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Damned if you do, damned if you don't files - Obama DOJ and "redlining"



Once upon a time, banks loaned on the basis of creditworthiness. This resulted in racially disproportionate lending patterns: African-Americans and Hispanics, with higher unemployment, and lower income, savings, and educational attainment, tended to have worse credit than whites. Though there was no evidence banks were discriminating on the basis of race rather than objective financial criteria, there was government pressure to loosen lending standards and have more outreach to minorities. Though there was no law supporting these governmental desires, there was the question of keeping regulators happy even when what they wanted had no basis in law. Thus, as banks sought regulatory approval for mergers in the 1990s and early part of this century, they loosened lending standards to demonstrate their willingness to lend to minorities. Of course, it would be illegal to offer those loosened lending standards to just minorities, so lending standards were loosened across the board. And we all know what happened next.

In addition to the huge financial hit banks (and taxpayers) took from the mortgage bubble collapse, the NAACP and entrepreneurial plaintiffs' attorneys sued a variety of banks for daring to enforce their contractual rights, accusing them of targeting minorities with subprime loans.

This is all prelude to note that the Obama administration Department of Justice has created a twenty-person task force to open dozens of cases investigating alleged redlining and lending discrimination. What is the line about history repeating itself as farce? The Business Week story on the subject doesn't mention the reverse-redlining suits the banks are currently facing.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.