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I somehow missed this:

[T]he Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination, according to court documents reviewed by IBD.

Prosecutions have already generated more than $20 million in loan set-asides and other subsidies from banks that have settled out of court rather than battle the federal government and risk being branded racist. An additional 60 banks are under investigation, a DOJ spokeswoman says.

Settlements include setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit and even counting "public assistance" as valid income in mortgage applications.

So the government is strong-arming lenders into making loans to borrowers with sketchy credit histories? Didn’t we just try something like this? It didn’t end well, if I recall.

This new effort by the Justice Department is a disgrace. First, the government seems to be targeting only small community banks, who’ll have no choice but to cave when confronted by the power of the federal government. Second, the discrimination the government is alleging is apparently based on nutty theories, such as “disparate impact,” that would never hold up in court. Worst of all, prosecutors are forcing banks to sign nondisclosure agreements once they settle, so that no one will ever learn how shaky these prosecutions are. It’s basically extortion, except that since it’s the DoJ, it’s legal. I find this lack of transparency a complete disgrace!

And for what? So subprime borrowers can get loans they’d be otherwise denied? We already know that the bulk of the marginal borrowers swept up in the subprime mania of the last decade never deserved their loans in the first place, and had no chance of paying them back. The result was a catastrophe both for the borrowers and the banks. And yet Eric Holder and his lawyers are pushing banks to lend to exactly those same types of borrowers now, and are expecting a different outcome. There’s a word for that: insanity.

This is no way to help subprime borrowers, and it certainly won’t loosen up credit for people who actually deserve it and can put it to productive use. Eric Holder should lay off the banks. He’s not doing anybody any good.

And, by the way, other parts of government (the financial regulators) are busily writing rules that will toughen underwriting standards by, for instance, prescribing what counts as a Qualified Residential Mortgage. More contradictory policies from our government: just what the country needs to help pull it out of the mortgage mess!

Source: Eric Holder, Subprime Enforcer