Wow...........diden't this start the mess ?? Peggy Joseph was right


Justice Department To Banks: Relax Mortgage Underwriting Standards, Approve Poor Credit July 8, 2011

In what could be a repeat of the easy-lending cycle that led to the housing crisis, the Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination, according to court documents reviewed by IBD.

Prosecutions have already generated more than $20 million in loan set-asides and other subsidies from banks that have settled out of court rather than battle the federal government and risk being branded racist. An additional 60 banks are under investigation, a DOJ spokeswoman says.

No Job, No Problem

Settlements include setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit and even counting "public assistance" as valid income in mortgage applications.

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 March

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."

But industry analysts fear Attorney General Eric Holder is rekindling an anti-bank witch hunt launched by Attorney General Janet Reno in the 1990s, when Holder served as her deputy.

Some blame that in part for the subprime boom, because banks were ordered to throw open their lending windows to credit-poor minorities. That crackdown spurred the American Bankers Association to distribute to its thousands of members "fair-lend ing tool kits" advising the adoption of more permissive underwriting criteria to help inoculate them from prosecution.

In the new prosecutions, Justice acknowledges in every case it did not prove charges of intentional discrimination, while banks have denied any wrongdoing. Many, in fact, earned outstanding ratings from anti-redlining regulators enforcing the Community Reinvestment Act.

Istook calls Holder's crusade an "egregious overreach by the government." He says many of the targets are smaller banks without the resources to fight a protracted legal battle.

The House Judiciary Committee plans to investigate.

"This is an expansion of the law," said a congressional investigator. "They're pushing the envelope as far as they can go in the enforcement of civil rights."

DOJ Demands 'Nondisclosure'

As part of settlement deals, prosecutors have required banks to sign "nondisclosure agreements" barring them from talking about the methods used to allege discrimination. Bank lawyers contend the prosecutors are trying to hide the shaky legal grounds on which the cases are built. "It's horrible what they're doing at the civil rights division," said Reginald Brown, a partner at Wilmer Hale in Washington, who has represented banks in connection to recent race-bias investigations. "They don't have any proof, just theories."

He added, "They want you to sign something saying you agree, under the condition of any settlement with them, that you won't disclose what their theories were. That's because their theories are loopy and wouldn't stand the light of day."

One such theory — "disparate impact" — holds that merely a difference in loan application outcomes is enough to prove racial discrimination — even if no intent exists on the part of loan officers to contrast based on the color of applicants, and even legitimate business factors — such as credit scores and down payments — help explain disparities in loan outcomes between white and black applicants.

Under this broad theory, banks have been accused of racism simply for failing to open branches or aggressively market mortgages in black neighborhoods — regardless of the demand for, or viability of, such loans in those areas.

Following this theory, the government has ordered several banks to advertise in black media and open branches in black neighborhoods, despite the weak economy.

Justice confirmed it has asked banks to keep its methodologies, which include computer-based statistical analysis, secret.

"In certain circumstances, when a bank has requested details of our analysis, the department has requested that a defendant agree to a confidentiality agreement," Hinojosa told IBD.

Critics say Holder's interpretation of civil-rights law is even more radical than Reno's.

For the first time, prosecutors are judging banks for the secondary impact their policies have on entire minority communities, not just households. And they're ordering reparations accordingly.

In announcing a recent $2 million settlement with Dallas-based PrimeLending, Civil Rights Division chief Tom Perez said, "We will require lenders to invest in the community that they've harmed."

Another Reno protege, Perez has compared bankers to Klansmen. Only difference is, he said, bankers discriminate "with a smile" and "fine print." He said this kind of racism, though more subtle, is "every bit as destructive as the cross burned in a neighborhood."

Perez has put in place an infrastructure to enforce "fair lending" — including a first-of-its-kind Fair Lending Unit staffed with more than 20 lawyers, economists and statisticians.

He's appointed a special lending cop to run it — Special Counsel for Fair Lending Eric Halperin, who also worked for Reno. Before returning to Justice, Halperin was chief Washington lobbyist for the Center for Responsible Lending, an anti-redlining group that urged banks to relax lending standards for low-income urban borrowers before the crisis.

Perez has required bank defendants to earmark potentially millions in funding for inner-city community organizers — who must be approved by Justice. Critics say lenders are being forced to bankroll Acorn clones that often exist just to shake them down for risky loans.

Hinojosa declined to provide a list of these "qualified organizations."

Perez is also prosecuting banks for "reverse redlining through the targeting of minority communities for predatory loans."

Istook finds it odd that the government is condemning lenders for doing too well what it pressured them to do in the name of diversity before the crisis. "Banks are damned if they do, damned if they don't," he said.

Also, critics say Justice is acting as a bank regulator by enforcing its own quota system for multicultural loans. The civil rights division has set "benchmarks" for minority lending, and will monitor bank lending volume and activity in that area among the banks it's suing.

In effect, Justice is using private banks to carry out affirmative-action lending, Istook says, a campaign he describes as "legal plunder."

http://www.investors.com/NewsAndAnal...?id=577794&p=1

I saw this the other day...
I'm thinking they didn't get EVERYONE they could for a sub-prime loan, their just trying to finish their "master plan"..
It's as if we already forgot what happened!

I think the only saving grace is that home prices have dropped so much, there's less of a risk for default considering they are not going to have to pay 3k a month for a 550,000 house..

With interest rates as low as they are, I may be looking into this...

Well, I do think the banks need to relax their lending procedures a bit, as that would help re-fuel the economy. BUT, there should be a reasonable expectation that the loan will be able to be repaid, so I'm not advocating "relaxing" to the point of the last fiasco. And the only "color" that should be used in that formula is green. If you have enough green money, you can get a loan. It can't be any less racist than that.

The part about counting unemployment as income to qualify.... HUH? Isnt that temporary or do people just think that is going to be a permanant these days?

I could see this being viable in depressed markets (kind of indicates this) where you can buy a livable house for pennies on the dollar to where it is actually cheaper than renting. Give some people with not too horrible of credit a shot at a modest house that is within their means. They have to live somewhere!
But when and if things start to look up and house prices start swinging the other way the door needs slamed on this.

Isn't it discrimination to not have the same low standards (to give loans) for non minorities with bad credit, no job and living on food stamps? Poor and lazy is poor and lazy no mater what your race, right?

I guess that would depend on what side of the getting something for free your on

I personally don't think this will happen. Our loans are so regulated now I cant see them relaxing the rules. Just my .02

Never know what the gov will do.

The rules won't be relaxed until the nation as a whole sees at least a few % of appreciation for a solid 1-3 yrs. Nobody has really learned their lesson. People making 30k/yr would still buy that huge house if they could qualify.....Only thing anyone lost was a credit score. Unfortunately, alot of people who have been foreclosed upon have the " bank shouldn't have made the loan then" thought process and would do it all over again.

Making loans for "minorites" just further adds to the racial divide we currently already have.

Obama will do what he has to do to stay in office for 4 more years. To do that, he needs the poor and minority vote, so expect to see more benefits/breaks/relax laws for that target audience, even if it hurts everyone else.....

X2

/\ /\

This...

Absolutely. There is a reason Eric Holder is involved. Obama knows that his only hope is for an economic rebound, and that aint happenin, or energize his base that got him elected. What better way than free housing ?? Wont really affect us here, mabee Eas Los, Compton, and Watts. or........downtown San Bernardino

had the prices of homes not climbed so dramatically, i imagine most wouldnt be in the mess they got in. i know i wouldnt have had issues had the prices been what they should have been.

I have a queer feeling that BAWNY FWANK, that wascal, will go down in history as the first gay (california edition) to bring an entire country to it's knees

You need to watch "Inside Job".....
He was but a pawn in what took place...

blame it on the gay folks.