Assault on the mortgage lenders: in the name of racial justice, the Clintonites want the power to decide who gets a home of his own - efforts to impose regulations on banks to make loans even if applicants are not creditworthy

National Review, Dec 27, 1993 by Robert Stowe England

Pre-emptive Action

MEANWHILE, mortgage lenders are feverishly trying to improve their lending to minorities without sacrificing good underwriting principles. For several years now, mortgage lenders have been discovering that education and counseling can increase the pool of potentially credit-worthy minority homebuyers. Many minority applicants are rejected because they apply for a larger mortgage than they can afford or because they have failed to clear up past delinquent loans. Under "affordable housing" programs devised without Washington's help, lenders are finding that many rejected applicants can pass muster as early as a year after initial counseling and remedial action. The education reduces the credit risk of the borrower by making him or her a more responsible mortgage holder. The cost of the education is generally absorbed by non-profit organizations which provide it free to all would-be homeowners.

Mortgage lenders have been working vigorously on other fronts too. Increasingly, minorities can qualify for loans without conventional credit criteria, by counting regular rent and utility payments as proof of creditworthiness. Also, Fannie Mae, Freddie Mac, private mortgage insurers, and mortgage lenders have worked together to develop programs that combine counseling with lower down-payments (as low as 3 per cent of the applicant's own money), since the lack of a down-payment is the leading obstacle to greater minority home ownership. Happily, these affordablehousing loans have so far produced delinquency and default rates similar to those for loans with more conventional criteria.

To be sure, many potential applicants do not know of these affordablehousing programs, which have been around only since 1989. Mortgage lenders have found that advertising does not do the trick. It seems to require one-on-one contact to drive the message home, and so they have started trying to track down more of these potentially credit-worthy homebuyers by working with community housing groups, holding seminars, and sending out mailings.

Color-Blind Markets?

INDEED, some mortgage lenders now believe that low- and moderate-income borrowers are one of the growth markets of the 1990s. If left alone to devise methods of reaching this market, they will do so in a color-blind manner without sacrificing credit standards and without redistributing costs by charging other borrowers more for their mortgages. The alternative can already be seen at work at banks and thrifts struggling to improve their lending to minorities. The Consumer Bankers Association reports that 69 per cent of banks in its affordable-housing survey subsidize their minority-outreach programs, usually by offering lower interest rates, but also by incurring higher operating costs to administer the loans. Among banks that subsidize, 76 per cent of the subsidies come from bank profits, while the remaining subsidies come from government programs and non-profit organizations. The Clinton Administration's heavy-handed, raceconscious approach threatens to forcibly expand this small subsidy foothold.