After hammering lenders for making loans to minorities that many consumer advocates say should never have been made, now some industry groups are claiming that lenders aren't lending enough to minorities living in the hardest-hit local housing markets. Saying that lender-enacted policies to limit lending activity in the hardest-hit housing markets is "disproportionately affecting minority borrowers," three groups representing Asian, Black and Hispanic real estate professionals called Tuesday for the elimination of so-called "declining market" policies that place more stringent guidelines on mortgage underwriting in certain housing markets. The National Association of Hispanic Real Estate Professionals (NAHREP), the Asian Real Estate Association of America (AREAA) and the National Association of Real Estate Brokers (NAREB) said in a joint press statment that a survey of their collective memberships found members concerned that declining market policies were hurting minority borrowers. "This study confirms that minorities are experiencing a much greater than anticipated hit from declining market policies," says outgoing NAHREP Chair Felix DeHerrera. "In effect, the consequence of these policies is a near complete suspension of financing resources to communities that need it most." The groups said that 62 percent of their collective members were concerned about declining market policies, while 35 percent indicated that minority and lower-income areas have experienced a "disparate impact" of the policies. Twenty-seven percent believe that some lenders may act too quickly to identify minority neighborhoods as being declining markets, according to the survey. What's a lender to do? "I can't comment on the minority angle being played here, but it's amazing how borrowers and their agents will blame originators for lending in one breath, and then blame them for not lending in another," said one source, who asked not to be named. My concern here is with how the data is being presented. First of all, this was a survey, and not the "study" it's being sold as -- meaning that the findings are inferential, and any claims that the survey "proves" the effect of declining market policies on minority borrowers are flat-out wrong. Nobody established a set of hypotheses in advance, nobody tested one hypothesis against a competing hypothesis; you know, that standard stuff that would qualify something as an actual study. Secondly, as someone who has studied survey methods at the PhD level, I don't think the survey provides much more insight than to suggest simply that Asian, Black, and Hispanic realtors and brokers are concerned about the effect of aggregate market policies on their minority clients -- policies that would include declining market policies. It seems clear from reading the survey summary in the press statement that the three trade groups led their respondents to the issue they wanted, rather than allowing respondents to articulate a range of issues. Let me illustrate: there is a big difference between listing 5-10 market issues and having participants select the one that matters most to them, or simply listing the one issue you want participants to choose and then asking them if they are concerned about it. It's called suggestion bias, and it's the most common error non-trained survey researchers make. Say I asked you if you were afraid of a rare bird from Africa, now beginning to populate the Southern regions of the U.S. -- the very act of asking the question suggests that you should be afraid. Beyond that, the survey appears to have consistently led respondents to answer questions a certain way, by stringing together questions on a particular issue in such a way that respondents could get a feel for how they ought to answer. That's how a fixed survey generates fixed results. Take a look:
  • Are you concerned about declining market policies?
  • Have the minority and lower-income clients you work with been disparately impacted by such policies?
  • Are you worried that lenders are moving too quickly to call a neighborhood a declining market?
  • What percentage of borrowers do you have to turn down because a declining market policy limits what they could qualify for?
The press release could have been written before the survey was ever conducted. I'm not saying that declining market policies are good or bad; I'm saying that a trade group should exist to have its members tell it their interests and concerns, and not the other way around.