Pipeline: Major Profits Seen In Minority Lending

Which surname was the most common among homebuyers in Los Angeles County last year? Which name ranked first in terms of average price paid?

What is the most popular condiment in the United States, even ahead of ketchup?

Is the default rate on mortgages higher in the county's low-income, minority neighborhoods or in affluent areas?

Where is the most profitable branch of California's American Savings Bank?

People named Garcia bought more houses in Los Angeles County than anybody else, according to data from Dataquick Information Systems, La Jolla, Calif. They paid an average of $167,739.

But families named Chen, who were ranked No. 17 in terms of number of houses bought, were on top in terms of average price paid, $309,175.

That popular condiment is salsa.

Mortgage default rates are much lower in low-income minority neighborhoods because low-income people are motivated by the need for shelter.

And that most-profitable branch is in the barrio of East Los Angeles.

These tidbits come from "The Lending and Diversity Handbook," by Lee Gardenswartz and Anita Rowe, writing for Irwin Professional Publishing.

The book's major thesis is that, as the banking industry consolidates and competition intensifies, banking professionals will have to understand the new marketplace to remain effective and relevant.

"Time and again," the authors wrote in their introduction, "we asked bankers about genuine growth opportunities in underserved areas, but few respondents felt this was a real profit center. Their assumption was that serving the community means assuming a certain percentage of bad loans."

By contrast, the book offers this quotation from Richard Rosenberg, the now-retired chief executive of BankAmerica Corp.: "Lending in low-income areas has become one of our fastest-growing market segments."

The authors continued: "Thriving in this post-recession, merger climate can be a high-wire act. For loan officers who are both savvy and open- minded, Americans' increasing cultural, racial, ethnic, and lifestyle differences offer a substantial opportunity to make money through providing loans to a wide variety of consumers, many of whom have had too little access to services in the past."

From that springboard, the book proceeds to make the case for the profitability of low-income lending and to offer highly detailed, hands-on guidance for banks that want to get involved.

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A study by Fair, Isaac & Co., San Rafael, Calif., found some significant recent changes in the nature of bankruptcies. The study compared bankruptcies for six months in 1994 with those from a similar period in 1995.

A puzzler: While bankruptcy rates reported by lenders climbed 25%, unemployment fell 11%.

The study offered some possible explanations. For example, people who went bankrupt in 1995 were likely to have acquired new bank cards and run up higher balances than those in 1994.

The study concluded that reasons for the current wave of bankruptcies were difficult to pin down and that the bankruptcy predictors of 1994 were just as valid in 1995.

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