Bailout Bills, Illegal Aliens, and Weird Lending Practices
The proposed $700 billion bailout is “dangerous, inflationary, unnecessary, and unconstitutional,” funds left-wing special-interest groups, ignores less costly ways of propping up financial markets, and fails to consider regulatory reforms that might reduce the need for a bailout. It’s not clear why we should trust federal officials with $700 billion to buy up bad loans, without any clear standards or judicial oversight, given that governmental incompetence and government regulations (such as affordable housing mandates) helped spawn the mortgage crisis. Many economists oppose the proposed bailout.
But some lending practices are hard to explain. Why did so many lenders make loans to illegal aliens without steady jobs, who are now defaulting by the thousands, as Michelle Malkin notes? Is it because of the societal (and governmental) obsession with diversity?
When I and my wife, a legal alien, bought our house, the mortgage company told me that if my wife were an illegal alien, rather than legal, we would have qualified for certain loan programs with big banks. But because she was a legal alien waiting for her green-card (which she had recently applied for), we didn’t qualify.
Mark Krikorian, an activist against illegal immigration, argues that “we’re in this mess, ultimately, because our political elites thought it was good social policy to encourage banks to give mortgages to uncreditworthy people, resulting in what Sailer months ago called the “Diversity Recession” (if this doesn’t work, make that the Diversity Depression). In other words, if poor people in general, or blacks or Hispanics in particular, were less likely to be approved for a mortgage, the only possible reason was racism or classism or whatever. Thus ‘creditworthiness’ was an illegitimate, dead-white-male concept, like middleclassness. Because, after all, isn’t everyone entitled to credit?”
Another strange lending practice also popped up when I purchased a home. I ultimately left my wife off the mortgage entirely, because I was told that since she had no credit history (despite being thrifty and having savings and no debts), putting her on the mortgage would actually get us a worse, higher interest rate than if I alone applied (I received a rate of 5%, a low rate by historical standards).
Why on Earth were we treated as worse off if my wife co-signed the loan, which makes no sense economically? It’s not like having her on the loan would have made me any poorer or less able to pay.
People I’ve talked to have theorized that it is a byproduct of two things: (a) discrimination lawsuits, and (b) courts’ indulgence towards junk science.
If the bank gave loans to white people like my wife with no credit, or bad credit, the bank would later look bad if was sued for discrimination, even if it was innocent. If a “fair-housing” group later sued the bank accusing it of discrimination, supported by a misleading “regression analysis” of the bank’s lending decisions, the bank could end up having to explain, at great expense, why it loaned money to my wife, but not to many minority borrowers who also had no credit or bad credit (never mind that my wife would have had a co-signor with good credit — me).
Why should such misleading regression analysis matter? The Supreme Court may have opened the door to such junk science in its Bazemore decision, which allows plaintiffs to bring discrimination lawsuits based on obviously flawed statistics, such as regression analyses, as long as the plaintiff claims that the analysis includes all “major” variables, even if “minor” variables that also matter are deliberately left out, unless the defendant can prove that even major variables have been omitted.