by James A. Bacon
In 2004, Cardinal Financial Corp., a regional bank based in Tysons Corner, purchased George Mason Mortgage, which originated mortgage loans in the Washington metropolitan region, predominantly in Northern Virginia. Seven years later, in a July 1 letter to Cardinal Financial Corp., the U.S. Department of Justice (DOJ) accused the $2 billion regional financial institution of failing to “serve predominantly black areas on an equal basis with predominantly white areas.”
For specifics, the letter noted that the financial corporation had not opened branches in majority-black areas or engaged in “effective outreach activities.”
To remedy this deficiency, DOJ wanted the bank to add nine counties to the Federal Deposit Insurance Corp.-approved geographic area where Cardinal does business, wrote Mary Kissel in a Wall Street Journal opinion piece last week. “Never mind that the FDIC in the past gave kudos to Cardinal for its lending practices. Justice is now accusing Cardinal of failing to open branches and achieve racial loan quotas in counties that its federal regulator never before contended should be the focus of its lending.”
(I have placed calls to both Cardinal Bank and the DOJ to see if I can find additional details on this case.)
The Cardinal action is part of a larger pattern in which Obama’s DOJ has moved from enforcing the law to coercing banks into lending more money to minorities. Please note: No one is accusing Cardinal of discriminating against African-Americans who apply for loans. No one is accusing Cardinal of “red lining,” or refusing to lend to particular minority neighborhoods in communities it otherwise serves. If Kissel’s representation of the letter is accurate, DOJ wants Cardinal, in effect, to change its business model and to expand into municipal jurisdictions where it does not now have a presence.
In a wrap-up of similar cases, American Banker wrote that the Obama administration has targeted banks for alleged redlining and other fair-lending violations to an extent not seen since the Clinton administration. “Critics charge the effort has gone too far, claiming Justice has misused legal interpretations to bring complaints to court, alleged redlining in areas outside a bank’s market area and encouraged loans to unqualified borrowers as part of expensive settlements.”
American Banker quotes Paul Hancock, who once ran the fair lending unit for Justice under former Attorney General Janet Reno and now defends banks against prosecution as a partner at K&L Gates:
These types of enforcement efforts are results‐oriented and tantamount to demands for racial loan quotas. Such extremism has always been harmful to civil rights enforcement because of the backlash that it causes. It is more akin to social engineering than fair civil rights enforcement, and that simply doesn’t work.
This Obama administration initiative bolsters two important narratives I have been building on this blog.
First, it is one more intrusion in the marketplace that chills business confidence and discourages investment and job creation. Robert Rowe, a vice president and senior counsel at the American Bankers Association, told American Banker that an overly aggressive-regime could make banks — nervous about committing fair-lending violations — even more reticent to lend to anyone, although he added that it is “too soon to say” if the current enforcement cycle has reached that point. It’s a lot easier and less risky for banks to invest their capital in Treasury bills.
Second, this is a replay of the Community Reinvestment Act that pushed banks into the sub-prime mortgage market during the run-up to the real estate crash and financial collapse. Government policy encouraged banks to abandon lending standards then, and the Justice Department is, in effect, pushing banks to do so again. The bottom line: Don’t lend on the basis of an individual’s credit-worthiness — shovel loans into minority communities already plagued by high unemployment, foreclosures and over-indebtedness.
So what if African-Americans are suffering foreclosures at a rate far higher than other racial groups? Blame it on “predatory lending” practices instead of the lowering of lending standards and the giving of mortgages to individuals who were in no way equipped financially to handle them. So what if African-Americans have seen their net worth nearly wiped out in the housing bust (see the Economic Policy Institute report on how bad the sitution is). Blame discrimination and racism instead of self-defeating public policy.
In the war against ever more rarefied forms of “discrimination,” the race hustlers have done, and continue to do, more to sabotage the economic well being of African-Americans than all the grand wizards, dragons and poobahs of the Ku Klux Klan could have devised in their most fevered imaginations. While Martin Luther King broke the shackles of Jim Crow and racial segregation, Barack Obama is binding African-Americans with the manacles of MassOverconsumption and excess indebtedness.
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