WSJ Attempts to Pin Labor Nominee Perez With Myth That Government Caused Housing Crisis

PerezA Wall Street Journal columnist cited a new Urban Institute study on the increased wealth gap between communities of color and whites to both revive the debunked accusations that fair housing policies caused the subprime mortgage bubble and falsely link Assistant Attorney General Thomas Perez to these claims.

Continuing the outlet's relentless attacks on current Labor Secretary nominee Perez, editorial board member Jason Riley wrote a WSJ column claiming Perez is responsible for the racial wealth gap documented by a recent Urban Institute report by purportedly "saddl[ing] a lot of minorities with foreclosed homes, huge debt burdens and bad credit scores."

The support for this backwards allegation was that as head of the Civil Rights Division at the Department of Justice under President Obama, Perez effectively pursued lawsuits against banks that impermissibly discriminated against communities of color during the administration of former President George W. Bush. From the WSJ:

Not surprisingly, neither the Urban Institute nor the New York Times have much to say about the federal policies that pushed lenders to loan money to people unlikely to be able to repay it. But the reality is that well-intentioned housing policies aimed at low-income minorities have ultimately left those folks worse off.

President Obama's nominee for labor secretary, Thomas Perez, made a name for himself in the Justice Department by shaking down some of these lenders for “racial discrimination” if blacks and Hispanic applicants weren't approved for some loans at the same rate as whites. Other lenders got the message.

Mr. Perez is getting a promotion, and the Obama administration is patting itself on the back for pursuing these so-called fair-lending cases. Of course, all they've really done is saddle a lot of minorities with foreclosed homes, huge debt burdens and bad credit scores.

The right-wing media myth that “federal policies” aimed “at low-income minorities have ultimately left those folks worse off” has been repeatedly debunked. In fact, private companies operating absent effective federal regulation were largely responsible for the housing bubble that targeted communities of color through predatory lending. As reported by McClatchy:

[A] conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.


Conservative columnist Charles Krauthammer wrote recently that while the goal of the [Community Reinvestment Act of 1977] was admirable, “it led to tremendous pressure on Fannie Mae and Freddie Mac -- who in turn pressured banks and other lenders -- to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity.”

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

It is unsurprising that The New York Times article mentioned by Riley did not repeat this myth as the false cause of the racial wealth gap described by the Urban Institute. However, the WSJ didn't mention what the Times did reference as one of "two major factors [that] helped to widen this wealth gap." From the Times:

Discriminatory lending practices were also a factor. “We know that communities of color, their rate of subprime or predatory loans was twice what it is in the overall population,” said Tom Shapiro, the director of the Institute on Assets and Social Policy at Brandeis University.

It was precisely this pattern of persistent racial discrimination by private lenders that led numerous banks to settle lawsuits brought by Perez and others at the Department of Justice, rather than defend their actions. But not only is the WSJ attacking Perez because he successfully brought fair housing lawsuits against institutions like Bank of America and Wells Fargo on behalf of communities of color, it's attacking him for bad private loaning practices that overwhelmingly occurred under the watch of the previous administration, not this one.

Contrary to the WSJ's assertion that the “shake[] down” is the reason why “other lenders got the message,” the re-emerging housing market is currently at risk because banks are not responsibly extending credit at rates that could assist borrowers of color, a fact specifically mentioned in the Urban Institute report. That is, banks may have been forced to stop past irresponsible loaning practices, but they have responded by freezing credit altogether for low- and moderate-income populations. As explained by The Washington Post:

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”


From 2007 through 2012, new-home purchases fell 30 percent for people with credit scores above 780 (out of 800), according to Federal Reserve Governor Elizabeth Duke. But they declined 90 percent for people with scores between 680 and 620 -- historically a respectable range for a credit score.

“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you're leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrott, who until January was the senior adviser on housing for the White House's National Economic Council.