The Right Opinion
The Left Engineers Another Housing Crisis
The Obama administration again sets minorities up for financial ruin with "social justice" lending regulations.
Apparently for the Obama administration, one economy-busting housing meltdown wasn't enough. Studies showing that the foreclosure crisis was more devastating to older black and Hispanic Americans than other groups has prompted another round of government interference in the credit markets -- almost identical to the one that precipitated the first crisis. Once again the perceived bogeyman is "racist" lending standards. And once again, banks will be forced to lower their lending standards to make easy credit available for minority loan applicants as a result.
While the idea of browbeating the banks remains the same, the government's choice of club has changed. The last round of intimidation was percipitated largely by the Justice Department and mortgage behemoths Fannie Mae and Freddie Mac. It consisted of banks and mortgage lenders being forced to ease credit requirements for lower-income minorities or face investigations for discrimination, denial of access to the secondary mortgage market, as well as fines and other penalties. This time, the newly created Consumer Finance Protection Bureau (CFPB) will be the government's hammer.
The CFPB is the brainchild of Massachusetts Democratic Senate candidate Elizabeth Warren, who like President Obama, is an ardent disciple of the "you didn't do it on your own" philosophy of all-encroaching government. Thus it should come as little surprise that the CFPB announced it is adopting as its template the 20-page "Policy Statement on Discrimination in Lending," issued by the Interagency Task force on Fair Lending in 1994. That statement was signed by the heads of 10 federal agencies, including then-Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig, Federal Reserve Chairman Alan Greenspan, and the heads of six other financial regulatory agencies. It put lenders on notice that "the agencies will not tolerate lending discrimination in any form."
The policy was based on a study done by the Boston Fed purporting to show lender "discrimination," due to the fact that mortgage applications by blacks and Hispanics were being rejected in greater proportion than those submitted by whites. Yet a private analysis showed the study was flawed, and that the disparate approval rates were based on the simplest, but apparently inconvenient realities: past delinquencies, a lack of credit standards, an applicants' net worth, debt burden and employment records, all of which showed that minorities, on average, had higher levels of bad credit and loan defaults, than whites. In other words, sound business practices, not racism was motivating the lenders. This is further revealed by another inconvenient reality: whites could also claim to be victims of "discrimination" because their approval rate has been lower than that of Asians in some lending markets.
None of it matters to the racial bean-counters. "Applying different lending standards or offering different levels of assistance to applicants who are members of a protected class is permissible in some circumstances," the 1994 statement said. "Providing different treatment to applicants to address past discrimination would be permissible if done in response to a court order." Thus the CFPB is re-instituting the policy. "The CFPB, which did not exist at that time, concurs with the policy statement," the bureau said in a recent bulletin.
Yet the way they're going about enforcing the policy is insidious. Two weeks ago, CFPB chief Richard Cordray, who was granted a recess appointment by President Obama without the necessary senatorial consent, announced that the agency will regulate credit-reporting bureaus that provide the credit scores lenders use to assess the default risk of loan applicants. The impetus behind the move is complaints -- solicited by CFPB -- from minorities who claim their credit has been damaged by faulty reports from the bureaus. The agency contends that only 60 percent of such reports are accurate.
However, a 2011 study by the non-profit, non-partisan Policy and Economic Research Council revealed otherwise, noting that 99.5 percent of the reports are free of material errors, less than 1 percent of credit scores were altered by more than 25 points after a dispute process, and that "95 percent of disputing participants were satisfied with the outcomes of their disputes, suggesting widespread satisfaction" with the process. Furthermore, a Federal Reserve review of more than 300,000 credit bureau records from 2007 not only found no bias in scoring, but noted that scores underestimated the risk posed by black American borrowers who showed, on average, "consistently higher incidences of bad performance than would be predicted" by those scores.
Nonetheless, Cordray revealed the CFPB will re-write the rules determining how the private credit bureaus collate their data. This will be done in conjunction with the leftist Center for Responsible Lending and other housing activist organizations. In short the credit agencies, like the lending institutions before them, will be vetted for racial discrimination, with the likely result being that the agencies will be threatened to raise the credit scores of minorities, or suffer the same consequences imposed on the lending institutions.
Those consequences began to be imposed in earnest a little over a year ago by the Justice Department. It created the Fair Lending Unit, comprised of 20 lawyers, economists and statisticians headed by Special Counsel for Fair Lending, Eric Halperin. Halperin answers to Civil Rights Division chief Tom Perez, who likened lending institutions to the Ku Klux Klan. The unit began pursuing lending institutions in earnest. Government prosecution has now procured more than $550 million in rebates, loan set-asides and other subsidies from banks, who would rather settle than battle government bureaucrats and their media cheerleaders, all of whom would inevitably brand the resisting institutions as racist.
Wells Fargo is the latest bank to settle with the feds, to the tune of $175 million. And like many other lending institutions it must "prominently display" a notice informing minority customers that they cannot be turned down for loans just because they are receiving public assistance, including unemployment benefits, welfare payments or food stamps. "It is illegal to discriminate in any credit transaction," the court-mandated poster says, "because income is from public assistance." As part of the settlement, Well Fargo must set aside $50 million for down-payment and closing-cost assistance for minority borrowers, including "Borrower Assistance Grants" of up to $15,000 per individual. It must also rewrite loan pricing policies, fire mortgage brokers, put managers and loan officers through "equal credit opportunity training" and create programs to assist minority home buyers.
Yet the most mind-boggling part of the settlement is the $125 million portion set aside to compensate as yet unidentified victims of discrimination. If those victims can't be found? The cash must then be given to government-approved community organizing groups.
To that end, millions of dollars extracted from Wells Fargo, Bank of America, and other lending institutions have been put into escrow. Adding insult to injury, Wells Fargo, which announced it settled "solely for the purpose of avoiding contested litigation with the Department of Justice," received an "outstanding" grade in its last Community Reinvestment Act (CRA) exam. The CRA is an "anti-redlining" law that measures bank lending performance in minority neighborhoods. Thus, even an outstanding score on the exam is apparently insufficient proof of even-handed lending practices.
Moreover, bank regulators are in the line of fire as well. The CFPB has hired a new director for its Office of Minority and Women Inclusion tasked with promoting diversity at every federal agency regulating banks, private contractors and financial firms. The CFPB will also collect race-based lending data by banks to small-businesses. All of these changes have been authorized by the Dodd-Frank banking bill, with Congressional Black Caucus member Rep. Maxine Waters (D-CA) authoring the raced-based hiring standards for the regulatory bodies. Waters claims the changes are necessary in order to change the composition of "white male-dominated Wall Street."
All of these machinations are little more than government-sanctioned extortion. Using ill-defined and/or unsubstantiated accusations of discrimination as their vehicle, the CFPB is pursuing Barack Obama's pledge to "spread the wealth" around, oblivious to the overwhelming irony that it was precisely this kind of quota-mongering that disproportionately devastated minority borrowers the last time it was implemented. In essence, the Obama administration is turning home ownership into an affirmative action program. Sound lending principles are being undermined by government -- again -- in favor of the same feel-good practices that were the beginning of the end for the housing market the last time.
During that meltdown the banks, realizing that government would force them to make questionable loans in the sub-prime market, expanded the irresponsible practices to the entire mortgage market. Then they bundled the loans together and sold them to investors worldwide. When the market tanked, so did the economy, and taxpayers were left holding the bag in order to "save" the entire financial system. Yet as far as this administration is concerned, one global meltdown was not enough. In a society where the entitlement mentality has run amok, they have unilaterally determined that access to credit is a right, one where "diversity," "fairness" and "social justice" count just as much -- if not more -- than one's ability to handle loan payments. That is fiscal insanity enforced by government fiat.