Back in the Sub-Prime Mortgage Habit

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One might be inclined to think that an economic meltdown caused by irresponsible mortgage underwriting would be a “‘lesson learned” of the first order. One might think a federal government which has largely escaped well-deserved blame for its part in pressuring banks to relax loan standards for minority applicants, in order to avoid charges of racism, would never reprise such an ill-conceived concept. One might think a U.S. Department of Justice neck-deep in a Mexican gunrunning scandal and unresolved charges of reverse-discrimination for dropping a voter intimidation case against Black Panthers would be chastened by such disclosures. One would be completely wrong: the DOJ is once again strong-arming banks to make risky loans to minority applicants, or face charges of discrimination.

The pressure is yielding results. Prosecutors from the department have succeed in wresting more than $20 million in set-asides from lending institutions apparently intimidated by such pressure: the funds were raised in out-of-court settlements with banks fearful of being branded racist for maintaining sensible loan standards. Another 60 banks are in the DOJ’s cross-hairs.

How dubious are these loans? Once again, prime mortgages are being set aside for minority applicants with questionable credit. And once again, as incomprehensible it was the first time, “valid” income considerations for obtaining a mortgage will include “welfare payments, and unemployment benefits.” Former Rep. Ernest Istook, a Heritage Foundation fellow, illuminates the insanity. “It’s absolutely outrageous after what we’ve just gone through,” said Istook. “How can someone both be financially stable enough to merit a mortgage at the same time they’re on public assistance? By definition, you don’t have the kind of employment that can support such a loan.”

Such concerns are irrelevant for a Justice Department that sees racial bogeymen wherever it turns. Many of the banks they sued have been ordered to post notices in all their branches and on advertising material notifying minority customers that they cannot be turned down for a loan simply because they’re on the government dole. Justice Dept. spokeswoman Xochitl Hinojosa, while noting that such pressure “does not compel the banks to make loans to people who do not qualify,” contended such lending is “essential to remedy the harmful effects of the banks’ conduct.”

Toward that end the DOJ has created a new entity called the Fair Lending Unit, comprised of more than 20 lawyers, economists and statisticians. It is headed by Special Counsel for Fair Lending, Eric Halperin, who answers to Civil Rights Division chief Tom Perez. Both men worked for former Attorney General Janet Reno. How credible is Perez? He is the man who once likened lending institutions to the Klu Klux Klan, saying their racism with respect to mortgages is “every bit as destructive as the cross burned in a neighborhood.” He was also responsible for dropping the case against the two Black Panthers involved in voter intimidation in Philadelphia — after it was already won.

More importantly, with respect to minority lending, Mr. Perez is pursuing policies best described as a schizophrenic. At a meeting hosted by the Brookings Institution in June of 2010, Mr. Perez spoke about a housing crisis “fueled in large part by risky and irresponsible lending practices that allowed too many Americans to get unsustainable or unaffordable home loans.” He then claimed that while the crisis affected everyone, “communities of color have been hit particularly hard, and have suffered greater consequences.” In other words, the same lending institutions which had lowered credit standards to make more mortgages available for minority applicants were at fault for higher default rates by those same applicants! And one year later, the DOJ is pursuing banks for not engaging in the same risky practices that led to the housing bust which disproportionally affected minority borrowers!

Perez blamed this disproportion on the fact that minority borrowers were put in more sub-prime loans than non-minorities with similar incomes, citing a New York Times study which noted that “a black household in New York City making more than $68,000 a year was almost five times more likely to have a subprime loan than whites with similar incomes.” That certainly sounds unfair until one discovers the following reported by the Manhattan Institute’s Howard Husock:

A September 1999 study by Freddie Mac, for instance, confirmed what previous Federal Reserve and Federal Deposit Insurance Corporation studies had found: that African-Americans have disproportionate levels of credit problems, which explains why they have a harder time qualifying for mortgage money. As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000.

Furthermore, a study conducted by insurance giant Prudential entitled the “African American Financial Experience” reveals that black Americans do not save as much money as white Americans do, especially with regard to retirement funds, even as they are “three times more likely to raid their 401(k) or other retirement plans to meet immediate financial needs.”

Again, one might think that such realties concerning credit and savings histories would diminish the Justice Department’s efforts to portray banks and other lending institutions as racist. It has, in an Orwellian sense. According to Investor’s Business Daily’s Paul Sperry, if the methodology used by the DOJ to allege racism by particular institutions is requested by the institutions themselves, they must sign a non-disclosure agreement to get it. Reginald Brown, partner at Wilmer Hale in Washington, who has represented banks in connection to recent race-bias investigations, explains why. “They want you to sign something saying you agree, under the condition of any settlement with them, that you won’t disclose what their theories were. That’s because their theories are loopy and wouldn’t stand the light of day,” he said.

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  • spinoneone

    I would posit that Mr. Holder may be both incompetent and corrupt. Morally bankrupt may also be an apt description. Anyhow, I think George Orwell would be laughing at how well he predicted the future.

  • davarino

    Thanks Barney Fwank and Chris Dodd. And thanks Mr. Holder, you are doing your job well, which is to ruin the financial future of America, the land that you hate.

    And I suspect that the repubs may have gotten a piece of the pie as well or else they would be talking, and screaming about the hypocrisy. We have to vote all the bums out and start over.

  • StephenD

    You gotta give Holder and his crew credit. They are doing the bidding of their Masters very well. They are performing admirably as America hating, Socialist, Islamic supporters. In this, they are beyond reproach.

  • Mick60

    Sometimes I get tired of hearing 'vote the bums out'. This country is under direct assault and our Constitution is being shredded by the socialist/communist cabal in Washington. I'm surprised there hasn't been a military coup yet which WOULD, I'm sure, be applauded by the vast majority of our citizens. Sure, the radical left will storm into the streets, but – hey – that's what the national guard and law enforcement and veterans of the military are for: protecting the US Constitution against all enemies, foreign AND domestic! Drag Holder and his cronies OUT of the DOJ.

  • Raymond in DC

    Ideologues are immune to evidence, history or personal experience. They've got their narrative and they're sticking with it. Case in point…

  • currencywidget

    Libtards just love to keep making the same wrong moves over and over while blaming the results on conservatives.

    Perhaps some day they will run out of spin.

  • Bert

    The Obama gang is hammering more nails into our economic coffin. Our enemies need not plan to conquer us by war. They need only wait a bit longer and watch us commit suicide.

  • Kris

    With the housing market the way that it has been for quite some time, it is a fact that those on public assistance, able to use that income to qualify for a mortgage without discrimination of the source of their income, can in fact afford to purchase a home in many areas of the country which may end up being less than they are paying in rent (i.e. many of the homes listed through the program, depending on the area). Of course, there are layers of risk to consider when underwriting each mortgage loan application. Historically in my experience as a mortgage underwriter for a major financial institution, what I typically see in cases where an applicant is relying on public assistance income to qualify is that there are various other layers of risk involved that make it impossible for me to approve the loan, much as happens with those that are not using forms of public assistance to qualify.

    The sub prime market was a tough market, filled with corrupt appraisers who inflated the values of homes so that investors could purchase a home, and immediately flip it for profit. These were not low income investors. They used the sub prime market to work their business plans because they could not qualify under conventional means based on what they were doing. It's a cycle. The sub prime market will return. For now, government loans (i.e. FHA, VA, USDA) are the "new" sub prime loans. Credit score requirements for these programs dropped below 600 for some of our channels recently, and I suspect it will get more relaxed as time goes on.

  • JessieS

    You're dead on Kris. It will be back and with a vengeance. Many of these people with scores below 600 aren't even aware of what a credit score is, and yet they can waltz into a bank and walk out with a 350K loan with as little as a Macy's card and their T-Mobile bill. It's pretty ridiculous. I have a friend that did just this, and of course his mortgage interest rate was through the roof. Not sure he's even aware of how much 1% can make over the course of 30 years… I myself am aware of my low credit score and am working diligently on credit repair before I even think about trying to get a loan. Better play it safe and put it off a year or two rather than get screwed for tens of thousands over the course the the loan!

  • Tom Lahman

    Black minorities have fared worse than any other during the Obama administration. The glow of free Obama phones has began to wear off. What we are seeing is an attempt to shore up an unraveling of his black base with a renewed minority housing program. The '08 collapse was engineered upon the housing welfare program first instituted by Jimmy Carter followed by steriod injections administered by Bill Clinton. Added to this was Obama's work with ACORN which promoted subprime mortguages through ACORN Housing (a subsidiary with offices in more 30 U.S. cities). More at:


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