After getting his doctorate, Dr. Anthony Pennington-Cross began studying something that few people had heard of and even fewer knew anything about: subprime real estate lending.
“I got intrigued by it because I wanted to do stuff that people didn’t already know,” Pennington-Cross said.
He could hardly have suspected that his obscure corner of academic study would turn into front page news as one of the leading catalysts of the 2008 economic recession. Financial regulators pored over his research when trying to devise a response to the worst financial meltdown since the Great Depression.
Along the way, Pennington-Cross has worked at credit rating agency Standard & Poor’s and the Federal Reserve Bank of St. Louis. He joined Marquette in 2006.
Pennington-Cross will now take on a new challenge — the role of executive associate dean once Dr. David Clark retires this summer. Before doing so, he took the time to discuss his research into predatory lending, financial tips for students and the challenge of living up to Clark’s multi-decade legacy.
The following conversation has been edited for brevity and clarity.
How did you get interested in researching subprime lending?
My degree is in economics. I was always fascinated with people, how they interacted with each other and the challenges they had. That led me to issues in the real estate mortgage markets after I got my doctorate at George Washington University.
You had a unique view on the build-up to the 2008 housing crisis because of your research. Did you know it was going to lead to an economic crash before it happened?
I didn’t know we’d have a recession, but I knew we had a huge problem with subprime borrowers; people without great credit who wouldn’t be able to pay back home loans. I was simulating default scenarios that would wipe out a lot of investors before the financial crisis hit. What I didn’t know was how much damage it would do to the rest of the market.
Your research at the Federal Reserve Bank of St. Louis focused on predatory lending. What is that and why is it an issue?
Predatory lending is when you lend under the assumption or desire that someone fails. If I know that they can’t pay the loan and my objective is to take their house from them, that’s predatory lending.
These kinds of loans are often targeted toward lower-income people and those who live in minority areas. I’ve personally seen it in my life; when I moved to a lower-income area with a greater minority population, I got a whole bunch of predatory lending offers in the mail. People would come by the house with offers too. In wealthier areas, you didn’t see that kind of thing.
College students are also a popular audience for people offering high-interest credit cards, buy-now-pay-later plans and other things that might not be smart investments. What is the best piece of advice you can give to readers to protect themselves?
The most important thing is that if it looks really good, it’s probably not. That’s a good rule of thumb. Absolutely nothing is free, so if somebody is trying to sell you something for free, they’re not. They’re likely charging you a lot down the road and you’re going to be on the hook once you read the fine print. That includes credit cards or going on a trip where they tell you that you don’t have to pay right away. You’re going to end up paying.
I’m sure at least some students are starting to think about home ownership. How should students be approaching that at this early stage of life?
It doesn’t make sense to buy a home if you’re going to be moving. If you got a job in Chicago and it’s great and you’re living downtown at 21 years old, it’s probably not a great time to buy a condo. The chances are you’re going to get another job, maybe meet a nice partner and then the type of housing that you need changes.
When you’re owning a home, it costs a lot of money. There are big transaction fees on buying a house and getting a loan, then huge transaction fees when you sell a home. You need to be in a home a long time to make those fees less important. If you’re not going to stay put for at least five or six years, you should not think about buying property.
You’re moving into the position held by Dave Clark for so many years; those are big shoes to fill. What is your relationship with him like and what have you learned from him that you’re going to take into this role?
I’ve known Dave Clark from when I first arrived here, and I have a special fondness both for him and members of the economics department. We’ve had a great relationship. He’s a smart person and also very calm and deliberate, all very important characteristics for this position.
I learned that you have to be able to look forward and see things that might work and experiment with them. That’s something Dave was really good with during all this change the past few years. We have to keep trying new things and seeing what sticks.
Finally, what are some of the qualities that make an effective faculty member?
We have a lot of great teachers in the college both full-time and part-time and they all bring new ideas and innovation to their classes. Coming up with new ideas and new things to think about is really important. Doing great research and bringing real world experience to the classroom is a great way to enhance teaching, and being forward-thinking is a fundamental piece of what makes any faculty member successful.
The other thing is you have to enjoy teaching. You have to enjoy engaging with students and you have to be able to communicate complicated ideas to 19-year-olds. That’s an important skill and it’s not that easy, but you have to relish that process.