Wednesday, 12 May 2021 | The Latest Buzz for the Appraisal Industry

Super Bowl Ads, Like Nature, Abhor a Vacuum

This article was originally posted on greenlining.org here February 9, 2021.

They once had names like Countrywide, Ameriquest, New Century, Argent and Greenpoint. They’re gone now – wiped cleanly off the map during the 2007-2008 financial crisis. In their place is a stable of largely unregulated online lenders – now fashionably called “fintechs” – toasted as bold disrupters in the “lending space.”

We’ll hear from them as they unveil inventive commercials during Super Bowl LV on Sunday. If you haven’t spent your quarantine under a rock, you’ve no doubt seen their barrage of spots on television.

Super Bowl viewers over the age of 30 will remember Ameriquest. Its name was once everywhere. In 2005, it was on a charm offensive after the U.S. Justice Department’s Civil Rights Division had brought a case against it for juicing mortgages made to minorities, women, and the elderly with special fees and bait-and-switch practices.

Ameriquest, in response, successfully mainstreamed itself, sponsoring the halftime show at Super Bowl XXXIX in Jacksonville featuring Paul McCartney. Who could forget the former Beatle performing “Drive My Car,” “Get Back,” “Live and Let Die,” and a rendition of “Hey Jude” that brought the entire stadium to its feet singing “Na Na Na Na-na-na-na”?

More than a dozen years after a cataclysmic crisis took the global financial system to the edge, these new nonbanks, again backstopped by the politics-infused mortgage amalgams Fannie Mae and Freddie Mac, and the U.S. Federal Housing Administration, are bringing dreams to life. And why not? Home equity in America is up $6 trillion from 2010, according to data provider CoreLogic.

But a remark by former Fed chief Alan Greenspan continues to haunt. In June 2007, when the financial crisis was but a pimple on King Mammon’s backside, the former Fed chairman worried aloud about “a very large number of small institutions, some on the margin of scrupulousness and very hard to detect when they are doing something wrong.”

During the bubble, the former nonbanks – later reduced to a collection of heads on skewers – managed to create a shadow banking system that resulted in a trillion dollars of empty, commission-driven economic activity that simply exacted fees, cashed out home equity and transferred risk to Wall Street banks (and then to the U.S. taxpayer, as we found out in late 2008).

In 2005, Ameriquest also sprinkled wads of cash into the sticky fingers of the Rolling Stones, sponsoring the U.S. leg of the band’s world tour. A year earlier, it had locked up the naming rights to the Texas Rangers’ ballpark for $75 million, dubbing it “Ameriquest Field.” It sponsored NASCAR drivers and it commissioned two airships and then dispatched them to sporting events across the country.

In allegations of targeting black and Hispanic Americans, along with the elderly, Ameriquest was hardly alone. After the financial crisis, the Justice Department levied big fines against the defunct lender Countrywide’s new owner, Bank of America, over 10,000 toxic subprime mortgages, claiming Countrywide’s black customers were more than twice as likely to get a subprime loan than similar white borrowers, even though their finances would have qualified them for prime rates.

The now-bankrupt New Century was also thought to have been among the most notorious predatory lenders of the era.

Fast-forward to 2020. The Greenlining Institute, an Oakland, California-based nonprofit, has sent up a warning flare. It found that the eight largest nonbank mortgage lenders in California had loaned disproportionately to black and Hispanic home buyers when compared with top banks in the state. There are many open questions about this finding.

The resurgence of nonbanks comes amid a push to delegitimize bank appraisers – through claims of systemic racism or simply by pointing out that human appraisers can make errors or sometimes disagree on the value of a property used as collateral. (Full disclosure: The writer is a licensed appraiser.)

To “solve” this problem, efforts are afoot for the wider adoption of so-called “black box appraisals” – computer models and algorithms that remove humans from the valuation of the collateral. This harkens to the disastrous computer models developed by the Big Three credit-rating agencies during the run-up to the financial crisis that awarded triple-A ratings to junk-quality securities.

As they say in Papua, New Guinea, Plus ça change, plus c’est la même chose – The more things change, the more they stay the same. As will be witnessed on Super Bowl Sunday, mortgage finance, like nature, abhors a vacuum.

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