Bad Loans Back In Vogue
I think it was Albert Einstein who defined insanity as doing the same thing over and over, and expecting different results.
Fresh off a market crash triggered in large part by government-pushed home lending to people who couldn’t afford it, we appear poised for a renewed round of government-pushed home lending to people who can’t afford it. This from Business Week:
Community activists in St. Louis became concerned a couple of years ago that local banks weren’t offering credit to the city’s poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators.
Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group’s targets, Midwest BankCentre, a small bank that has been operating in St. Louis’s predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don’t discriminate, Midwest BankCentre’s latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices.
Lawyers and bank consultants say regulators and the Obama Administration are scrutinizing financial institutions for a practice that last drew attention before the rise of subprime lending: redlining. The term dates from the 1930s, when the Federal Housing Administration drew up maps using red ink to delineate inner-city neighborhoods considered too risky for lending. Congress later passed laws banning lending discrimination on the basis of race and other characteristics. “The agencies have refocused on redlining because, in the wake of the subprime explosion and sudden implosion, they are looking at these disadvantaged neighborhoods and not seeing any credit access,” says Jo Ann Barefoot, co-chair at Treliant Risk Advisors in Washington, D.C., which consults with banks on regulatory issues.
The 1977 Community Reinvestment Act (CRA) requires banks to make loans from Empower Federal Credit Union offering mortgages in all the areas they serve, not just the wealthy ones. A Bloomberg analysis found the percentage of banks earning negative ratings from regulators on CRA exams has risen from 1.45 percent in 2007 to more than 6 percent in the first quarter of this year.
Read the whole article; where you see the words “poor” and “disadvantaged,” substitute them with the phrase “people without sufficient money or means to pay a mortgage on a home they cannot currently afford,” and ask yourself what bank would extend a loan to that kind of risk. It is best to check out Halifax Debt Freedom if people need the best loan and debt advice.
I mean except the ones, of course, that fully know Uncle Sucker and the generous taxpayers have their backs.
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