any liability of discrimination is passed on to the third party. Would regulators even think to look at the programming of the Automated Value? Do they even care? Since the government is pushing for these automated values, are they behind this modern day redlining?
What would happen if the automated loan underwriter included a redlining bias in addition to the automated value with the same bias? Does the Government have an incentive to redline neighborhoods like they did before?
Think this concept is far-fetched? Take a look at this article in the Chicago Tribune published on February 17, 2018.
All I can say, Attorneys are you paying attention?
By Advocate. The author is a Certified Residential Appraiser and has chosen to use the pen name Advocate to protect their identity. Many famous people including Benjamin Franklin, Agatha Christie, and Steven King have written under a pen name for various reasons. Just Google pen names used by famous authors, there are only 45,700,000 results to choose from.
Great article!! Another reason for appraisers to utilize when we promote our profession and services. We remain the ONLY party to the mortgage transaction that is completely unbiased and not an advocate for anyone. We don’t “redline”.
Look up Quantarium sponsored in part by Xome. Many things wrong with it but the worst is demographic reliance.
How does that fit into fair lending? This is illegal but far more difficult to prove.
Have you ever met an honest lender? This is the lenders way around compliance.
Well, this is gaining momentum. Yesterday Housing Wire reports that mortgage insurance is now being priced based on risk.. Can you guess how they are doing it? https://www.housingwire.com/articles/48218-new-risk-based-pricing-engine-miq-was-built-to-improve-the-customer-experience
What about the larger picture? Times have changed since the community reinvestment act. One counter argument to the Tribune article is that the access remains diminished primarily because foreign investors scoop up properties which would otherwise have by this time been in the hands of the American persons in question. If we truly want to create a better balanced housing environment and more equitable access, we need to stop foreign companies from buying American real estate if they’re not actually living in those properties. Just one of literally a million examples, linked below…
This also is a reason I stay on the issue of big data, imho this move towards monopolization and complete streamlining of all related processes benefits the big players much more than local persons.
10 countries racing to buy American homes
Baggs; re foreign investors. I have mixed thoughts.
(1) You are absolutely right. Having said that, as an owner I don’t care WHO buys a property if I am selling, as long as I get my asking price.
(2) Watching a new Kal Penn special on netflix about the Global Beast or international economy. The USA is the single largest recipient or beneficiary of laundered money in the world. Think about that for a minute. It’s estimated that over a trillion dollars a year moves from being illegal funds to laundered or clean money ready to be invested legally in any one of nearly 200 countries. The entire Miami skyline of high rises is pointed out as an example of laundered money at work.
IF this special series is accurate, then our elected officials AND regulatory agencies have almost no incentive for stopping it. In fact, it is just the opposite. As long as more laundered money is coming in than dirty money is going out, they have a very high incentive for promoting a national financial regulatory system that enables or facilitates this.
To a point.
What if I told you a consortium of private bankers counterfeited 100 trillion dollars of your money and gave it to the ultra wealthy? It’s no coincidence that the century of total war coincided with the century of central banking.
Never fall for the modern aspect of answering long standing crimes, as if it’s just old hat so nothing can be done. We start by prohibiting foreign investors, even if that prohibition is levied out one individual seller at a time. When you don’t get an agent, you’re not bound by any discrimination laws.
We’re from the government and we’re here to help. Who’s still buying that?
How honest or smart are we when we solve problems by labeling every one else charlatans, crooks etc.
Human nature is a part of the freedom of choice, “Gods gift”.
Considering LoanDepot now says they have home loan programs that can close in 8 days, of course they are digitally looking for ways to pound square pegs into round holes. A few 00000s here, a few 11111s there, no problem we can easily qualify you according our system.
Seek the truth.
Bias, intentional or not, is easy to prove. Lenders already file HMDA data for this very reason. After a year or so of algorithmic redlining, the paper trail will guarantee heavy fines, and multiple class actions. “Farming” out the collateral assessment does not absolve the lender of their responsibility to fair housing laws. It is no different today with regular appraisals.
Good to know Tobby. Unfortunate by those that are affected by it until ‘the system’ catches up to those bad actors. I hope the fines are bigger than those levied on Wells Fargo for other, unrelated abuses. Seems that even billions in fines isn’t enough to dissuade bad actors that just factor it in as a cost of doing business dishonestly.
Research the history and the word; usury. Times change, the world grows, but some things stay the same. There are a great many options and people should never be able to force businesses to do business with them. Fair lending and discrimination rules merely create a different but more pointed discrimination. Don’t consider this issue in a box, it’s a big world and there are how many lenders out there, hundreds of thousands? One can statistically predict a potential borrowers ability to repay on in numerous factors of consideration and validation. Sometimes this matches up to a specific group, sometimes it does not. There is no ‘right’ to borrow money. edited.