To greedy lenders, green is the only color that matters |

To greedy lenders, green is the only color that matters

Banker's Hours
Glenwood Springs, Colorado CO
Pat Dalrymple
Pat Dalrymple

Bank of America just paid some $337 million to settle federal charges that its Countrywide unit discriminated against minority borrowers during the ramp-up to the great meltdown. Specifically, the government’s allegations said that Countrywide, which B of A bought out of insolvency in 2008, charged higher mortgage rates to certain minority borrowers who, because of income and credit standards, could actually have qualified for lower rates.

The charges are probably true, in that Countrywide’s customers in question did have the income and credit to get a better loan, but were steered to more expensive deals, because the higher the rate, the more money is made by everybody on the lending side. It wasn’t racism, simply capitalism in its purest form.

All of us, from the corporate suit in the corner office to the janitor emptying the wastebaskets in that office, are motivated by how we’re compensated. Back then, the higher the rate, the more revenue available to carve up.

The loans were put in mortgage pools and securitized for purchase by investors worldwide. The higher the yield on the security meant more profit for the investment bankers. Which meant that the bankers paid more for the loans to the primary lenders, and they in turn paid their loan originators more in commissions.

It was those sales people in the trenches, the so-called “loan officers,” that did the grunt work of selling loan programs to customers. And, if they could, they sold the ones that could net them the most commission dollars.

Break it down to real dollars, and the motivation is very clear. An originator might make up to 70 percent of certain income items attached to a loan. For the sake of simplicity, and to accommodate my limited math skill, say that we’re dealing with a vanilla $500,000 loan with a 5 percent rate, and the lending source would pay to the producing mortgage company 1 percent of the loan amount, $5,000. The LO gets $3,500.

But that same source also pays an extra 1/4 of 1 percent for every 1/2 of 1 percent increase in rate on the loan. Get the borrower to sign up for a 6 percent rate, and there’s an extra $2,500 to divvy up, of which the LO gets another $1,750 on top of the $3,500. This is where human nature takes over.

Race had nothing to do with it. Obviously, the commissioned sales people had to often be of the same ethnic group as the borrowers. The only color that counted was green; the color of money. If you make significantly more by selling a higher rate mortgage, you’re going to do your best to make that sale, whether the customer is white, black, brown or Martian.

Were minority borrowers more susceptible to being sold higher rates? Maybe; the government’s investigation apparently showed that enough of them were to get B of A to pony up a multimillion dollar settlement.

The Dodd-Frank act, the sweeping federal legislation that’s changing the entire landscape of banking and lending, has outlawed the Yield Spread Premium, paying more by lenders for higher rates on individual loans. Also forbidden is mortgage broker double dipping, wherein the originator collects a fee from both borrower and capital source.

Before the crash, loan originators weren’t necessarily bad people. They were just people, responding to the basic human instinct to follow the money.

Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is

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