The banker blame game

What you are supposed to know, Kind Reader, is that your local banker would trod down on the downtrodden minorities if given half a chance. But first, a little history behind why your banker is such a meanie.

Decades ago there were clear and compelling reasons for state and federal officials to end non-financial discrimination in lending, especially as they related to home lending. But what began as enlightened relief soon morphed into social engineering, and now we find ourselves with myriad federal programs — a righteous plethora of federal fire trucks chasing whispers of smoke arising from the flammable foundations on which fair housing is built.

Justifying the need to maintain and enlarge such federal programs requires the public to be convinced that the whispers of smoke are instead raging wildfires that would burn through our society without the wise and vigilant oversight of Uncle Sam. That black or Hispanic or woman in your Sunday school class would be living in a van down by the river (with apologies to Chris Farley) if not for the feds looking over the shoulder of them greedy bankers, mortgage lenders and other capitalist gatekeepers genetically disposed to oppress based on race, gender and country club status.

Part of that convincing recently arrived in Fort Smith.

Consultant and researcher Robert Gaudin was in our fair city Aug. 16 with just the type of report one might need to support continued funding of programs to battle against the ruthless banking community. Gaudin, the research and planning guru for Portland, Ore.-based Western Economic Services, said his research points to three basic conclusions:
• The Fort Smith area has “disproportionately high denial rates “for racial and ethnic minorities;
• Fort Smith area denial rates are “disproportionately high” in lower- income areas; and,
• The region continues to see “discriminatory terms and conditions” for racial and ethnic minorities in rentals.

A more complete report from Gaudin detailing the overt racism of our evil local financial community is expected no later than Sept. 15.

Matt Jennings, the city of Fort Smith employee responsible to ensure we correctly use our about $1.4 million a year in federal fair housing-related funding, said the feds require a consultant to do this research because local folks “may not be able to look at it  (housing lending) from an unbiased standpoint.” In other words, you can’t trust Whitey-the-Banker and his friends at city hall to do the right thing (with apologies to Spike Lee).

It is at this point in the essay we recommend you not reflect upon the mess our Congress created several years ago when it demanded through broad and potentially onerous rules that banks and mortgage companies do more to encourage home ownership. To cover their bets and those of the lenders, Congress and federal regulators expanded the ability of Government Service Enterprises — Fannie Mae and Freddie Mac — to buy the loans regardless of the risk. It is also at this point you should suppress any rational belief that financial risk-reward decisions will become irrational in an environment where the federal government equally rewards good and bad lending decisions.

To be sure, several large national banking and financial services companies greatly abused what was essentially a blank check given to them by Congress. We may also note here that such abuse came courtesy of a Congress ruled by Republicans and Democrats.

But the role of the federal government in the housing bubble and the subsequent great recession is irrelevant. Any mention of such will paint you as an insensitive free-market supporting apologist for the aforementioned bankers eager to trod down.

What is relevant, however, is a mystery as it relates to market dynamics and our local condition. The “disproportionately high” denial rates and the “discriminatory terms and conditions” alleged by Gaudin came without market analysis. There is no information — at least none provided in materials received by The City Wire — as to the market reasons for loan denials among minorities.

With national political and federal officials blaming tight credit conditions for economic woes and many of the same officials blaming the recession on reckless lending by bankers, bankers are damned if they loan and damned if they don’t. What’s more, local bankers often make lending decisions using parameters largely dictated by the feds. Again, damned if they loan and damned if they don’t.

Also, Gaudin’s research shows Fort Smith recorded only 51 formal fair housing complaints in the past 10 years. Many of those, according to Jennings, were based on landlord complaints of which lenders have no control. To put that into perspective, more than 1,300 homes on average are bought and sold a year in Sebastian County, and the fair housing complaint box had but 5.1 messages a year. How is that “disproportionately high” or overly discriminatory?

You won’t hear criticism of the local banking community from Jennings.

“This area has always been, and rightfully so, very conservative about lending and that’s why we’ve seen that slow steady growth compared to California and other areas that got us into this mess,” Jennings said.

And nevermind that black and American Indian denial rates in Conway, Fayetteville, Jacksonville, North Little Rock and West Memphis are higher than those in Fort Smith.

And nevermind that we’re going through this process because we received 2009 federal fair housing funding of $1.4 million in a county that saw more than $167.26 million in home sales in 2009. That’s 0.83% of total sales for those keeping score at home.

“Disproportionately high” is the number of folks who attempt to convince us with their special pleading for special interest groups that we can broadly supplant market forces for political agendas in the housing sector — or any economic sector —with little to no short- or long-term harm.

Let’s hope when Gaudin and company return with their “Analysis of Impediments to Fair Housing Choice” report that they bring along a box of financial and procedural perspective and context. We’re good people. If apolitical financial data clearly shows we have some bad actors and are not being nice to our neighbors, we’ll fix it.

But if this is more about the continued political justification of a social agenda, maybe we let the feds keep their money and let our local bankers operate without the “fair” oversight of a federal government that is more than $12 trillion in the hole.