.

 

Big Data Platforms’ Helped Facilitate the Subprime Mortgage Debacle and Its Aftermath

Big data lay at the heart of the subprime mortgage and overall financial meltdown the nation suffered at the end of the last decade. Data crunchers were key to manipulating financial markets and securities throughout the financial industry and big data platforms were critical parts of the marketing machine that pushed subprime financial products out to the most vulnerable members of the American public.

In fact, by the mid-2000s, the lion’s share of the online advertising economy was being driven by subprime and related mortgage lenders.  As Jeff Chester of the Center for Digital Democracy said back in 2007 "Many online companies depend for a disproportionate amount of their income on financial services advertising, with subprime in some cases accounting for a large part of it."[i] As the subprime frenzy was hitting its height that year, a July 2007 Nielsen/Netratings survey of online display advertisers showed that the top five of those advertisers were all involved in the mortgage lending industry to some extent, delivering almost $200 million in monthly revenue to online advertising companies like Google, MSN, and Yahoo! [ii] These delivered hundreds of billions of views of online ads that helped drive the frenzy of refinancing and subprime mortgages with ads like the ubiquitous “LowerMyBills” and other online enticements.  These numbers are only for display ads online; search advertisers don’t share data on specific revenue from particular companies, but reports at the time showed that mortgage loan companies were paying top dollar for keywords like “mortgage” and “refinance” with prices going for as much as $20 to $30 each time a user clicked on a search ad.[iii]

Online companies would then sell information about the users identified as likely prospects to mortgage companies, which in turn would contact them.  Customers targeted through these online leads for subprime mortgages were disproportionately low income, black and latino.  Usually unaware that better deals existed, studies showed that people of color offered these subprime mortgages were 30% more likely to be charged higher interest rates compared to white borrowers with similar credit ratings.[iv] Burdened with unrealistic “teaser rates” that appeared affordable, these loans would explode into unmanageable debt in later years.[v]  This was the most toxic version of price discrimination possible and led to one of the largest scale destructions of wealth among low-income and minority communities in the modern era[vi], even as the data platforms that helped facilitate this process continued to explode in revenue and profitability.

Even today, the financial industry remains bedrock of revenue for advertising-driven big data platforms.  According to WordStream, a company specializing in helping companies bid effectively on Google Ads, the three most expensive categories of keyword searches as measured by cost per click are in financial services (insurance, loans and mortgages), with 45.6% of the top 10,000 advertising keywords falling in those categories.[vii]

Depressingly, bottom-feeding subprime mortgage offers were replaced in the aftermath of the financial crisis by companies exploiting the financial distress of families, particularly by payday loan lenders who offer extremely high-interest loans in exchange for a commitment for repayment from a person’s next paycheck.[viii] Such loans have been banned or severely restricted as exploitative in multiple states and the Consumer Financial Protection Bureau (CFPB) has held hearings specifically on abuses in the industry, with CFPB head Richard Cordray saying “some payday lenders [are] engaged in practices that present immediate risk to consumers and are clearly illegal.“[ix]  Their ubiquitous presence in online ads is not an accident; in fact, data platforms have actively solicited ads from the industry, including Google setting up a booth at the annual convention of the “Online Lenders Alliance,” a trade group made up primarily of payday lenders.  Industry observers like Robert X. Cringely, who has covered Silicon Valley for over twenty-five years, argue that Google buries bad news about the industry in its search results, “below the fold as we used to say in the newspaper business.”[x]

Whether or not, as Cringely argues, data platforms do hide negative information about the evils of many of their online financial advertisers, what is true is that they proliferate in the feeds of low-income Internet surfers.  As many families saw their mortgages balloon above the value of their homes, an array of illegal scam “loan modification” firms appeared promising to help homeowners in advertisements appearing when people searched for keywords such as “stop foreclosure,” then taking money from those families without helping them at all.  Despite scathing reports highlighting the problem by consumer group Consumer Watchdog in 2011,[xi] Google refused to stop until ordered by the Treasury Department using its TARP authority to shut down ads by 85 of the companies.  “Many homeowners who fall prey to these scams, initially do so through these Web banners and other Web advertising,” Christy Romero, Deputy Special Inspector General for the Troubled Asset Relief Program (TARP), said in an interview.[xii]  Similarly, the data broker and credit score company Equifax kept selling lists of people late in paying their mortgages to fraudulent marketers until the FTC fined Equifax $1.6 million in 2012 for the practice based on companies bilking those customers of millions of dollars.[xiii]

In this way, the data and privacy lost by consumers has translated into tens of billions of dollars in profits for the data platforms and the enabling of exploitation by predatory companies using that data for an even larger scale of economic losses by consumers.

 

[i] Jeff Chester, “Role of Interactive Advertising & the Subprime Scandal: Another wake-up call for FTC,” Digital Destiny. August 28, 2007; http://www.democraticmedia.org/jcblog/?p=349 

[ii] NIELSEN//NETRATINGS Reports Topline U.S. Data For July 2007,  Neilsen/NetRatings, July 2007; http://www.nielsen-online.com/pr/pr_070813.pdf

[iii] Faisal Laljee. “Subprime Mortgage Bust Could Create Ad Trouble for Google.” Seeking Alpha. February 22, 2007; http://seekingalpha.com/article/27736-subprime-mortgage-bust-could-create-ad-trouble-for-google

[iv] Andrews Ibid, p. 39.

[v] Raymond H. Brescia. “Subprime Communities: Reverse Redlining, The Fair Housing Act And Emerging Issues In Litigation Regarding The Subprime Mortgage Crisis.” Albany Government Law Review (Vol. 2 2009); http://bit.ly/ngavgD

[vi] Michelle Singletary, “King's Dream Deferred, One More Victim of the Subprime Mortgage Crisis,” Washington Post, February 10, 2008; http://bit.ly/1hif6Xz

[vii] Larry Kim, “The Most Expensive Keywords in Google AdWords,” Wordstream Blog, July 18, 2011;  http://www.wordstream.com/blog/ws/2011/07/18/most-expensive-google-adwords-keywords

[viii] Robert X. Cringely, “Google’s Pound of Flesh,” I, Cringely, Sept. 27, 2010, http://bit.ly/NbUN5e

[ix] Richard Cordray, “Remarks by Richard Cordray at the Payday Loan Field Hearing in Birmingham, AL,” Consumer Financial Protection Bureau, Jan. 19, 2012, http://1.usa.gov/Rw7KZf

[x] Cringely, Ibid.

[xi] Liars and Loans: How Deceptive Advertisers Use Google.  Consumer Watchdog’s Inside Google Report.  February 21, 2011. http://www.consumerwatchdog.org/resources/liarsandloansplus021011.pdf

[xii] Jay Greene. “Feds shut down high-tech mortgage scammers.” CBSNews.com. November 16, 2011; http://www.cbsnews.com/8301-205_162-57326180/feds-shut-down-high-tech-mortgage-scammers/

[xiii] Angwin, Ibid., p. 17.