The government was the proximate cause of the subprime crisis in minority areas …
In an effort to politically pander to people of color, mostly minorities with unimpressive credit histories, assets and property located in depressed areas such as the inner cities, the government demanded that lending institutions relax their lending criteria and engage in community lending activities or face the wrath of their government regulatory agencies. Costly audits, demands for more capital investment, denial of expansion opportunities. Prudent lending policies gave way to liar loans – with no verification of employment, income, or assets.
Many in the minority community took advantage of the lax lending conditions to purchase properties which they clearly could not afford. Hairdressers and causal laborers purchasing homes worth hundreds of thousands of dollars with little or no money down and extremely low teaser rates – counting on a rising real estate market to make their fortune. Allowing them to sell the more expensive house sometime in the future and covert their appreciated equity into a fully-paid less costly residence of their own. In essence they were provided with the opportunity to speculate in the same manner of far wealthier investors.
That is not to say that employees of certain lending institutions did not take advantage of people who could not understand what they were signing or did not falsify loan applications and appraisals to earn outrageous “production” bonuses. These egregious acts did happen – often at the urging of their managers who were also trying to “make their numbers” to earn their outrageous bonuses.
But even worse, the government insured that certain classes of people were able to mask their financial difficulty by continuously re-financing non-performing loans. Counting on the rising home prices to justify increased loans that allowed them to pay off credit card debt (a negative FICO credit score indicator) and avoid any whiff of default that would have immediately flagged the borrower as being credit impaired. Even worse, some banks attempted to cash in on the booming real estate market by making home equity loans known as HELOCs (Home Equity Line of Credit) which allowed some borrowers to kick the can down the road and pay their mortgage with money borrowed from another lender.
Enter the professional racists …
First the racists demanded that the government punish “red lining” where an institution refused to engage in lending activities in a minority-occupied zone which had a great number of foreclosures and loan defaults. In spite of the financial soundness of this policy, the racists cried UNFAIR and sued financial institutions.
Then the racists demanded that the government punish “predatory lending” where an institution took advantage of minorities to benefit their own lending activities.
And now the government racists are pursuing the entire industry for misdeeds in the past. Not to redress individual grievances, but to demonstrate their political allegiance to their core constituency during the upcoming election cycle.
What the racists don’t say …
Fairness demands that each case of suspected predatory lending, loan denial or overcharging be investigated on it’s own; measuring the borrower’s risk and property profile against those in similar situations. Unfortunately, the government publishes a redacted copy of each loan application at each financial institution and the racists use statistical analysis to “demonstrate” that their could be racial bias within the lending institution. Computer analysis models developed, not by the government, but by those charging racial bias.
With just the hint of taint – and most lending institutions cave into the racists. Settling without admitting or denying the allegations, pumping dollars into the complaining organization to provide “monitoring activities” to insure racial fairness. And, in some cases, hiring special friends to serve as salaried no-show monitors.
Extortion … Pay up or suffer a constant barrage of media which will cause great reputational damage!
While there are cases of predatory lending where borrowers were tricked into subprime loans when their credit profiles made them eligible for lower interest rates, these cases could be detected by a preliminary scan of the borrower’s FICO score at the time of the loan application. However, that is not to say that every minority was scammed or that circumstances did not warrant higher interest rates to compensate for the higher risks of making loans in areas with high ratios of foreclosures and loan defaults.
And now we have the racists in the government pandering to their constituency …
Holder To Banks: You're All Bigots
Power Abuse: According to this administration, the nation's largest mortgage lender —Wells Fargo — and dozens of other banks are racist. Don't believe it: They're targets of a massive witch hunt.
Attorney General Eric Holder has also added SunTrust Bank, one of the country's largest home lenders, and Bank of America to his ever-growing list of bank bigots.
Some 60 other lenders are said to be 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 mortgages when they could have qualified for prime loans.
Holder in essence has smeared the entire banking industry as racist, a pernicious lie of monumental proportion — and one that's helping trial lawyers and housing-rights zealots justify a bigger shakedown of the industry.
Holder is turning the public against banks, eroding confidence in the financial sector. He's also eroding, further, the time-tested credit standards underpinning the economy.
Among other things, he's ordered bank defendants to "modify" their lending policies to approve more minorities, regardless of their creditworthiness. He's also forced them to open branches in depressed urban areas, regardless of profitability.
Wells, for one, must devote at least $50 million to down-payment assistance for homebuyers in predominantly minority areas of Chicago, Baltimore, Detroit, Miami, Oakland, Cleveland, Philadelphia and Washington, D.C.
Thanks to a raft of settlements, Holder hasn't had to prove his charges in court. Of the nearly 20 major settlements he's wrung out of banks so far, he hasn't produced material evidence of lending discrimination in any of them. <Source>
Again, we see evidence of extortion where the financial institutions would rather use their investor’s money to pay off claims rather than suffer reputational damage or increasing government sanctions. Because the money is coming from investors, financial executives have no qualms about settling the allegations with a deal rather than spend more time, effort and money that results in a pyrrhic victory. Where more money is spend in legal defense than the initial settlement agreement.
Who is really at fault?
If charges are to be brought against any party for enabling bad behavior on the part of the financial institutions, let us charge corrupt legislators like former House Financial Services Committee Chairman Barney Frank (D-MA), former Senate Banking Committee Chairman Christopher Dodd (D-CT), members of the Congressional Black Caucus and quite a few other corrupt legislators who crafted the laws which allowed predatory lending and other egregious behavior in return for campaign funds and voter support from the special interests.
Let us charge the corrupt or inept leadership and members of the Administration’s regulatory agencies who did little or nothing to actually detect, deter and prosecute financial wrongdoing. Many of these agencies were presented with credible, written evidence of wrongdoing but refused to act. Excuses such as the case wasn’t big enough to justify precious investigation and prosecution time and money. Or the case was complicated and the agency faced top-notch lawyers from the opposition – many times from the very firms where the agency’s attorneys were previously employed or hoped to seek employment. Or that the case would not attract the right type of media attention to shower glory on the agency’s leadership and result in greater budgets.
Perhaps we would be better served if we cured the systemic problem by investigating the investigators or, at the very least, throwing the legislators and Administration out of office. In the interest of fairness, officials of the Carter, Clinton, Bush 43 and Obama administrations appear to be indistinguishable when it comes to crony capitalism, appointing inept agency heads and subverting the system for political gain.
Bottom line …
As for pandering to the entitlement community and the minorities, the Obama Administration and its professional racists are repeating the mistakes of the past. introducing further instability into the financial system and, by extension, the general economy.
We are in a severe recession, many say depression, and the government keeps the real estate market from finding its true bottom and continuously bailing out distressed borrowers for the sole purpose of shoring up insolvent banks. Banks who would need to restate their financials should the real estate market (and associated derivative securities) reach a true bottom.
Unless we can be relatively assured of real estate asset values and any attached securities, there can be no adequate measure of risk – which impedes further future investment and prolongs our financial difficulties.
We need to clean up the political cesspool and the corrupt relationship between lobbyists and politicians. A good start would be to throw Obama and his fellow travelers under the bus and find someone who has business skills and has actually worked in the for-profit private sector. It seems like a clear indication that Mitt Romney should be elected – and the democrats purged from the House, Senate and regulatory agencies.