Remember the subprime crisis? Remember how banks were giving subprime mortgages to people who couldn’t afford them. We all heard how the banks were shoving loans down peoples’ throats and lying to them about what they could afford. Here-and-there, we would hear that banks were being bullied. Well, fast forward to August, 2011 and it’s Deja Vu all over again.
Through his Civil Rights Division, Eric Holder is hunting down banks and demanding they give mortgages to minorities who do not qualify because they have poor credit. They don’t need a job and welfare is considered valid income.
How it works is Holder launches investigations against the banks and then the banks settle by giving mortgages to people who can ill afford them and will likely renege on their obligations.
From Townhall Finance:The DOJ has already extorted $20 million for weak and poor credit loans from banks that “settled out of court rather than battle the federal government and risk being branded racist.” The DOJ admits another 60 banks are already under “investigation.” Holder’s demanding the banks sign “non-disclosure” settlement agreements barring them from talking while allowing the DOJ to operate behind a curtain of secrecy.
The settlements already extracted from banks force them to make “prime-rate mortgages to low income blacks and Hispanics” with credit problems, even if they are living on welfare. According to IBD, the DOJ has ordered banks to advertise that minorities cannot be turned down for a loan “because they receive public aid, such as unemployment benefits, welfare payments or food stamps.” No job; no problem!
In other words, the DOJ is forcing banks to make loans to people that they know don’t qualify for them and likely won’t be able to afford to repay them, which is precisely the kind of failed public policy that precipitated the financial collapse and recession in 2008.
The DOJ ordered Midwest BankCentre to provide “special financing” in the predominantly black areas of St. Louis for fixed prime rate conventional home loan financing for borrowers “who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.”
From Investor’s Business Daily: Public assistance is even to be considered as valid income. In several cases, the government has ordered bank defendants to post in all their branches and marketing materials a notice informing minority customers that they cannot be turned down for credit because they receive public aid, such as unemployment benefits, welfare payments or food stamps.
Among other remedies: favorable interest rates and down-payment assistance for minority borrowers with weak credit.
For example, the government has ordered Midwest BankCentre to set aside almost $1 million in “special financing” for residents living in predominantly black areas of St. Louis. The program includes originating conventional home loans at fixed prime rates for African-American borrowers “who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.”
The same federal order, signed last month, praises Midwest for adopting “less stringent underwriting criteria” while under investigation.
In the case against Citizens Bank of Detroit, settled in May, the U.S. decrees that “the bank may choose to apply more flexible underwriting standards in connection with the programs under this order.”
Such efforts risk recreating the government-imposed lax underwriting that led to the housing boom and bust, critics fear.
“It’s absolutely outrageous after what we’ve just gone through,” said former Rep. Ernest Istook, a Heritage Foundation fellow. “How can someone both be financially stable enough to merit a mortgage at the same time they’re on public assistance? By definition, you don’t have the kind of employment that can support such a loan.”
Justice spokeswoman, Xochitl Hinojosa, said the anti-discrimination notice “does not compel the banks to make loans to people who do not qualify.” She said such measures are “essential to remedy the harmful effects of the banks’ conduct.”