Bankers warn the administration’s new “disparate impact” home-lending regulation will wreak havoc in credit markets, replacing merit standards with political correctness.
The Department of Housing and Urban Development issued the controversial new anti-discrimination rule earlier this year. Now enforced by every federal regulator dealing with banks, it has the effect of criminalizing credit standards used to qualify borrowers for home loans.
Last week, the Mortgage Bankers Association and Independent Community Bankers of America jointly filed a Supreme Court brief arguing that under the new HUD rule:
“Virtually every lender in the United States could be sued for using non-discriminatory credit standards simply because variations in economic and credit characteristics produce different credit outcomes among racial and ethnic groups.”
In their 33-page brief, filed in support of a landmark housing case pending before the court, they complain that HUD recently launched 22 separate investigations against lenders alleging that their policies of requiring minimum credit scores “had a disparate impact on minorities in violation of the Fair Housing Act.”
Dozens of similar actions have been brought against lenders by Attorney General Eric Holder. He is basing claims of bias on statistics showing differences in loan outcomes by race while ignoring racially neutral credit-risk factors that explain those differences.
Under disparate impact’s low standard of proof, the government doesn’t have to show lenders intentionally discriminated against borrowers.
For the first time in history, businesses are being ordered to justify the necessity of a certain level of return on investment given the racial impact resulting from the use of credit-score thresholds.
The mortgage trade groups argue the formalized disparate-impact rule also effectively criminalizes other legitimate business practices, including minimum down-payment requirements, sliding loan rates and the charging of brokers’ fees.
Banks today face increased litigation risk simply by complying with sensible lending standards for hedging against risk. So what? Who cares? Banks are greedy and probably deserve to be investigated.
Actually, we should all care, because we’ll all end up eating the legal and compliance costs banks will have to front under this race-baiting witch hunt.
The social engineers and race demagogues in this administration are trying to enforce a balance in financial outcomes that risks another collapse of the housing market. The Supreme Court must put an end to a scheme so reckless, unfair and unconstitutional.
But , of so Agenda driven and “fair”.
Ever notice how unfair “fair” is??
When is job security a bad thing? Right now.
Believe it or not, for all the scare-mongering about downsizing, outsourcing and Walmartizing, job security has never been stronger. But all it really indicates is that the U.S. labor market is the least dynamic it’s ever been.
To be sure, it’s counterintuitive that job security is so strong when 11.3 million Americans are still officially unemployed — 3.7 million more than at the peak of the last business cycle expansion in 2007. But it’s true.
Today an employed person faces only a 2% probability of losing his job in a given month, according to data from the Department of Labor. That probability has never been lower.
But job security for the employed doesn’t help the unemployed.
Today an unemployed person enjoys only a 26% probability of becoming employed in a given month. That’s some improvement over the horrifying 19% probability the jobless faced at the worst of the Great Recession. But it’s now more than four years since that recession officially ended.
At this stage in the previous two expansions, an unemployed person had at least a 40% chance of getting work. In earlier expansions it was even better.
The labor market is frozen now, with joblessness just as secure as employment. Yes, today you are less likely to lose your job than at any time since records started being kept in 1948. But if you don’t have a job, you’re very unlikely to get one.
In one sense it’s a vicious circle. When it is so difficult to find a job, no one will risk leaving the job he has. And with no one willing to leave his job, there are fewer openings to accommodate the unemployed.
A healthy labor market is one in which there is a dynamic interplay of employment and unemployment, where human capital rapidly transfers itself to where it is most valuable in a classic process of creative destruction.
But this is a vicious circle we can break any time we wish. All we have to do is reverse the policy errors that exacerbate and prolong it by destroying supply-side incentives — for those who supply their labor, and for those who supply the jobs.
On the labor-supply side, of the 11.3 million unemployed, 1.5 million are receiving special extended unemployment benefits. While surely not princely, these benefits defer from months to years the crunch-time that forces recipients to seek taxable work rather than enjoy tax-free leisure.
But that’s the Companies/Republicans fault, not Obama and Co… 🙂