During the economic crisis of recent years, mortgages have been more difficult to obtain for many compared to what was available in the mid 2000s. With these tighter lending practices, the US government is looking deeper into possible redlining practices by lenders:
At the Justice Dept., a new 20-person unit dedicated to fair lending issues received a record number of discrimination referrals from regulators in 2010 and has dozens of open cases, according to a recent agency report. Potential penalties can reach into the millions of dollars. “We are using every tool in our arsenal to combat lending discrimination,” Thomas E. Perez, the assistant attorney general for the Civil Rights Div., told a conference of community development advocates in Washington in April.
To some banks the crackdown has come as a surprise, say consultants and lawyers representing financial institutions in discussions with regulators. Like Midwest BankCentre, some lenders are being cited for failing to operate in minority and low-income census tracts near their branches, even when they have never done business there before. “If you put your branches only in upper-income areas, the regulators are not accepting that anymore,” says Warren W. Traiger, a lawyer at BuckleySandler in New York, which advises banks on fair lending issues.
Mortgage refinancing activity doubled in white neighborhoods but dropped sharply in minority neighborhoods in a sample of major U.S. cities in 2008 and 2009, according to Paying More for the American Dream, an April study by a group of seven community development nonprofits. “The pendulum has swung back too far the other way,” says Kevin Stein, associate director of the California Reinvestment Coalition in San Francisco, one of the report’s authors.
Several things strike me as interesting about this:
1. As the article notes, this oversight goes back to the 1977 Community Reinvestment Act (CRA). I wonder how the HMDA data, data lenders must report every time someone applies for a mortgage (including factors like race), has been a part of these government efforts. With this data, regulators (and others) can get an idea of who lenders approve for loans and who they do not.
2. The Drudge Report headline about this article, “Obama admin pushing banks to offer subprimes again…,” seems somewhat misleading. There is little to indicate in this article that the government is telling lenders they should make subprime loans. Rather, it sounds like the government is suggesting that lenders need to make their products available to all people. One adaptation to this in order to account for worse credit scores or other factors might be for the lenders to offer subprime loans in order to protect some of their investment. But there is little indication the government is saying that lenders have to offer subprime loans.
3. Access to credit really is an important issue. If it is not widely available or limited to certain groups, the purchasing power of consumers for goods like houses or cars can be severely limited. And this can then have a large impact on the greater economy.