Yves here. This story, from last week, hasn’t gotten the attention it deserves.
By Aaron Glantz, the author of two upcoming books on Iraq: The War Comes Home: Washington’s Battle Against America’s Veterans(UC Press) and Winter Soldier Iraq and Afghanistan: Eyewitness Accounts of the Occupations(Haymarket) and Emmanuel Martinez, data reporter. Originally published at The Center for Investigative Reporting’s Reveal; cross posted from Alternet
Trident Mortgage Co. helps more families buy homes in Philadelphia and neighboring Camden, New Jersey, than any other company, but it primarily serves one demographic: white people.
That is no coincidence: Trident employs a nearly all-white team of mortgage consultants, and all of Trident’s offices are in white neighborhoods, where it makes the overwhelming majority of its loans to white homebuyers.
It’s a division of Berkshire Hathaway Inc., the giant holding company led by Warren Buffett, which has dramatically expanded its mortgage brokerage portfolio in recent years,reporting nearly 28,000 loans worth $7.3 billion last year.
“I originally paid little attention to HomeServices,” Buffett wrote in his most recent shareholder letter, referring to Berkshire Hathaway’s real estate brokerage operation, HomeServices of America Inc., which controls Trident and two other mortgage companies. Then, he said, its “growth exploded.”
The potential for more growth clearly caught the eye of the octogenarian investor, who ranks third on Forbes’ 2018 billionaires list.
“Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home-brokerage business in 2018,” he added. “That leaves 97% to go.”
But as they’ve become major players in cities across America, Berkshire Hathaway’s affiliated mortgage companies have followed a consistent pattern. Government lending data reviewed by Reveal from The Center for Investigative Reporting shows the companies direct their lending toward white borrowers and white neighborhoods, even in population centers such as Philadelphia where a majority of residents are people of color.
The analysis is part of Reveal’s ongoing coverage of modern-day redlining in America,which found 61 metro areas, from Jacksonville, Florida, to Tacoma, Washington, where people of color were significantly more likely to be denied a conventional home loan than their white counterparts. This was true even when people of color earned the same amount of money as white loan applicants, wanted to take on the same size loan or buy in the same neighborhood.
Reveal’s analysis found people of color were far more likely to be turned down for a loan in many of Berkshire Hathaway’s largest markets, including Philadelphia, Atlanta and Washington, D.C. It makes loans through three firms, Trident Mortgage, HomeServices Lending LLC and Prosperity Home Mortgage LLC. Here’s a breakdown:
- In Philadelphia, Trident Mortgage made 1,721 conventional home purchase loans in 2015 and 2016, 47 of them to African Americans and 42 to Latinos.
- In Atlanta, HomeServices Lending made 1,358 conventional home purchase loans, 63 to African Americans and 46 to Latinos.
- In Washington, Prosperity Home Mortgage made 2,650 conventional home purchase loans, including 167 to African Americans and 144 to Latinos.
Legal experts said Berkshire Hathaway’s mortgage companies were carrying out the very practices outlawed by the Fair Housing Act, a 50-year-old law that banned racial discrimination in lending, by locating their branches in white neighborhoods, employing mortgage consultants who – from their websites – appearto be overwhelmingly whiteand lending mostly to white borrowers.
“It sounds to me like they are intentionally avoiding doing business with people of color,” said Allison Bethel, director of the fair housing clinic at the John Marshall Law School in Chicago.
Philadelphia is a major market for Berkshire Hathaway’s affiliated mortgage companies and real estate agents. Government lending data shows those mortgage companies direct their lending toward white borrowers and white neighborhoods, even in population centers where a majority of residents are people of color.Credit: Rachel de Leon/Reveal
Representatives of Berkshire Hathaway and its affiliated mortgage companies declined to give interviews for this story. In a statement, HomeServices of America, which oversees Berkshire’s mortgage businesses, said it was “categorically false” to imply its “lenders are trying to ensure that they don’t get applications from people of color.”
Berkshire Hathaway’s “lenders have constantly focused on improving access to mortgage loans in minority communities,” the statement said, adding that the companies “actively recruit diverse candidates and are committed to cultivating a diverse workforce.”
“Respectfully, a mortgage officer is not the only relevant employee to consider,” the company said in a follow-up email. Trident’s entire staff is 82 percent white, it said, as is HomeServices Lending’s. Prosperity Home Mortgage’s staff is 70 percent white.
Reveal conducted a market share analysiscovering millions of loan records, made available under the Home Mortgage Disclosure Act, employing techniques the Federal Reserve and the Department of Justice use to spotlight lending disparities.
The analysis compared the racial breakdown of mortgage lending for every lender in every city in America. It showed Berkshire Hathaway’s mortgage companies took in a far greater proportion of their conventional loan applications from white homebuyers than their competitors in its largest markets in 2015 and 2016.
The figures were especially stark for Trident, which placed all of its 55 loan centers across Delaware, New Jersey and Pennsylvania in majority-white neighborhoods, Reveal’s analysis found. The analysis also showed 92 percent of the company’s conventional home loan applications came from borrowers in majority-white neighborhoods. When Trident did lend in neighborhoods where the majority of residents were people of color, most of the loans still went to whites.
Berkshire Hathaway’s mortgage business has the hallmarks of one that could be prosecuted for “failure to serve” under the Fair Housing Act, according to Eric Halperin, a former federal prosecutor who oversaw fair lending cases during President Barack Obama’s first term.
That’s when “you take a series of actions that ensure you don’t get applications from people of color,” he said. In deciding whether to bring such a case, Halperin said prosecutors typically would examine the location of a company’s offices, diversity of its staff, race of its applicants and geographic footprint of its lending.
The lack of diversity in Trident’s staffing and lending disturbed Taylor Caputo, an artist and product designer who last year bought a two-bedroom brick row house in a primarily African American neighborhood of South Philadelphia.
“I certainly don’t feel good about it,” said Caputo, 27.
Caputo is white. She works two jobs and received a conventional loan for her Point Breeze home from Trident, putting 5 percent down. She worked with a white real estate agent and a white loan officer.
Beth Warshaw had the same experience with Trident when she bought her home a short walk away.
“It struck me how white everything was,” she said.
Beth Warshaw, 38, worked with a white real estate agent and white loan officer at Trident Mortgage Co. when she bought her Philadelphia home in the primarily African American neighborhood of Point Breeze. “It struck me how white everything was,” she said. Credit: Rachel de Leon/Reveal
“It makes me angry,” Warshaw, 38, said of the small number of loans the company made to African Americans in Philadelphia. Warshaw, who also is white, said companies and homebuyers alike should pause when they do business in an all-white world in a city mostly made up of people of color.
“Somebody is not asking themselves the right questions, including me,” she said.
Industry analysts said the lack of diversity among the company’s lending staff and the locations of its offices were particularly significant, given the way most consumers are connected with the company. As part of Berkshire Hathaway, Trident mortgage consultants receive many of their clients through referrals from Berkshire’s real estate agents, with whom they often share office space – or who work in adjacent offices.
Although it was Philadelphia’s biggest lender, Trident received no conventional home purchase applications in about half of Philadelphia’s neighborhoods. In most of those neighborhoods, a majority of residents were people of color.
On the other hand, in most of the neighborhoods where it got loan applications, a majority of residents were white.
The government lending data analyzed by Reveal also showed Trident served a much smaller and whiter section of the Philadelphia area than the region’s No. 2 lender, Wells Fargo, which overall took in a slightly smaller number of conventional home purchase applications. Trident made 26 times as many conventional loans to white homebuyers as black homebuyers in Philadelphia in 2015 and 2016, the data shows. For Wells Fargo, that ratio was 7 to 1.
In its statement, HomeServices of America said Trident plans to launch “a campaign in many Philadelphia majority-minority areas as well as in Camden, New Jersey and Allentown, Pennsylvania to attract minority applicants.”
“We share the view of many in the lending industry that, although progress has been made in this area, more needs to be done,” the statement said, adding that Berkshire Hathaway’s lenders have an “unwavering commitment to integrity and fairness.”
The company also faulted Reveal for excluding loans backed by the Federal Housing Administration and Department of Veterans Affairs from its analysis. Reveal focused on conventional mortgages because they tend to offer the best terms and show how a lender conducts business when the government is not directly involved. In Philadelphia, however, even when including those loan products, Trident still took in a much larger proportion of applications from whites than Wells Fargo, its market peer.
Leaders in Philadelphia’s African American community – including those who work to promote homeownership – said they had never heard of the company.
In Nicetown, a section of North Philadelphia where vacant, boarded-up row homes dot the landscape, the chief operating officer of the local community development corporation said she would love it if Trident’s loan officers would attend one of her homebuyers clubs.
“It would help us a lot,” said Majeedah Rashid. “This community needs help. It needs investment.”
“I’m telling you, I’m in the dark. I can’t believe they’re the biggest lender” in Philadelphia, she said. Rashid said she was distressed to hear that such an important company in her city had no offices in majority-minority neighborhoods and an overwhelmingly white staff.
“This thing gets uglier and uglier the more you study it,” she said.
Another Berkshire Hathaway company is under fire for potential civil rights violations. The U.S. Department of Housing and Urban Development is currently probing the company’s mobile-home subsidiary, Clayton Homes, for exploiting black, Latino and Native American borrowers.
That federal investigation was sparked by a 2015 report from The Seattle Times and BuzzFeed Newsthat found minorities were “exploited by Warren Buffett’s mobile-home empire.” The company, the report said, was driving people of color into subprime loans they could not afford and harming communities by repossessing homes after borrowers defaulted.
Buffett has dismissed the report, denying all allegations of discrimination. The terms borrowers would get from Clayton Homes “has nothing to with your religion or color or anything of the sort,” he told CNBC. “There’s a range of rates depending on your creditworthiness.”
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Well that’s pretty indefensible that, especially for the 21st century. Makes you wonder what the motto of the Trident Mortgage Company could be. How about: “Get your mortgage with Trident – where we guarantee that the only black people in our homes are the movers as they bring your furniture into our homes”.
The phrase may be a bit of an oxymoron unless Berkshire/affiliates hold onto the loans. Brokerage is different than portfolio lending. Most home loans are sold through to investors such as Fannie Mae and Freddie Mac and not held in portfolio.
One more observation: look at realtors, certainly including Berkshire affiliates, and the others in the home loan process as they can act as gatekeepers or referral agents for the loan brokers. A well-timed glance, head shake or other indication may be all that is needed to stay on the company side of what amounts to a lighter shade of red-lining, call it pink-lining. For bonus points, look at any executive compensation plans to identify any post-origination performance and delinquency rate clauses.
You know it is bad when Wells Fargo makes you look good.
I am skeptical of the article. This paragraph in particular seems salient in what it leaves out:
‘The analysis is part of Reveal’s ongoing coverage of modern-day redlining in America,which found 61 metro areas, from Jacksonville, Florida, to Tacoma, Washington, where people of color were significantly more likely to be denied a conventional home loan than their white counterparts. This was true even when people of color earned the same amount of money as white loan applicants, wanted to take on the same size loan or buy in the same neighborhood.’
It doesn’t say the people of color had the same credit scores as the white applicants. The whole world revolves around credit score now. In fact, I’ve heard from a friend who works in the furniture business that he can now only take credit score–not knowledge of the borrower because of past personal history, knowledge of their family, etcetera–into account when determining whether to extend credit. (I’ve been trying to confirm this, so far without success). This change, promoted, he says, by the CFPB, will be devastating to rural, largely white, communities.
Perhaps Mr. Glantz would like to do an article about those communities.
I’d like to ask, and I’m not being snarky here: Why should one be willing to assume that there is a difference between the credit scores of white people and those of color?
Because in addition to the income gap, there is a massive wealth gap between white people and POC. http://www.demos.org/blog/2/8/16/wealth-inequality-race
We’re talking about the accumulation of centuries of structural racism, including in the development of household wealth. Just controlling for income won’t be sufficient because on average, a black family will have less wealth than an equivalently-incomed white family. (The above stats don’t show this directly but I believe it’s a reasonable assumption.)
Overall though I think this group’s allegations look serious. How does Trident explain away the 26-to-1 ratio versus Wells Fargo’s 7-to-1, and not having any offices in black neighbourhoods? I’m not sure it shows discrimination exactly, but rather just a probably-racist lack of concern for those communities. To show discrimination you’d have to include credit score in the analysis.
Net worth isn’t a factor in credit scores. They have no way of knowing your assets. The fact that you are arguing this discredits you.
You could easily have looked up what goes into your FICO:
1. Amount of balances owed: ~35%
2. Payment history: ~35%
3. Length of credit history: ~15%
4. Credit mix: ~10%
5. New credit: ~10%
http://www.businessinsider.com/what-determines-your-credit-score-2015-1
Lordie. Having a car loan means your more responsible than if you just have credit card debt. Help me.
I just learned something valuable about credit scoring. I learn something every day on this site, both in the content and in the commentary. Thank you yet again, Yves!
What’s up with the snark? The fact that you lash out before bothering to actually engage with the argument discredits you. I know what goes into a credit score. Perhaps other things, things that are not literally included in the FICO score, might be correlated with it? Seems an obvious point, not sure why it’s so profoundly offensive to you.
Who is more likely to run into credit problems: Someone with no savings, or someone with $10k in the bank? Someone who grew up comfortably and inherited a home, or someone who had to fight their way to the middle class?
No reply to my clarification? I’m shocked. I think there is a lesson here about coming out of the gate with insults, but what do I know.
‘I’d like to ask, and I’m not being snarky here: Why should one be willing to assume that there is a difference between the credit scores of white people and those of color?’
Because I’d read that African Americans were hurt much worse by the housing bust than white people were, and losing a house tends to leave credit scores badly damaged for a long time. I didn’t know for sure whether there is any difference in the credit scores of white and black people when I commented this afternoon, though it turns out white people have scores substantially higher that Latinos or African Americans. Sixty four percent of whites have scores of 720 or above, versus forty two percent of Latinos and thirty-three percent of African Americans. Also, about fifteen percent of Latinos and African Americans are ‘credit invisible’, versus nine percent of whites and Asians. This means they have no record with credit reporting agencies. In addition, according to
http://www.creditcards.com/credit-card-news/race-age-gender-statistics.php
13% of African Americans and 12% of Latinos are ‘unscorable’, compared with 7% of whites. This means they don’t have enough of a record to score.
Having a sufficient income to obtain a mortgage is only a part of the puzzle. The other part is credit score. By not mentioning credit scores, Mr. Glantz suggests there is an apples to apples comparison between white and black applicants for mortgages who have the same income. It’s only apples to apples if they also have the same credit score. It’s not obvious that there is blatant racial discrimination going on here, though that’s what Mr. Glantz clearly implies.
Let’s see if I have this straight. Part of why these companies are being criticized, is that they prefer to place offices in low-gunfire zones, where their staff are less likely to be robbed and assaulted walking between their cars and the office, and where those employees’ cars are less likely to be vandalized or stolen? Heck, that’s 99% of businesses in the U.S. today.
Berkshire Hathaway’s strategy is best described as “cherry picking with a very significant racial component.” By making their offices convenient to residents of prosperous neighborhoods, and inconvenient to residents of less prosperous neighborhoods, they’re steering less promising candidates out of their their offices. It would be interesting to interview successful and unsuccessful minority applicants for their impression of the service given them, and also to know the acceptance and rejection rates for applicants of all ethnic groups at these offices.
Also, the minorities are approximately 5% of clients in Philly, 8% in Atlanta, and 11% in D.C. Significant differences.
Okay. And, Tiffany’s likely clientele is mostly wealthy, I expect, while Rolls Royce and Gulfstream are probably 100%. So, those companies should be immediately shut down, with the management jailed?
A bank wants to lend to people who will pay back the loan. The market will push it to try to expand to most everyone who can, while simulataneously discouraging them from lending to anyone who will not. It’s (at least supposed to be) the bank’s money, and logically they’d be more careful with it, than some bureaucrat would be.
Ahistorical discussions of anything related to race in the US are always going to be analytically flawed. I recommend checking out Color of Law, by Richard Rothstein
These laws exist for reasons…very ugly and shameful reasons.
Here is how U.S. Representative “death panel cathy” McMorris-Rodgers (R), #3 in the House, and the powers-that-be of Spokane are really doing behind closed doors with police escort in Spokane, and eastern Washington… https://www.facebook.com/arroyoribera/posts/1659088250781732
Consider this detailed report from the Federal Reserve [yeah, the file is hosted by TransUnion, which we all agree is a seriously crooked firm– it’s just the best link I can readily find]:
https://www.transunion.com/resources/transunion/doc/compliance-and-legislative-updates/CreditScoreRpt.pdf
Though the report is a decade old, I don’t think the fundamentals have really changed. The report documents all of the following: credit score is a pretty good proxy for default risk; race is a moderately good proxy for credit score; and there is more to credit score (and therefore default risk) than race and income. It is quite possible to have a high income and a low credit score, because some people are flakier (about paying back loans) than others.
As various writers have been pointing out for decades now, the best measure of racism in mortgage (or any) lending is racial disparity in default rates incurred by some lender, not racial disparity in its lending rates. If the lender’s default rates are similar for borrowers of different races, that means its loans are correctly underwritten and any apparent racial differences in origination are likely to reflect pure financial issues, not a lender’s putative racism.
Just because some prospective borrowers have similar incomes does not mean they present similar default risks. Whites and blacks have very different average credit scores, which means they present very different default risks.
Although it’s easy to point-and-sputter, it is sloppy to the point of dishonesty to claim that a lender is racist just because it issues more loans to whites than blacks with similar individual incomes. Either actual loan-performance (default) rate/age by borrowers or a reasonable proxy for it such as credit-score should be considered before drawing conclusions.
Also, because many neighborhoods are de-facto segregated by race and individual default risk is partly tied to neighborhood default performance, race is doubly-confounded with default risk: race predicts individual financial acumen/performance* which affects mortgage default risk (along with default risk for other loans) and race predicts neighborhood of residence which also predicts mortgage default risk (because if your neighbors default that contributes to falling prices in your neighborhood which makes your home fall in value which reduces your incentive to keep paying on your own loan).
Pointing to the locations of its offices does not prove a lender is racist, because competing for low-default loan customers is not inherently racist.
Competing for high-default customers is not inherently racist either, but also produces a lot of point-and-sputter because lenders compensate themselves for increased default risk by demanding higher fees and interest rates. Some observers call such loans “predatory” and accuse the lenders who offer higher-cost loans disproportionately to non-whites of racism.
Now, high-cost loans are often “predatory” in the more valid sense of the word, meaning “sold to unsophisticated borrowers by unscrupulous loan salesmen and brokers (so they can take bigger commissions out of the extra profits),” but that form of predation can only be detected by first controlling for (wait for it…) credit score. If a lender charges whites and blacks with the same credit score (and income, etc.) different levels of fees and interest, THAT might indicate racism–but is possibly just exploitation of the unsophisticated, due to the well-known link between race and educational attainment.