Impossible Mortgages Redux

One of the major factors in crippling the housing and mortgage businesses was the Barney Frank/Democrat insistence on forcing banks to lend money to people who would never be able to repay it. Home ownership and and a mortgage were to be granted to everyone, regardless of credit history or ability to pay. Race and ethnicity played a large role in this tragicomedy. But at least we're past that. Or are we?

If the emerging reports are correct, the post-racial Eric Holder Department of Justice is picking up Frank's fallen standard and continuing the same failed policy through legal coercion. At least Frank and the Demogogues were up-front with their pandering. Holder is doing his dirty work behind closed doors. If recent history is any indication, the next closed doors will be those of the banks being forced to grant mortgages to clearly unqualified buyers.

Investor's Business Daily has been reviewing court documents which indicate that Holder is using the DOJ Civil Rights Division to force banks "to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination." Holder calls it "redlining." But unlike redlining, which was a banking practice routinely denying loans in minority communities, this time the community is rarely considered and the banks have been looking solely at the applicant's creditworthiness. Not good enough for Holder. Plus ça change, plus c'est la même chose (the more things change, the more things remain the same).

So far, it appears that DOJ has forced banks to accept about $20 million in loans to black and Hispanic applicants with "fair" or "poor" credit ratings. These loans were out-of-court settlements between DOJ and the banks after DOJ lawyers threatened the banks with racial discrimination suits. The banks granted the loans rather than face extensive litigation and the very public label of "racist." Holder is doing what Jesse Jackson and Al Sharpton have been doing for years, only this time there is the force of the Attorney General behind it. In any other environment, this would simply be called blackmail.

The activities have not been easy to ferret out, since Holder has the banks' representatives sign non-disclosure agreements requiring them to keep their mouths shut about the settlements. IBD has found evidence that there are at least sixty more of these coercive suits in the works at DOJ. Since actions have not been formally filed in court yet, investigators had to rely on DOJ insiders to provide the information that those latter-referenced banks are "under investigation."

If these actions were legitimate, why would Holder want to keep them under wraps? Well, simply put, they are not legitimate. These are not substantial creditworthy racial or ethnic minorities who were being denied loans. They are those who, regardless of color or ethnic background, would simply not qualify in a sane banking atmosphere. But as part of the initiative to throw good money after bad, Holder's legal goons have ordered banks to advertise that racial and ethnic minority members cannot be turned down for a home loan simply because they are on public aid, unemployment, or are receiving welfare payments and food stamps.

Moreover, the loans must be granted as if the borrower has a high credit score, with commensurate low interest rates. In the specific case of Midwest BankCentre in St. Louis, the DOJ ordered the bank to grant prime conventional loans to persons who, as DOJ described them, "would not ordinarily qualify for such rates for reasons including the lack of required credit quality, income, or down payment (emphasis added).

Holder worked in the Janet Reno Justice Department during the Clinton administration at which time the Community Investment Act was passed by the Barney Frank Congress. Reno went after lenders who were "redlining," but Holder has refined his coercive legal skills far beyond redlining. If an unqualified minority member wants to buy a home in Beverly Hills or Scarsdale, who are those racist bankers to deny him that right?

Holder has even gone so far as to require that banks doing business in minority neighborhoods provide working capital for community organizations which are nothing more than ACORN in drag. Often the community organizers have created their little fiefdoms solely for the purpose of extorting money from banks in order to get mortgages for people who will never be able to pay for them. In these cases, Holder is more likely to use the phrase "disparate impact" than "redlining," but the simple fact is that minorities with bad credit and no income disparately live in minority neighborhoods.

Holder has enlisted the assistance of other federal agencies including the Federal Reserve and the FDIC to threaten the banks. Among the little tricks being used to cover up the dangerous lending being required, the agencies are requiring the banks to add to their loss reserves so that defaults will not have as immediate an impact on the public posture of the given bank. Death will come more slowly that way.

In a miserably weak economy, largely caused by round one of this bad credit/minorities fiasco, money which would ordinarily be used to finance solid mortgagees and small businesses is being withheld or used for wasteful investments that should never happen in the first place. Add to that the fact that with the Obama-imposed restrictions on the banking industry, the government has largely replaced the banks themselves as the major determiner of what is a good or bad investment. If you're wondering why there are unused stimulus funds granted to the banks, that is your answer. Rather than making traditionally wise investments, the banks are holding off making any investment until they can determine what the government will ultimately allow them to do. It's another way of keeping desperately needed capital in reserve rather than out in a free market.

Again, given the proclivities of the politicized race-baiting lawyers at the Holder Justice Department, one must ask the question that harks back to the Romans who also asked quis custodiet ipsos custodes--who will guard the guardians?