Back in the Sub-Prime Mortgage Habit

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One is left to wonder how such secrecy squares with remarks made by Thomas Perez at Heritage, where he promised that the Justice Department will “continue its practice of building accountability into agreements…requiring transparency so that communities can monitor the progress being made.” Even more so, when Sperry notes that “Justice acknowledges in every case it did not prove charges of intentional discrimination, while banks have denied any wrongdoing.” He further notes that the department “has asked banks to keep its methodologies, which include computer-based statistical analysis, secret.” Justice has confirmed the allegation. “In certain circumstances, when a bank has requested details of our analysis, the department has requested that a defendant agree to a confidentiality agreement,” DOJ spokeswoman Xochitl Hinojosa told IBD.

What else is being kept a secret? For one, the list of “qualified organizations” Perez has required defendant lending institutions to bankroll with millions of dollars in funding, as part of the settlement agreements. One case in particular involved Midwest BankCentre, a small bank which has been operating in the suburbs of St. Louis for over a century. They are reportedly settling a case with the DOJ for failing to open branches or issue mortgages in minority areas. $1 million dollars is reportedly being set aside for African American applicants “who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.” The organization which brought pressure on the bank? A community activist group calling itself the St. Louis Equal Housing and Community Reinvestment Alliance. Such pressure is reminiscent of the tactics that now-discredited ACORN and other community activist groups used to shakedown lending institutions prior to the housing crisis.

Such concessions are made possible by a sea-change in the Justice Department’s approach to prosecution. Rather than being held liable for particular loans they haven’t made to individual households, banks are being judged for the “secondary impact” such refusals have on an entire neighborhood. Thus, when First United Security Bank in Alabama settled with the DOJ in 2009 for alleged discriminatory practices, stipulations to fund community reinvestment and education programs were part of the deal. These included $600,000 to open a new branch in an African American neighborhood, $500,000 for a special financing program, and $110,000 for outreach to potential customers in the unserved areas.

And such considerations of secondary impact are not limited to mortgages. The DOJ is planning to extend their scrutiny into credit cards, auto loans, and even loan modification programs. Any violations which appear to be pattern-like will be referred to DOJ for prosecution based on a concept called “disparate impact.” Disparate impact is defined as a “facially neutral practice that has an unjustified adverse impact on members of a protected class.” What does this mean with respect to litigation? Buckley/Sandler lawfirm co-chairman Andrew Sandler explains. “Perez is going to depend on disparate impact theory, where the intent [to discriminate] does not have to be proven,” he says.

But it gets even crazier. On one hand, it is against the law for banks to compile data on race, gender or age for nonmortgage loan applications. On the other hand, the Home Mortgage Disclosure Act requires the compilation of such data. Crazier still?  “[DOJ is] expecting each bank to have a fair-lending risk assessment,” says Carl Pry, vice president and compliance manager at KeyBank in Cleveland. “That is something relatively new–you won’t find it either in the regulations, in the statutes, and not in any of the exam procedures.”

So what does the DOJ expect banks to do? Collect “proxy data,” in which they amass minority applicant information based on “geocoded neighborhood patterns, or guesswork based on gender or racial classification of a customer’s name” in order to determine if an applicant falls into a protected class. Such guesswork produces error rates as high as 40 percent in mixed neighborhoods. Furthermore, Mike Brauneis, director of regulatory risk consulting for Protiviti, a global consulting and internal audit firm, reveals the Orwellian nature of such data compilation. “If we do an analysis and it suggests that fair-lending risk exists, those analyses can themselves be risks,” he said.

That such questionable data coupled with unprovable intent would be used by the racial bean-counters at that DOJ should surprise no one. It is merely the next link in the chain behind the department’s utter illogic of simultaneously blaming lending institutions for irresponsible lending practices that propelled the housing meltdown, even as they are arm-twisting those institutions to engage in them all over again.

Added to the Fast and Furious gunrunning scandal, and the failure to prosecute Black Panthers intimidating Philadelphia voters — a case which also included sworn testimony of systemic abuse by the department’s Voting Rights Section — and a very disturbing pattern emerges. Attorney General Eric Holder is running a Justice Department that is abusive, out of control, and possibly racist. It is also a department more than willing to stonewall any investigation into its operational methods. Any one of these abuses on its own would be enough to warrant Mr. Holder’s resignation. All three? Mr. Holder is either incompetent or corrupt.

Either way, it’s time for him to go.

Arnold Ahlert is a contributing columnist to the conservative website

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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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