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 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."
Answer by DSamuels at 5:25 PM on Jul. 11, 2011
Answer by Anonymous at 5:29 PM on Jul. 11, 2011
Wow. Maybe they should just give all the low income people a home that has been foreclosed on, that will teach people some responsibility!
Lets just keep giving and giving and digging ourselves into a hole to avoid someone thinking they are being discriminated against.... because whats really important is not hurting any one's feelings, its ok that we have no money and no one will have value in their home anymore as long as nobody's feelings got hurt.
Answer by amazinggrace83 at 5:31 PM on Jul. 11, 2011
Answer by QuinnMae at 5:42 PM on Jul. 11, 2011
Answer by minnesotanice at 6:04 PM on Jul. 11, 2011
Answer by agentwanda at 6:08 PM on Jul. 11, 2011
Answer by Trinity001 at 7:11 PM on Jul. 11, 2011
Answer by annabarred at 7:24 PM on Jul. 11, 2011
Answer by UpSheRises at 8:11 PM on Jul. 11, 2011