These days, Attorney General Eric Holder can't seem to scratch his nose without eliciting complaints and criticisms from media critics on the right. As the Public Employee Enemy #1 of anti-Obama conservatives, he's faced false allegations of racism, cover-ups and partisanship. Their latest charge? That he's recreating the historic subprime mortgage crisis that began the nation's economic collapse.
Last weekend, Paul Sperry at Investor's Business Daily (IBD) wrote a lengthy, context-free article condemning the Justice Department's investigations of banks whose lending policies discriminate against minorities. According to the DOJ's Civil Rights Division, the department received more referrals from regulatory agencies “of matters involving a possible pattern or practice of discrimination” in 2010 than it's received in at least twenty years. The DOJ investigations into the potential violations of the Equal Credit Opportunity Act and Fair Housing Act by several banks have led to a number of settlements.
Sperry's IBD article is written in a way that inaccurately suggests the terms of the DOJ/bank settlements are both inherently dangerous (because they will lead to another housing crisis) and unfair (because banks are being strong-armed by the power of the federal government and the threat of being labeled racist into offering risky lines of credit). Along the way, the reporter ignores the facts and the law. Most striking is the article's tacit implication that being forced to serve minorities is inherently equivalent to being forced to engage in unwise lending practices.
The first misleading premise pushed by Sperry is that the Justice Department has asked banks to “relax their mortgage underwriting standards” and that this type of “government-imposed lax underwriting” was the cause of the housing boom and subsequently meltdown. From IBD:
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. [...]
Such efforts risk recreating the government-imposed lax underwriting that led to the housing boom and bust, critics fear.
First, DOJ settlements explicitly state that banks are not obligated to lend to unqualified individuals, only that they must begin providing services to minority communities they've allegedly ignored. As their agreement with Midwest BankCentre states, banks are not required to “make any unsafe or unsound loan” and must offer services only to potential customers “whose credit history does not present an unacceptably high risk to the Bank or indicate a history of fraudulent transactions.”
Second, regardless of the agreements between DOJ and the banks, Sperry's fundamental argument -- that government affordable housing initiatives caused the financial crisis -- follows a years-old conservative myth that is not supported by the facts.
Sperry's article goes on to highlight what so-called “critics” (he makes generous use of the he-said-she-said strategy of journalism) call unfair settlement requirements while entirely ignoring the harm minority communities have faced as a result of discrimination by lending institutions. Sperry writes:
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. [...]
The government has ordered several banks to advertise in black media and open branches in black neighborhoods, despite the weak economy. [...]
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.
However, the Justice Department is simply enforcing the law. The Equal Credit Opportunity Act prohibits creditors from rejecting applications “because of your race, color, religion, national origin...or because you receive public assistance.” What's more, the ECOA requires creditors to “consider public assistance income the same way as other income.” IBD's qualm appears to be with 35-year old anti-discrimination provisions enacted by Congress during the Ford administration, not with the Obama Justice Department.
The most conspicuous illustrations of the article's ideological bent are its omissions. What's not mentioned at all in the IBD article are the staggering statistics that indicate widespread discrimination against minorities by the banking industry. One example, from a 2009 study by the Center for American Progress, highlights the problem and counters the IBD premise that minority borrowers are credit risks (and thus are being ignored only because it's good business sense):
Overall, 17.8 percent of white borrowers were given higher-priced mortgages when borrowing from large banks in 2006, yet 30.9 percent of Hispanics and a staggering 41.5 percent of African Americans got higher-priced mortgages. [...]
This question is sharpened when asked in the context of disparate mortgage pricing across racial and ethnic lines. Among high-income borrowers in 2006, African Americans were three times as likely as whites to pay higher prices for mortgages--32.1 percent compared to 10.5 percent. Hispanics were nearly as likely as African Americans to pay higher prices for their mortgages at 29.1 percent.