Chicago on the Potomac
President Obama’s Chicago lawsuit now may become a national harbinger as he applies his Chicago-era policies to the entire nation. The president is reviving the “redlining” suits as so-called “disparate impact” lawsuits against banks, even when there is no evidence of discriminatory intent.
For example, Richard Cordray, his controversial recess appointee to run the new Consumer Financial Protection Board, said during an April meeting that regulators will sue when they can find significant differences in loans offered to — and accepted by — “African-American or female borrowers … [versus] similarly situated white or male borrowers.”
In July the Department of Justice pressured Wells Fargo to sign a $125 million settlement after it charged that the bank allowed its loan officers in 2004-2007 to charge many African-American and Hispanic borrowers more than they charged many white borrowers.
However, the settlement, jointly signed by the DOJ and Wells Fargo, said the bank “has not been advised by the Department of Justice that the department alleges that any employee … discriminated intentionally.”
“Wells Fargo’s borrower data proves that its subprime borrowers had significantly weaker credit characteristics than its prime borrowers,” read the joint settlement.
Obama administration officials are also trying to revive the 1997 Community Reinvestment Act, which allowed progressives to threaten the banks: “Some have argued that the Community Reinvestment Act is responsible for the mortgage crisis,” Cordray told the April meeting of progressives from Chicago and other cities. “We disagree,” he said.
And Obama is leveraging lawsuits to force banks to fund his progressive allies.
In February 2012, the DOJ pressured several large banks to sign a $25 billion settlement for their bubble-era “robo-signing” practice, a low-quality loan origination tactic adopted by the banks and their outsourced mortgage-agents amid federal government pressure to lower their lending standards.
At least $1.1 billion of the $25 billion settlement will be given to Democratic attorneys general for distribution to housing groups and allied activists. The Illinois Attorney General’s Office, for instance, will get $110 million for “remediating the effects of historical levels of foreclosures … [and for] legal aid services, housing counselors, guidance counselors, outreach to buyers, funds to community revitalization initiatives,” deputy press secretary Maura Possley told TheDC.
The $25 billion payment seems large, but banks can “pay” most of it by promising not to collect mortgage-debts that homeowners can’t repay, even when those mortgages are owned by other investors, said Edward Pinto, an executive vice president and chief credit officer for Fannie Mae until the late 1980s.
Obama is using federal funding to build the nation’s dominant mortgage firm. The government — meaning U.S. citizens — has already bought roughly $854 billion of bubble-era home mortgages since 2008, said Nicole Gelinas, a financial analyst and a columnist at the conservative Manhattan Institute. Officials are now trying to inflate the value of those mortgages with tactics that may spur inflation that would further drain everyone’s bank balance or create another real estate bubble, she added.
For example, Obama is pushing a proposal that would allow many homeowners to refinance their risky mortgages at a lower interest rate. That could help the homeowners, but it could also leave taxpayers with expensive but worthless debt, she said, if inflation rises or the economy stalls.
Obama is also using federal financial power to pump up lending to poor areas via the Federal Housing Administration.
“They’re making a lot of loans … to people with 640, 630, 620 [credit] scores” who have a 25 percent chance of foreclosing, said Pinto.
Chicago is getting some of those bad federal loans, including via Latino mortgage sellers who fraudulently portray several family members’ earnings as income from one or two jobs, said Byas. “It is still happening today… I see Latinos signing up loans for Latinos, and they can’t afford it.”
Additionally, Obama is using his regulatory power to boost the “regulatory equity movement” that tries to tax the suburbs to aid poor cities, said Stanley Kurtz, author of the new book, “Spreading the Wealth.”
“These are policies that Obama generally keeps under the radar… so they don’t receive too much scrutiny,” said Kurtz, whose book shows how Obama is boosting the controversial movement.
Even as he is repeating and extending the top-down policies that created the disaster, Obama is working hard to blame the banks, Wall Street and the GOP for the damage he and other progressives caused.
The 2012 Election
Obama’s previously unrecognized contribution to the nation’s subprime disaster will likely be highlighted in the 2012 election season, partly because many voters are still angry about the nation’s damaged real estate market, and are seeking political fixes.
In an Aug. 13 Florida stump speech, Republican presidential candidate Mitt Romney declared that “8.5 million homes foreclosed — a record level — is not success, Mr. President. We need to help the people in Florida with housing policies and get housing prices up again and let people stay in their homes.”
Obama’s record as a private sector lawyer also contrasts with the former Massachusetts governor’s record as a private sector investor.
Romney’s supporters say he used his investment skills to create more than 100,000 jobs and expand investment capital for his partners through his work at Bain Capital.
Romney also provided a $50,500 mortgage to a Texas couple for 15 years after a five-house real estate investment went awry. “The money they borrowed from him to buy their home in 1997 was life-changing,” read a New York Times’ Aug. 9 article describing Romney’s private sector foray into real estate.
Romney’s detractors, including Obama, say Romney pursued profits and oversaw layoffs and outsourcing.
But Obama’s work as a subprime pioneer put most of his 186 clients on a path to foreclosures, bankruptcies and inflated debts, according to court records.
White House officials have not responded to repeated emails from The Daily Caller seeking Obama’s assessment of his lawsuit record.
Nor have they provided any information about his financial gains from his work at Miner’s firm. Obama has not released his tax records from 1998 or 1999 — when he was paid for the 1994 subprime case.
But the economy still hasn’t recovered from the property bubble.
“People can’t afford to pay their mortgage,” said Samuel Wilson, owner of the hardware shop. “They were able to do it, but the economy started pulling them in different angles and they didn’t have anything to live with.”
“I weathered it … [but] the younger people are not able to keep up,” said Maudestine McLeary — one Obama’s lawsuit’s plaintiffs.
And Marcella Wilson — no relation to Samuel Wilson — recently took out a mortgage on her paid-off home to help her struggling son and daughter. “I needed some money … [because they] are in kind of bad straits,” said the 80-year-old African-American widow.
Editor’s note: Fay Clayton was listed as the “lead attorney” for the case Buycks-Roberson, et al v. Citibank Fed Svg Bk