Subprime Mortgage Crisis

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  • Investor's Business Daily Ignores Reality To Build A Case Against Eric Holder

    Blog ››› ››› BRIAN POWELL

    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.