Minority Mortgage Meltdown Redux: Obama Administration`s Guns of Singapore Blasting Away

Since 1968, the government has increasingly crusaded for more mortgage lending to minorities and lower income borrowers by attacking lenders that don`t lend enough to favored groups. The last push, the White House Conference on Increasing Minority Homeownership on 10/15/2002 where Bush lauded what turned out to be toxic mortgages, gave optimistic and/or get-rich-quick lenders an excuse to set off the Housing Bubble of 2004-2007.

You might think that by now everybody would have wised up about how an originally well-intentioned policy had gone too far. But, then, we`re not supposed to mention this fact. Moreover, the institutions that brought it about still exist, still get funded, and continue to search out and destroy all evidence of disparate impact in mortgage lending like robot juggernauts from the future in a James Cameron movie.

Here`s the latest from the Santa Rosa Press-Democrat: Luther Burbank Savings in Santa Rosa, CA. Luther Burbank is small potatoes, but I guess that just shows how well the government`s campaign has succeeded that they are focusing on these guys now.

Luther Burbank Savings settles lawsuit by Justice Department over loan practices

By ROBERT DIGITALE

September 12, 2012

Luther Burbank Savings will spend $2 million to settle a federal lawsuit accusing the Santa Rosa lender of discriminating against African-American and Latino borrowers with a jumbo loan program that targeted wealthy individuals.

Under the settlement with the U.S. Justice Department, Luther Burbank created a new division to increase conventional lending in minority communities.

The thrift, Sonoma County`s largest financial institution with $3.6 billion in assets, did not admit wrongdoing. Luther Burbank is settling the lawsuit to avoid long and costly litigation, said John Biggs, the thrift`s president and chief executive. …

Luther Burbank operates eight branches in California, all in posh areas like Beverly Hills. It specializes in apartment building loans, but ran a small side business that originated a little over 100 single family home mortgages per year. The Feds had no objection to this modest-sized bank`s main business`s lending practices.

But, apparently they don`t have more important targets to focus their anti-discrimination wrath upon:

Instead, prosecutors focused on a smaller line of business that issued jumbo loans through independent brokers to wealthy borrowers. Those loans account for about 15 percent of its portfolio.

The bank chose to offer only “non-traditional” loans — including interest-only and stated-income loans — to high-income borrowers for amounts greater than $400,000. Such loans, when offered by other institutions to first-time home buyers, have been faulted for helping lead to the subprime loan crisis. Historic numbers of borrowers were unable to make their loan payments or keep their homes, resulting in huge financial losses at banks and a sharp downturn in the housing market.

The Justice Department lawsuit alleged that because Luther Burbank would lend no less than $400,000, very few African-American and Latino borrowers were able to qualify for its loans.

In the greater Los Angeles area, for example, only 5.8 percent of Luther Burbank`s single-family residential mortgages from 2006 through 2010 were issued to African-American and Latino borrowers, compared to 31.8 percent by comparable prime lenders, the Justice Department said.

“Interest-only and stated-income loans” are what are often called “toxic” mortgages. So, the Obama Administration sued Luther Burbank Savings for not saddling minorities with enough toxic mortgages in 2006.

“It is critical that lenders have policies in place to ensure that they don`t discriminate in their lending programs,” Thomas E. Perez, assistant attorney general for the Civil Rights Division, said in a statement.

You know, Thomas E. Perez`s statements just haven`t been the same since his old spokesmodel Xochitl Hinojosa went to work for a Senate race.

The settlement, filed Wednesday in U.S. District Court in Los Angeles, is the latest to emerge from an Obama administration task force searching for fair-lending violations during the housing boom. It has reached settlements in 18 cases for $370 million, including agreements in July with Wells Fargo and in December with Bank of America.

“The Department of Justice will not allow financial institutions to have in place residential lending practices that illegally impact minority communities,” André Birotte Jr., the U.S. Attorney in Los Angeles, said in a statement.

Luther Burbank`s attorney, Andrew L. Sandler, said the case represented the Justice Department`s “most aggressive use of the disparate impact discrimination theory.” He was referring to the use of a statistical analysis to allege discrimination.

“It has accused a bank of discrimination because it offered only non-traditional portfolio loan products to high net-worth individuals, and is imposing as part of the settlement a requirement that it offer additional loan products in order to obtain more loans from minority borrowers,” Sandler said in a statement. …

The thrift lowered its minimum loan limit to $20,000 in June 2011.

In California, $20,000 will get you a refrigerator carton on the edge of the Salton Sea, if you don`t mind the smell.

Luther Burbank will now spend $2 million on initiatives to increase lending in minority neighborhoods in California.

Under the settlement, which is subject to court approval, the thrift will invest $1.1 million in a financing program to increase the amount of credit it extends to residential borrowers seeking loans of $400,000 or less.

It also will spend: $450,000 in partnerships with community-based organizations; $300,000 for outreach to potential customers; and $150,000 on consumer education programs.

Which will in turn keep employed a few “community organizers” to keep the juggernaut sniffing for more sources of funds.