Micropanacea

I'm pretty sure that I don't know what to think about the below, so instead of a solution, here's a problem that I'm not clear about.

Mortgages. Under federal law (ECOA), everyone should have equal access to credit. Ways for companies to violate this law are to out right discriminate or to have practices that tend to exclude certain groups. For example, denying mortgage applications from those who live in row houses will most likely adversely affect minorities more than non-minorities, and so is a violation of ECOA. This is call disparate impact.

So, here's the question. Suppose banks make different profits on different mortgage products (e.g. 30 fixed, adjustable rate (ARM), interest only), and that they make more money on loans that tend to go to minorities than to non-minorities. (We could even make it worse by saying that banks are losing money on loans going to non-minorities and making truck loads on loans going to minorities – subsidizing the non-minority loans, though I don’t think this is really happening, unless they are customers of the bank and have other business with the bank.) On the contrary, if the bank was making the same profit on all of their products, then the product that minorities are more likely to buy would have a lower interest rate, and these minorities would have a better deal. Is this disparate impact, and are banks liable?

Why is this important?? Well, 1) everyone with a mortgage these days are going after banks, 2) the industry is due for a change -- what should that change be, and 3) the proliferation of the subprime mortgage "crisis" was due to the availability of these products, because investors were throwing money at these very profitable (albeit short term) investments.

Thoughts?