America's Mortgage Lending System is Broken

America’s entire economy is built on the ability to borrow money. When borrowing stops, the entire economy comes crashing down.

Cash is king in an environment when lending constricts, and prices will race to the bottom to match the point at which a cash buyer will enter the market. After the debacle of the great financial crisis, mortgage lenders have improved their lending practices in order to ensure that more qualified buyers are purchasing homes.

In this video, I’m going to explain why I believe there’s a huge hole that still remains in the system, why algorithm’s can only get us so far, and why a certain segment of the population was unfairly left out of the lending game and how it’s impacting that group today.

Redline Maps:
https://dsl.richmond.edu/panorama/redlining/#loc=5/37.8/-97.9&text=downloads
CBS News Article: https://www.cbsnews.com/news/redlining-what-is-history-mike-bloomberg-comments/
Chicago Tribune Article: https://www.chicagotribune.com/business/ct-biz-modern-day-redlining-20180215-story.html
FHA Underwriting Manual: https://www.huduser.gov/portal/sites/default/files/pdf/Federal-Housing-Administration-Underwriting-Manual.pdf
DOJ-First Merchants Bank Lawsuit: https://www.consumerfinancemonitor.com/2019/06/18/doj-settles-redlining-lawsuit-against-first-merchants-bank/
Wells Fargo Lawsuit: https://www.inquirer.com/real-estate/housing/philadelphia-settles-lawsuit-wells-fargo-allegations-discriminatory-mortgage-lending-minorities-20191216.html

5 C's of Credit:
Character: your credit score and how likely you are going to pay back the loan given your history of borrowing.
Capacity: your ability to repay the loan given your income and expenses.
Capital: the ability of the borrower to service the debt and cover any down payment.
Condition: the amount of the loan, interest rates, and where the money will be going.
Collateral: does the borrower have the necessary reserves to handle debt service in the event something goes wrong.

Mortgage Lending System Flaw #1 is that lending can be too algorithm reliant.
Mortgage Lending System Flaw #2: Character isn’t quantifiable
Mortgage Lending System Flaw #3 Over-reliance on W2
Mortgage Lending System Flaw #4: The Practice of Redlining

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** TIMESTAMPS **
0:00 - Intro
0:52 - The 5 C’s of Credit
1:24 - Flaw #1: Too algorithm reliant
3:41 - Flaw #2: Character isn’t quantifiable
4:38 - Flaw #3: Over-reliance on W2 Income
6:20 - Flaw #4: Practice of redlining
10:11 - Story Time + Conclusion