American Elephants

Eric Holder is Promoting Another Mortgage Crisis. by The Elephant's Child

According to the Obama administration, the nation’s largest mortgage lender —Wells Fargo Bank — and dozens of other  banks are racist bigots. Another Justice Department witch-hunt.  Attorney General Eric Holder has added Sun Trust Bank and Bank of America to the long list of bank bigots. Some 60 other lenders are under investigation for allegedly denying blacks and Latinos home loans solely due to the color of their skin, or for allegedly “steering” them into higher-cost subprime mortgage loans when they could have qualified for prime loans. If you see everything through the prism of racism, don’t be surprised if you find it everywhere.

I just advised everyone to read Gretchen Morgenson’s Reckless Endangerment.  The financial meltdown was not a pretty picture, and the interplay of Washington, Wall Street and corrupt mortgage lenders dumped a major crisis on us all. The corrupt mortgage lenders were the big mortgage giants Fannie Mae and  Freddie Mac. The financial crisis was caused by the federal government — politicians trying to be compassionate when they should have been responsible and thoughtful.

The idea in Washington was both good and compassionate. If more people owned their own homes, they would become more responsible members of the community, work for better communities and better schools. All good things would come to be if only more people were homeowners. White picket fence, apple trees, and mom and apple pie.

A lot of people in this country who are poor, are poor because they have made bad choices. There are good and kind people who may be poor too, just a little down on their luck. But there’s a big chunk of bad choices there. Dropping out of school. Getting pregnant in high school, having babies without a father to support them. Drugs, crime, prison. Gambling. Those choices reflect on creditworthiness. If you don’t have a steady job, it is hard to pay the mortgage bill. One payment missed means a future double payment.

Some have chosen to believe that the reason that poor people are turned down for mortgage loans— the only reason— is racism. Because some minorities are poor, they should be offered loans at a less discriminatory rate than those who can afford it. We are still undergoing the fallout from the mortgage crisis, and now Holder wants to do it all over again.

Holder has smeared the entire banking industry as racist — an absurd lie — in order to help lawyers and housing-rights activists to justify a bigger shakedown of the industry. The left likes to believe in FDR’s Second Bill of Rights ( without understanding the difference between a natural right and wishful thinking), which included the right to a good paying job, freedom from unfair competition and monopolies, a decent home, the right to medical care, a good education, and the right of a farmer to prosper. The left believes in this because they believe in making promises to the electorate. They don’t care if they don’t turn out. It’s the promise that matters.

Holder is attempting to turn the public against banks, erode confidence in the financial sector, erode time-tested credit standards, and to go back and do the financial crisis all over again.  He has ordered banks to “modify’ their lending practices to approve more minorities, regardless of their creditworthiness, and forced them to open branches in depressed urban areas, regardless of profitability. Wells Fargo must devote at least $50 million to down-payment assistance for homebuyers in predominately minority areas of Chicago, Baltimore, Detroit, Miami, Oakland, Cleveland, Philadelphia and Washington DC.

Well, who wants to fight the federal government? It may be more expensive than settling. Holder has not yet had to prove his charges in court.  Out of the 20 settlements so far, there has been no material evidence of lending discrimination in any of them.  In the case against Wells Fargo, Investors says:

1. Justice’s 37-page complaint covers the period 2004 to 2009, yet Wells ceased making wholesale subprime loans in July 2007.

2. Over the same period, Wells scored “outstanding” grades on its Community Reinvestment Act exams conducted by federal regulators, who monitor bank lending in minority areas and work closely with Justice prosecutors. Wells set aside more than $110 billion in mostly low-interest loans for minorities as part of so-called CRA loan commitments.

3. In the 29-page consent order, Wells denies discriminating against minority borrowers and insists that an internal review of its loan files proves its subprime borrowers had “significantly weaker credit characteristics” than its prime borrowers. Black, white or brown, they would not have qualified for prime loans.

4. In approving loan products, originators followed published underwriting guidelines and weekly “rate sheets” pegging prime and nonprime interest rates to credit scores—the higher the score, the better the rate, and vice versa. They also followed an automated checklist, “Enhanced Care Filter,” to prevent “steering” a prime candidate into subprime.

5. Wells also asserts that the government failed to conduct “an appropriate analysis” of its loan data. As in other cases, prosecutors drew their conclusions from statistical analyses showing “disparities” in loan pricing by race.

But the computer models — which were developed by a former top Center for Responsible Lending official — do not control for all credit risk variables. The former official, Eric Halperin, has long had it out for banks; yet he now serves as Justice’s lead prosecutor for “fair lending.”

6. The complaint fails to identify a single “victim” of lending discrimination; and, in fact, asks Wells to “assist in identifying allegedly aggrieved persons.” Nor does it cite any internal bank communications, such as emails, showing willful intent to discriminate against blacks or Latinos. (there’s more)

The state of the law is such that someone accused must weigh the ultimate cost of a court battle against the cost of whatever settlement is demanded. Why did Wells Fargo agree to settle, when the charges are preposterous? They said “Solely for the purpose of avoiding contested litigation with the Department of Justice.” And, Investors adds, avoiding brand damage from boycotts and negative media orchestrated by Holder. And the Community Organizer could call in his troops —ACORN and the Unions.

Eric Holder believes that his critics are motivated by racism, and an attack on him is meant as an attack on the president. He said in a speech at Columbia University the he “can’t imagine a time in which the need for more diversity would ever cease. Affirmative action has been an issue since segregation practices. The question is not when does it end, but when does it begin…When do people of color truly get the benefits to which they are entitled?”

Way back in February of 2009, Holder said the United States is “a nation of cowards.” “Though race-related issues continue to occupy a significant portion of our political discussion, and though there remain many unresolved racial issues in this nation, we, average Americans, simply do not talk enough with each other about things racial.”

At some point, all we can do for minorities is the compliment of treating them as no different than anybody else. Of not requiring special favors and special benefits, but having to earn the favors and benefits by their own efforts. We are, and remain human beings, subject to all the flaws of humanity, and there are lots of favors and benefits that depend on who you know and who you have done favors for. Oddly enough, that remains one of the most noticeable characteristics of the Obama administration. It has several names: crony capitalism, pay-offs, and “the Chicago style.”

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