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Re: Redlining
At 6:24 PM 12/11/1996, E. Allen Smith wrote:
>From: IN%"[email protected]" "Matthew J. Miszewski" 11-DEC-1996
>16:21:56.21
>>Actually, my assertion was that the basic motivation was racism and
>>ignorance. My example of student loan default rates should clear
>>that up. College graduates generally live outside of redlines and
>>yet are regularly offered credit. And yet default rates on student
>>loans are outrageous (the government backing of these loans is
>>irrelevant to individual creditworthiness).
>
>That some groups not within redlines have high default rates is not
>an argument against groups within redlines having high default rates.
>The market distortion caused by government sponsorship is certainly
>relevant to whether individuals are offered credit; I would suggest
>that in many cases the students in question would not be offered
>credit, as per their high default rates, if it were not for
>government sponsorship removing the risk from the lender.
I have personal experience with cases where the lender (actually the
company which bought the loan) misrepresented a loan default
apparently in order to get reimbursed by the government. The
government requires the lenders to make a certain number of contacts
with the borrower before declaring a default. In this case, the
lender simply lied about the contacts. Payments had been interrupted
as a consequence of confusion relating to the change in procedure when
the loan was sold. One presumes that this was not accidental and that
somebody had a roaring little business going.
I have no trouble believing that the student loan market would quickly
dry up were the government to get out of the business.
Red Rackham