After the 2008 subprime mortgage crash that hit the American and global economies, Congress wrote rules to stabilize the financial industry. But since then, the mortgage market has changed radically, and the rules governing it are not being followed, creating a new house of cards that could easily collapse.
My organization, The Greenlining Institute, has researched this issue for a new report, Fair Financial System: Regulation of Financial Technology and Non-Bank Lenders, and what we found was alarming.
Did you know that two-thirds of US home mortgages are not guaranteed by banks?
They are written by online financial technology companies, or financial technology companies, whose market share has more than quadrupled since 2009. and government regulations governing banks.
This opens the door to all kinds of risks and predatory actions.
These “nonbanks,” as they are sometimes called, target communities that have historically been denied access to financial products and services from traditional banks, so they may have more low- or middle-income clients of color.
And they are not subject to the federal Community Reinvestment Act, a vital anti-redline law that requires banks to meet the credit needs of the communities they serve.
We know that fintech companies tend to have relatively little cash and a lot of debt. How dangerous are they if the housing market crashes? We do not know. And we need this data to avoid another housing disaster like the one that happened in 2008.
Huge data gaps mean we cannot know if these borrowers of color or low incomes are being treated fairly.
A combination of weak regulation and predatory, discriminatory lending led us to the Great Recession 13 years ago. It’s time to update our financial rules so that this doesn’t happen again.
At the federal level, this means modernizing and expanding the Community Reinvestment Law to include fintech, as well as modernizing regulations everywhere.
We deserve a financial system that works for everyone, regardless of race or income. And we need to know that financial institutions – whether they call themselves banks or not – operate in a safe and non-discriminatory manner. We cannot risk another financial disaster that will hit vulnerable communities the most. It’s time for the rules to catch up with reality.
Debra Gore-Mann is President and CEO of the Greenlining Institute. This column was produced for The Progressive magazine and distributed by the Tribune News Service. © 2021 Tribune Content Agency, LLC.