Do you remember that thing about how the banks wouldn’t lend to
blacks and Hispanics because they were racists? And do you remember
how they passed the Community Reinvestment Act so that banks were
forced to reduce down payments practically to zero and lend to a
lot of people they knew were bad credit risks? And do you remember
how Wall Street bundled all these risky subprime mortgages and sold
them to investors around the world so that when it became clear
that those people weren’t going to be able to pay their mortgages
banks everywhere were left holding the bag and all five of the Wall
Street investment houses either went under or had to be bailed out
by the federal government?
And do you remember how, when it was all over, liberals said it
was actually the banks’ fault for “deceiving” all those people into
thinking they could afford to buy homes and that the banks should
be punished for it and some of those people be allowed to keep
their homes anyway? And do you remember how all this cost the
government close to a trillion dollars and put the whole economy in
a hole that we really haven’t begun to dig ourselves out of
yet?
Well, get ready because the whole thing is about to happen
again.
Yes, believe it or not, the federal government is now starting
another initiative to force banks to lend
to low-credit-rated blacks and Hispanics — not just anybody but
specifically blacks and Hispanics — and is threatening — and
already imposing — huge punitive fines if they don’t. Moreover,
this time they’re going even further. They’re going to
take over the credit rating
agencies and force them to change their standards to
accommodate blacks and Hispanics so that nobody will have any idea
who is a bad credit risk and who is not. In so many words, the
government is about impose its will on the whole home-lending
market and force another round of bad loans so that the banks are
going to be looted once again so that even the federal government
may not be able to bail them out this time.
The principle instrument this time is not the Justice
Department, Fannie Mae and Freddie Mac, as it was last time, but
the brand-new Consumer Finance Protection Bureau, designed by good
old Elizabeth “Nobody-Ever-Made-It-On-Their-Own” Warren, which
should really be called the Bureau for Bringing Down the Entire
Economy. As
reported in last Sunday’s New York Post by Hoover
Institution Media Fellow Paul Sperry, the CFPB has just announced
that it is adopting a 20-page “Policy Statement on Discrimination
in Lending” issues by the Interagency Task force on Fair Lending in
1994 that kicked off Attorney General Janet Reno’s draconic
enforcement of the Community Renewal Act. Part of the policy
statement reads, “Applying different lending standards or offering
different levels of assistance to applicants who are members of a
protected [i.e., minority] class is permissible in some
circumstances. Providing different treatment to applicants to
address past discrimination would be permissible if done in
response to a court order.” There are already plenty of court
orders sitting around.
Just two weeks ago Wells Fargo caved to a Justice Department
offensive and paid $175 million for alleged past discriminating
against minority borrowers. All this occurred even though the bank
received an “outstanding” grade in its most recent Community
Reinvestment Act exam. The government did not even bother to prove
discrimination in a single instance but relied instead on
statistics showing lower rates of homeownership in minority
neighborhoods. Thomas Perez, the Justice Department honcho who is
spearheading this campaign, says banks discriminate “with a smile”
and “fine print” and are “every bit as destructive as the cross
burned in a neighborhood.” Nice objective evaluation there.
As in most such cases, Wells Fargo chickened out about going to
court and refused to admit any wrongdoing but agreed to all kinds
of diversity training and sensitivity counseling. The bank will
have to “prominently display” a notice informing minority customers
that they cannot be turned down for loans just because they are
receiving public assistance such as unemployment benefits, welfare
payments or food stamps. (Maybe they can even use food stamps for
the down payment.) Wells Fargo must provide minority customers $50
million for down-payment and closing-cost assistance, including
“Borrower Assistance Grants” of up to $15,000 per individual. It
was also ordered to pay $125 million to as yet unnamed victims of
previous discrimination. But get this! If those past victims don’t
show up, the money must be handed over to community
organizing groups. President Obama, you have
a job waiting for you if you lose office this fall.
Almost a dozen banks are under similar investigation and will be
soon falling like dominoes unless one of them musters the courage
to stand up to the Justice Department in court.
But the real destruction is going to be wrought by CFPB, created
by Dodd-Frank and just getting started. Last week Richard Cordray,
who is serving as a disputed recess appointee without the consent
of the Senate, announced that not only will CFPB be going after
banks but will also target the credit rating
agencies that evaluate people’s creditworthiness
based on past performance in paying debts. They too will be vetted
for racial discrimination. In May 2011, the non-partisan Policy and
Economic Research Council completed what it described as the first
evaluation of Equifax, Experian, and TransUnion, the three credit
rating agencies. The report concluded that in less than 1 percent
of cases was a score changed by more than 25 points after a dispute
process and that “consequential inaccuracies are rare.” Moreover,
“95 percent of disputing participants were satisfied with the
outcomes of their disputes, suggesting widespread satisfaction”
with the process. In other words, credit ratings are pretty
accurate. Banks rely heavily on them and say that, if anything, the
agencies tends to underestimate the rate at which minority buyers
will default on mortgages.
So guess what happens next? Under the pretext of “regulating”
the agencies, CFPB will hammer away, forcing them to upgrade the
scores of blacks and Hispanics. Standards will be diluted or
abandoned entirely and within a few years the banks will be flying
blind with no reliable information on who is a good credit risk and
who isn’t. Does that sound like the formula for another mortgage
meltdown? It sure does to me.
At this point in my story, it is customary for the journalist to
proclaim that he isn’t trying to protect the lenders but is really
concerned with those unfortunate minority individuals who will end
up with bad loans. Sperry follows this pattern by declaring, “In
the end, it will be the minorities Obama and [Eric] Holder are
trying to help who will be hurt most.”
I think I’m going to have to depart from the tradition. I think
what we are witnessing is the looting of America on behalf of
minorities in a way that better end soon or we are going to bring
the whole system down upon our heads.
With the current administration in power, the perception is
growing among minorities that everything in the economy can be had
for free and that President Obama and his administration are going
to provide it for them. For instance, there is a scam going on
around the country right now where con artists call up homeowners
and tell them that President Obama has a new program where he is
going to pay their electrical bills. All the homeowner has to
do is provide his Social Security number and other personal
information. The con game started in Michigan among minority
populations in depressed cities such as Flint and Grand Rapids. It
has now spread as far as far as Florida and Mississippi. More than
2,300 people in Michigan were bilked out of $1 million, another
10,000 have been swindled in New Jersey.
What is amazing is that all these people actually believe that
President Obama is ready to pay their electrical bills. It is
symptomatic of a rising tide of dependency and the growing sense
that nobody has to be responsible for anything anymore and we can
all live off “the rich.” If we don’t get these people out of
office soon, there isn’t going to be much left to pick over in the
American economy.
