Joe Doakes from Como Park emails:
Just before handing over power, the Obama Justice Department sued Klein Bank for redlining. Prosecution exhibits at the link include a map of Klein’s service territory, a crescent around the West side of Minneapolis. They don’t lend in the inner cities, that’s not their business model. But those are the highest concentration of people of color! Why wouldn’t Klein want to make loans there?
Gee, I wonder: why would any prudent lender think race or neighborhood would have anything to do with loan profitability? Have you ever driven through North Minneapolis or Frogtown? Looked at all the foreclosed properties? Why would any sane lender want to lend money there?
Social Justice types insist there’s no difference in foreclosure rates between Black and White neighborhoods, that’s just a racist stereotype. And yet every study by Social Justice types undercuts the narrative supporting the Community Reinvestment Act’s requirement of lending to people who can’t afford to repay. Here are some from the Twin Cities, who see the damage:
http://www.irpumn.org/uls/resources/projects/IRP_mortgage_study_Feb._11th.pdf which contains this especially good paragraph:
“The enormous costs of foreclosures—to families who lose their homes as well as to cities and towns losing tax resources—have been greatest for communities of color. Both subprime lending rates and foreclosure rates have been highest in neighborhoods with the highest percentages of people of color. The impact of these patterns is especially notable in North Minneapolis, an area where prime lenders are noticeably under-represented and subprime lenders are significantly over-represented.”
Prime lenders are underrepresented? Why would that be? The Community Reinvestment Act demands that banks lend money to persons of color. But that group tends to have worse credit ratings and (at least in some people’s minds) a culture that fails to emphasize adhering to your contracts. So lenders don’t consider them prime candidates for a loan; instead, lenders demand a risk premium in the form of higher interest rates to make those loans, which makes it harder for the borrower to pay the loans when there’s an economic hiccup, which results in massive foreclosures in neighborhoods of color. Not all of them, mind you – the foreclosure rate in the Asian community is a fraction of that in the Black and Hispanic community – which gives support to the notion that cultural differences matter.
The Social Justice solution, of course, is not to work with persons of color to raise their credit scores or change their culture. Their solution was to lower the lending criteria for a prime rate loan. That way, everybody would get the cheap rates so nobody would default. Except it didn’t work, as a decade of foreclosures and bailouts has amply demonstrated.
The Community Reinvestment Act is unicorn thinking and bad banking practice. It caused the real estate crash that cost an entire generation most of its life savings. The Act should be repealed before it causes another.
Joe Doakes
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