Open source lending tinged with racism

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Profit opportunity

If some non-financial factor is restricting the ability of some people to obtain the loans, then anyone who ignores that factor will be able to charge a higher rate than would otherwise be obtained.

If someone's financial profile would justify a 5% rate (just to name a number) and simple reluctance prevented any takers at that rate, then there's an opportunity to obtain a premium by loaning at 6%.

Software could identify these disparities between appropriate and available rates, with the likelihood of greater profits than would be obtained by normal rules.

Of course, once one person has followed that procedure others will be attracted by the results. With enough people looking for a premium, the premium will diminish until it disappears.

This market correction doesn't apply with red-lining because banks have an appropriate reluctance to lend outside areas in which they have experience. No competition waiting to use an opportunity. But the internet can remove geographic factors.

Key is the ability to evaluate factors sufficiently well to determine an appropriate rate with precision. Because that's not entirely a science, there's still a risk involved.

Posted by: Anton Philidor   Posted on: 07/09/08 You are currently: a Guest | Members login | Terms of Use

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