Grrrrr

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://isaiahmn.org/2012/05/east-side-of-st-paul-hit-hardest-by-foreclosure-crisis-impact-to-entire-city/

 http://www.mn2020.org/issues-that-matter/economic-development/map-of-the-week-submarkets-shape-foreclosure-crisis

 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

8 thoughts on “Grrrrr

  1. Refusing to loan money to the Negro community is raciss. Refusing to consider Section 8 subsidies and SNAP as income for the purposes of underwriting is hate. Expectations of repayment is Jim Crow style discrimination.

    White privilege; everywhere you look.

  2. Not a problem. The government should just let the lenders know that it will backstop any loans they make to high-risk borrowers. Simple. What could possibly go wrong?

  3. Looking at Exhibit B in the DOJ lawsuit it appears to me that Klein makes a majority of it’s loans outside Mpls and StP. I’m thinking that their business model is to make loans in geographic/service area where they will have the least risk of default on the loans they make. The political climate over many decades in the Twin Cities have contributed to the housing market conditions they have today, they reap what they’ve sown.

  4. So Klein is more or less being sued because they’re not further victimizing the inner city, more or less. With friends like the former President and his minions, who needs enemies? North Minneapolis certainly doesn’t.

  5. Seflores, I did, and it turns out that the two non-executives on their board of directors are an HR VP with Blue Cross, and the former president of the Lakewinds Co-op (a.k.a. “hippie food store in SW metro”). So they’ve definitely got people with some liberal sensibilities, but evidently not enough to call off the attack dogs.

    Would be interesting if there are strongly politically connected banks doing about the same thing and not being investigated…..

    …and another possibility (as long as we’re insinuating malice on the part of the former President’s minions) would be that it’s payback for sending Republicans to the House of Representatives all these years. Most of KleinBank’s customers are in districts 2, 3, and 6, all represented by Republicans for a while.

  6. Coborns grocery stores are in the most outer ring suburbs and rural Minnesota. So therefore Corborns refuses to serve blacks.

    Popeyes Chicken is mostly in neighborhoods of color, but none in lily white suburbs. Popeyes refuses to serve white people.

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