Tuesday, August 2, 2011

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?


Joel Farnham said...


We are going to need a President with the guts to go after people who have abused the system for their socialist agenda. Either that or a Congress who has the guts.

It is a cinch that the bureaucracy surrounding the DOJ system won't do it.

I am still angry at Obama and his socialists. I don't think I will cool off in my lifetime.

DCAlleyKat said...

'who will guard the guardians?'

That was supposed to be 'we the people'. We are entrusted to know the difference between principled people and corrupted people. However, when the corruption of education begins in pre-school and our children are kept uniformed of their nation's history, well...what can one expect. The time for action is now. 'We' all need to get involved in saving America from our elected officials and their cronies!

2012 - the political Tsunami is coming! Join the wave.

Tennessee Jed said...

Great, great post, Hawk. This one was news to me, though I suppose not surprising.

I suspect you are right, Joel. The issue of race is still so sensitive that you will probably never see a congressional investigation of criminal prosecution of Eric Holder or his underlings. That is only reserved for Republican crooks such as John Mitchell.

Does this bother me? Not just yes, but hell yes. Particularly the part where nobody reports on it, but IBD and Hawk. Still, I will gladly trade prosecuting Holder for just getting these bastards out of Washington in November 2012. I have never seen in my liftime (nor you for that matter) a time when fiscal conservatives controlled in a significant way, all three branches of government. Revenge is a dish best served . . . . .

T-Rav said...

Unfortunately, that's the problem--the guardians don't believe they need guarding, because their ideology gives them superior knowledge and morals. Thus, they can do no wrong. So to repeat what everyone else is saying, the only solution is to throw them all out of power in 2012.

Jocelyn said...

I'm sorry, did we not just learn anything from the recent housing bubble? Anyone? This is ridiculous. And I find it sad that the banks are just giving in instead of putting up a fight, soley based on numbers, that applicants don't meet loaning requirements.

Why to make the economy boom. /sarc

Thanks for the article! I didn't know this was ongoing.

BevfromNYC said...

So will these people with questionable credit histories who are getting mortgages that most likely they can't afford be able to sue the government when they default on their mortgages? I mean the government is forcing the banks to give them mortgages, so the mortgagees think they can afford them 'cause the banks are giving them mortgages. So when they have their inevitable lawsuits suing someone because they were being railroaded into a mortgage they couldn't possibly pay for and didn't read the fine print that said they HAD to pay back the money borrowed which is why they have poor credit to being with...they don't pay their bills...I tired of this. And the bottom line is, I STILL don't have mortgage because I CAN'T afford one and I have EXCELLENT credit...grrrrrrrrr. Sadly, I am not a minority. Maybe if I marry my BFF, I can be a same sex couple minority??

Anyway - Same lyrics, different song...or maybe the same song, different chorus. But I must say, it's much prettier in French - Plus ça change, plus c'est la même chose.

AndrewPrice said...

Welcome to the world of idiot leftists. If at first you cause disaster, try try again until it turns out differently.

Unknown said...

Joel: It will be along time before many of us will be able to cool off after we have sent Obama back to community organizing in Chicago. I have a particular dislike for this administration because of what it has done with its DOJ and the law. There will always be an element of politics at the top of the Department. It's human nature. But Obama and Holder have turned the entire Department into one huge political arm of the Democratic left. Career attorneys for the Department are being forced to toe the line or get out. The Deparment of Justice is lawless at the moment.

Unknown said...

DCAlleyKat: The question is eternal and omnipresent. In a society where 49% to 51% of the people pay nothing to support the proper functions of government, even the people need a guardian. That's the danger of encroaching direct democracy--they can vote themselves largess from the public treasury. The Senate was supposed to be the brake that slowed the onslaught of direct democracy and the tyranny of temporary majorities. That failed with the passage of the Seventeenth Amendment.

I so hope that you're right about 2012.

Unknown said...

Tennessee: I'm with you. I want to see some prosecutions and some law licenses yanked, but I'll be happy as a clam if we can just get rid of them in 2012.

Unknown said...

T-Rav: Amen.

Unknown said...

Jocelyn: We can't let little things like fact, experience, history and logic get in the way of the social justice agenda. This administration wholly subscribes to the idea that if you can't get your nefarious plans in through the front door, sneak them in through the back door.

Unknown said...

Bev: It's like the old joke--after murdering their parents, the children threw themselves on the mercy of the court because they were orphans.

Unknown said...

Andrew: They know their socialist/racist theories are right, so it was simply a matter of poor implementation when everything went wrong the first ten times.

T-Rav said...

OT: The debt deal just passed the Senate. Meh. It's better than nothing, of course, but it's still like patching the Titanic with a Band-Aid.

Unknown said...

T-Rav: I just watched that, and was particularly annoyed by Liberace Reid babbling about the mean-spirited Republicans who wouldn't let the Democrats raise "revenues" (taxes). Now it can go to Obama for signature so he can claim he brought the warring parties together to avert disaster and save the economy. It's all very unseemly, but it's a small start on restoring fiscal sanity. Now we wait to see what Moody's, Standard and Poors, et al do about the credit rating. I'm reminded of the old warning--if you want to continue eating meat, don't watch it being prepared and processed."

Unknown said...

Just heard Obama's speech. Same old crap. He still wants to spend our way out of debt. One thing particularly concerned me though. He did his faux patriotism schtick, and said he wants to see trade deals closed that mean more products out there in the world with "made in America" on them. Who doesn't? But given his complete incomprehension of economics and history, I hope he isn't pushing something resembling Smoot-Hawley tariffs. We already know he and the Democrats don't much like free trade, but we also know the results of Smoot-Hawley and its part in the perpetuation of the Great Depression.

Unknown said...

Oh, and he's still harping on "a balanced approach," including tax fairness for our "most vulnerable" and "the rich."

I truly hope the Republicans call his bluff and take away his "corporate jets" demagoguery advantage by lowering corporate tax rates, lowering capital gains taxes, repealing Sarbanes/Oxley and at the same time very publicly eliminating many unnecessary and frivolous corporate tax loopholes. The Republicans absolutely must take away his power to blame the sick economy on "the rich" and gut his class warfare rhetoric.

I nearly puked when he again pulled out his mantra that "we can't rebuild the economy on the backs of our weakest and most vulnerable citizens by cutting spending without raising taxes on those most able to afford them."

In other words, it was just another Obama campaign speech.

Joel Farnham said...

"Didnt need this manufactured crisis."


This is what Obama said. Never mind the fact that he created it! This b*****d is stupid if he thinks we don't remember.

Unknown said...

Joel: My best description of Obama right now is "bold liar."

Joel Farnham said...

Jed and LawHawk,

I agree that we need these people out of there. They aren't satisfied with just destroying the economy. They are pounding on the Banks that are left. What does it take to get these idiots to stop?

BevfromNYC said...

So, how is fair that "the most vulnerable" don't pay any taxes while "the rich" pay ALL the taxes? Fair would mean (to me) that everyone pays the same percentage - let's say 10% - period. THAT'S fair.

Please make Obama stop talking...it's like 2009 all over again. He opens his trap and the stock market goes down 100 points.

Unknown said...

Joel: Answer--an angry citizenry and an election.

Unknown said...

Bev: That's one potential answer. I prefer a slightly lower flat tax in combination with a federal sales tax. That way, everybody pays his fair share, but "the rich" continue to contribute more simply because they make and spend more, rather than as punishment for being successful.

Just picking a figure out of the air, say we made the federal sales tax 5%. You buy a taxable item at $10, you pay $.50 in federal sales tax. Seymour Gotrocks buys a yacht for $2,000,000, he pays $100,000.00 in federal sales tax.

Now, picking another figure out of the air, say we made the income tax 7%. You earn $50,000 dollars, you pay $3500.00 in tax. Joe Minimumwage earns $10,400, he pays $728.00 in income tax. Seymour Gotrocks brings in $12,000,000.00, he pays $840,000.000 in income taxes.

The actual percentages which would sustain necessary and proper functions of government would still have to be worked out (and there are plenty of accountants and economists doing just that), but the formula is simple. Everybody--everybody--pays the same percentage, but God love 'em the rich pay a whole lot more. If you don't want to pay big federal sales tax, don't buy a yacht. On the other side, if you work hard, succeed and live the American dream of bettering yourself, you will pay more in income tax dollars, but not pay more as a percentage of your total income as a punishment for succeeding.

This would make the IRS Code about two pages long, allowing for some very basic deductions (I consider the mortgage interest deduction a very American way of promoting home-ownership and creating useful owners instead of transient renters). But there would be no "refunds." If your mortgage interest deduction exceeded your taxable income deduction (unlikely), you would pay no income taxes, but you wouldn't get a refund either. This would also eliminate the "earned income credit" (an obfuscation if I ever heard one) and everyone would be facing exactly the same tax burden, percentage-wise.

Keeping both percentages below 10% would necessarily mean the federal government would take in less money (at least for the first few decades) and that's a good thing. No more debt-ceiling increases, and wasteful federal programs would have to be eliminated simply because there is no money to pay for them. If the idiots decided to borrow more money without a commensurate tax increase to pay for it, the inevitable credit downgrade would occur. It isn't foolproof, and government pork-barrelers would try to find ways around it. But it would be extremely hard to hide their profligacy behind a multi-thousand page IRS Code the way they do now.

T-Rav said...

But LawHawk, don't you know we have to have a progressive income tax? Because if we have a flat tax, that's regressive and hurts the poor or something.

Unknown said...

T-Rav: Let them eat cake.

StanH said...

Man this pisses me off, where the Hell is Issa? When my wife and I bought our present home twenty-one years ago, we had to endure, excuse the profanity…an anal probe. The same holds on my first home thirty years ago, isn’t that reverse discrimination? I’m with everyone else, 2012 can’t get here fast enough.

Unknown said...

Stan: I almost didn't qualify for the property I'm buying now, despite a FICO score of nearly 850. Since I will be leaving the property to my son (the dot.com senior software engineer), we purchased as joint tenants, and that clinched the deal but only after I got the seller to reduce his price.

I'll go back even farther. When my wife and I bought our first house, your credit rating had to be nearly perfect. You couldn't spend more than 25% of your net income on the mortgage payment. And here's the clincher. She was the assistant head of the San Mateo crime lab, so she was making considerably more than I was while I was finishing up my masters program. BUT, that didn't matter, because only the husband's income was taken into account. In those days, the assumption was that the wife would quit her job as soon as the first baby came along, so her income didn't count. We could have bought and afforded a much bigger house in a much better neighborhood if they had included her income (of course she did quit her job when the first baby came along, but I also was making a lot more money by that time). So we had to wait to "move up" until I made more income (fortunately that was only about two years).

I feel the same way as you. When I got that first mortgage, I was sure they would require me to ransom my future children to them, just in case. Where was Eric Holder when we needed him? Uh, never mind.

Notawonk said...

law: you had me at the artwork! i love the kitchy stuff with ridiculous quotes.

we are run over with a pestilence that needs to be eradicated. washington is bringing us to our knees with their disease. i'm hoping some are immune, but right now, i'm thinking we're all doomed. how the hell are we going to survive the onslaught?!

~having bad bad terrible day~


i'll get some sleep, punch a kitten and be back in fighting form tomorrow. fine, i won't actually *punch* a kitten. but that's how bad i feel about our state of affairs at the moment.

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