A Bank is Fined in New Jersey
I don't know what to think. Maybe you can help me. Here's the deal: As I doom scrolled on my phone on the way to fitful sleep last night I read a New York Times article, ‘Redlining Is Racist’: $12 Million Settlement Ends Lending Inquiry.
Yes, redlining is racist. It was a scourge and remains hidden in plain sight today. I recommend the book The Color of Law: A Forgotten History of How Our Government Segregated America. Not only could Blacks not get home loans, developers who did not explicitly prevent blacks and whites from living as neighbors were prevented by the US Government from getting federally backed mortgages. It was explicit government policy. Government. United States of America.
Detroit, 1941. The Federal Housing Administration required a developer to build a wall separating his whites-only project from nearby African American residences.
So good on the DoJ for fining Lakeland Bank in NJ for redlining practices because, as the article (and consent order) says: Similar banks generated five times as many loan applications from prospective Black and Latino home buyers as Lakeland.
Lakeland, while agreeing to pay up, unsurprisingly did not admit wrongdoing. Instead Thomas J. Shara, Lakeland’s president and chief executive told the Times: The agreement “allows us to focus our time, expertise, and resources towards achieving a shared goal of meeting the credit needs of all residents within our communities, including those who historically have been underserved.” So that's a good use of the timeless classic, Baby's First Consent Order, which doesn't say Black or Hispanic, but it does say "underserved," which LinkedIn keeps underlining as not being a word.
So we feel good, right? But, um, $12 million? The DoJ says this is for behavior From 2015 through at least 2021. Have you been reading my other posts? You know what's next, a table! (And #LinkedIn and #SquareSpace , there's this text thing called a table. Can you put it in the editing bar? So I don't have to make it in Office, screen shot, save as image file, and then paste?)
So less 1% of revenue. And at first glance 2.9% of net sounds like something until you remind yourself that net is the money left on the table. That means this is the money that is extra, fun money, run around and buy pistachio ice cream with it or keep it in your vault and look at it wistfully when the ennui overwhelms your sensibilities (my wife has been reading Jane Eyre).
In other words it is the money after paying the rent, heat, light, paper manufacture, phone company, the cleaners, the coffee bill, lollipop suppliers, tellers, managers, and, of course, executives.
To be specific, paying the top 5 executives a combined, $21,710,962 in cash (roughly of course, I don't have the cents) and $8,749,906 in stock, per salary.com via SEC filings and lot of my time in Excel. That's $30,460,868 total for those of you without a spreadsheet of bank executive pay in front of you.
Interestingly Mr. Shara, let's call him Tom, Tom received a combined cash and stock amount of $11,994,554 between 2015 and 2021. Is that where $12 million came from? Because I have no idea what calculation lead to that figure and the DOJ is mum on it. Here's a photo of Tom.
Tom Shara, Lakeland Bank President and CEO
He seems like a nice fellow and I want to be clear, this isn't about Tom. This is about a system where fines don't make much difference to company behavior because they don't make much of a difference to the bottom line. (As I write this LBAI stock is down 0.6% after news yesterday of the settlement, and no, there was no forwarning of an investigation about this in their public filings before yesterday.)
So now I feel bad. Right? No. Not yet, there's more. This sentence threw me from the NYT's article:
“Twelve million is tens of thousands of mortgages, which means a lot in a region in which homeownership costs have gone up dramatically, making homeownership out of reach to many,” he [David D. Troutt, a Rutgers Law professor] added.
What? $12 million is how many mortgages? How much are houses in the predominately minority parts of Newark? To the Zillow-mobile! OK, here's one for $175,000 (price reduced) in Lower Vailsburg which is a 91% African American community.
A photo of a house for sale in Newark, NJ. Remember, this a photo they picked for advertising. Think of what they chose to
Even at that price, and assuming you are OK with a free range toilet, and sunlight only available at an angle suitable for night terrors, that's less than 70 houses. The average price of a house in Newark is more like $300,000.
So I turned to the consent order itself. Here's the relevant excerpt, it's long, and I apologize, but you can just read the part I underlined, it's the juice anyway.
Lakeland will invest a minimum of $12 million in a loan subsidy fund to increase credit for home mortgage loans, home improvement loans, and home refinance loans for consumers applying for loans in majority-Black and Hispanic census tracts in its Newark Lending Area. No more than twenty-five percent of the loan subsidy fund may be used for home refinances.
24. Loan subsidies under the loan subsidy fund can be provided by the following means: a. a direct grant for the purpose of down payment assistance (when the subsidy is less than the loan balance); b. a direct grant for the purpose of closing cost assistance; c. payment of mortgage insurance premiums on loans subject to such mortgage insurance; d. life of loan interest discount payments and/or points that are in the range of the generally prevailing rates (the intent of which will reduce the interest rate below market); and e. any other appropriate assistance measures approved by the United States in writing.
The combined forms of subsidies set forth in this paragraph cannot exceed $15,000 per qualified applicant unless Lakeland receives a non-objection from the United States to increase that amount.
Here's how a jaded, angry, needing to have something for breakfast other than oatmeal, person might react this. "Hey, $15,000 off of an average mortgage of $300,000 is 5%. And once that mortgage is signed, the bank has a customer for years--one they can probably sell checking, savings, credit card, and other products to."
And said person may continue to rant, through the night, "Banks pay for marketing all the time, I realize this is more money than a free toaster, but how is this not just enforced marketing to bring in paying customers? I mean, that's good for the customer, but how is this a penalty when it reduces the bank's 6 year total profit from $410 million to $398 million and signs up more customers?"
Then I read that Lakeland has to spend $150,000 on "outreach" and "advertising" and "financial education".
Oh, and $12,000,000 divided by $15,000 is 800 possible mortgages, 200 of which can be refis for existing customers. Which is not tens of thousands, for those of you without an Excel spreadsheet of bank executive pay in front of you.
“We hope that this settlement sends a strong message regarding our commitment to ending redlining across the nation,” Kristen Clarke, assistant attorney general for civil rights, said in announcing the agreement.
Right.
Oh, and one more thing: Lakeland and Provident Banks announced on Tuesday that they had agreed to a $1.3 billion merger to create a “pre-eminent super-community bank.”
What do you think?