How Disparate Impact AND

“Affirmative Action in
Lending” Caused the Mortgage
Meltdown and the Global
Credit Crisis
Thursday, December 10, 2009
http://workingclassconservative.blogspot.com
/2009/12/how-disparate-impact-and-
affirmative.html

Throughout the 1970s Housing activists like

Dale Rathke (co-founder of ACORN and the
SEIU) and Gale Cincotta were able to shake
down banks with bank lobby sit-ins, forcing
them to offer millions of dollars in loans
to “low income Americans,” another term for
high-risk borrowers. Those early successes
only emboldened these advocates for
“marginal America.”

They found eager friends in the likes of

naïve and die-hard liberals such as Ted
Kennedy (D-MA) and William Proxmire (D-WI).
Gale Cincotta was a devout opponent of the
very necessary practice of redlining, where
banks charged higher rates and higher fees
for mortgages in areas where the default
rate was higher.

Activists like Cincotta and Rathke and

others claimed that such practices not only
made it difficult for people to own homes in
such areas, they kept businesses from
opening in such areas due to the higher
costs and lower profitability.

Business is the ONLY real force for GOOD in

a free society. That’s right BUSINESS is the
ONLY force for good in a FREE SOCIETY.

By solely focusing on making money for their

shareholders (owners), businesses seek to
help those who CAN and WILL pay to have
their problems solved.

Those who CANNOT and WILL NOT pay need not

darken their doorsteps. Such chronically
poor people DON’T need access to wealth and
capital, they NEED to get their lives in
order by developing the skills they need to
compete and earn a living!

Banks, like any other business are in

business SOLELY to make money. They exist
for NO other purpose. They do the most
social good by delivering the highest
profits to their shareholders/owners.
That’s why banks assiduously held to
conventional or “traditional” mortgage
lending guidelines or parameters, UNTIL
forced to abandon them by a series of
government law suits.

What were those traditional parameters? Why

the same ones being applied to most loan
applicants today; 20% down, no more than 2½X
your income in mortgage debt and your
monthly mortgage payment could NOT be more
than 28% of the monthly net of the
person/persons (limited to TWO for a
residential mortgage) on the mortgage
documents is the traditional lending
criteria.

And yes, while it’s true that under those

criteria, there were wide disparities in the
rates at which various ethnic groups were
able to meet the lending criteria, there was
NOTHING at all “UNFAIR” about those
traditional lending criteria, DESPITE
whatever disparate or disproportionate
impact they may have had. The SAME standards
were indeed applied to all.

Anti-Capitalists/anti-Americans like
Cincotta and Rathke, with the aid of allies
like William Proxmire, they were able to
turn what should've been harmless studies,
that showed, for instance that banks in
Brooklyn, NY invested only 11% of their
capital in Brooklyn and that “blacks with
similar incomes were far more often turned
down for mortgages than whites.”

William Proxmire had no background and less

understanding about how the financial
services sector worked, which means he
didn’t know that banks investing nearly 90%
of their assets away from their local areas,
was done SOLELY to generate higher profits
for their shareholders/owners, which made
those banks not only more profitable, but
more viable.

And as Steven Malanga of the Manhattan

Institute adroitly noted, “the banks
protested that such studies did not take
into account the creditworthiness of these
applicants (ie, credit histories, existing
debt to income ratio, the loan to value (of
the property) ratio of the desired loan,
etc.) which was far more important than
income.”

By 1979 this anti-capitalist Axis was able

to pass the Community Reinvestment Act,
which even the NY Times assailed noting,
“Our institutions are not social service
organizations...” and added, “measures that
would weaken (lending) standards are
dangerous...New York’s savings banks already
hold large numbers of defaulted mortgages,
including many inner city properties...we
raise a strong word of caution against the
expectation that bank credit is a substitute
for wages, salaries, and other income that
is necessary to keep a community alive
economically,” concluding, “It is hard to
believe that anyone would argue that bad
loans are good social investments.”

None-the-less, the CRA, which was only

debated in one chamber of Congress (the
Senate), and with very few legislators
present, was passed. Senator Proxmire
limited the visibility of the Bill by
attaching it to the Housing and Community
Development Act, which included the always
popular block grants, which meant money to
the Senator’s home states.

The CRA not only “gave the housing activists

a seat at the table,” it enabled them to
monitor every bank’s lending practices and
block any mergers and acquisitions by
reporting any complaints to specially set up
departments within HUD and the DOJ.

By the mid-1980s Housing activists had

developed their assaults on banks to an art
form. Seattle’s rainier Bank was hit by a
campaign organized by a bus driver named
Keith Dublanica, who claimed that Rainier
Banks lending policies “discriminated
against minorities,” and the protesters
demanded more “flexible terms” for specific
groups of borrowers.

The Seattle Times reported that what

Dublanica wanted was “a kind of affirmative
action proposal in the making of loans.” And
indeed that’s exactly what Keith Dublanica
wanted, demanding that the banks offer a 2%
discount on rates and waive fees for certain
(predominantly minority) neighborhoods. As
Dublanica put it, “If the racial mix is
different from the rest of the city, perhaps
the (lending) criteria should be somewhat
relaxed.”

In fact, it’s the REVERSE. Poor credit risks

SHOULD ALWAYS pay HIGHER RATES and HIGHER
FEES to get loans, that’s the only way to
limit default rates among that largely
reckless and irresponsible group. In fact,
EVERY high risk loan made to the poor
directly HARMS working people who CAN afford
conventional mortgages under traditional
lending parameters. It harms them because
the costs of those failures are placed on
their backs when they apply for loans and
they pay for the subsequent and necessary
bailouts with higher taxes.

Ironically enough, the 1990s saw the Clinton

administration borrow from the
Conservative’s “Ownership Society” endorsed
by the likes of Jack Kemp, G W Bush and Bob
Dole, to replace public housing as the
liberal Democrats’ top priority with an
ownership agenda of their own.

As economist John H. Makin noted, "No longer

would public housing be at the top of the
liberal Democratic agenda...instead,
borrowing from conservative ideas about the
inestimable benefit of home ownership to the
striving poor, the Clinton administration
and members of his Party in the House and
Senate decided to use government power to
achieve that aim.”

Janet Reno (the AG) and Henry Cisneros (HUD

Secretary) began suing banks which didn’t
make enough loans to low-income Americans
and the legal concept behind that screwball
policy was yet another screwball concept
called “disparate impact.”

Disparate Impact is a deliberate LIE and a

SHAM. It seeks to label ANY standard that
has a different/disproportionate impact on
one group than another to be deliberately
discriminatory against the negatively
impacted group.

According to this fatally flawed concept, a

bank might have policies that were fair and
equally applied to all, but if the outcomes
were different, the policy was deemed
deliberately or objectively discriminatory.
For instance, if a bank had a longstanding
policy of not issuing mortgages on homes
valued at less than $80,000, it could be
considered guilty of discrimination because
that policy would be determined to adversely
and disproportionately impact the poor.

When Henry Cisneros left the Clinton

administration in 1997 to accept a very
lucrative appointment to the board of
Countrywide Mortgage, his successor, Andrew
Cuomo actually used the term “affirmative
action” when defending the use of disparate
impact to force banks to loosen their
lending criteria.

At an April 6th, 1998 press conference,

Andrew Cuomo said, “but for the affirmative
action on the part of the banks, most of
these recipients would not have qualified
for conventional mortgages." Cuomo went on
to acknowledge that the loans were at a
“higher risk of default,” and the banks HAD
TO “lower their standards on loan
applications” to make those loans.

With that admission, Andrew Cuomo had

chronicled the perverse and disastrous
consequences of what was then two decades
and would become three decades of
government-coerced lending, via the concept
of "disparate impact," to millions of non-
creditworthy borrowers.

By 2008 over $4 TRILLION in high-risk,

subprime loans were made, almost all of them
bought by Fannie Mae and packaged by Freddie
Mac into “mortgage backed securities” which
were then sold to Wall Street and the rest
of the world as highly safe and secure “AAA-
rated bonds!”

In short, the entire housing collapse, the

mortgage meltdown and the subsequent global
credit crisis was caused by government’s
adherence to the flawed and pernicious
concept of “disparate impact” and its
subsequent meddling in the mortgage market
(almost solely by politicians with little or
no understanding or experience in the
financial services sector) in order to
effect what Andrew Cuomo accurately called
“affirmative action in lending,” or what
numerous economists have called “credit
socialism.”

Worse yet, subprime loans have not been

outlawed, the CRA that’s been used to coerce
banks to make TRILLIONS in high-risk,
subprime debt has not been abolished, Credit
Default Swaps and other murky forms of
derivative trading have not been stopped. In
short, the SAME policies that caused the
current crisis, including many in
Washington’s adherence TO and affection FOR
the very flawed and pernicious concept of
“disparate impact” have yet to be eliminated!

SEE Andrew Cuomo's April, 1996 Pres

Conference lauding "affirmative action in
lending"; http://www.youtube.com/watch?
v=Lr1M1T2Y314&feature=PlayList&p=529CA6593D3
52484&playnext=1&playnext_from=PL&index=97