A new U.S. Department of Housing and Urban Development mortgage-lending rule reeks of “social justice” — a concept that always defiles economic rules — in its focus on outcomes rather than opportunity. It will set up the housing market and economy for another “bubble”-driven crash.
The “disparate impact” rule means that “any lending standard that yields different results for different racial or ethnic demographics is in itself discriminatory even if the lender has no intent to discriminate and applied lending standards equally to all applicants,” The Washington Free Beacon reports.
It echoes those nonsensical Community Reinvestment Act provisions that encouraged riskier lending. The rule “will impose racial quotas on lenders of the same type that previously led to the mortgage crash,” says Heritage Foundation scholar Hans von Spakovsky.
The rule perversely punishes lenders for doing what they should — engaging in necessary discrimination by denying mortgages to applicants unable to repay them. Whatever “help” this rule gives such unfit borrowers ultimately will harm the housing market and the economy when these loans inevitably slide into default and foreclosure.
Legal experts doubt this rule could withstand a Supreme Court challenge under the Fair Housing Act and the Obama Justice Department seems less than eager to defend it there. But the economic verdict on it already is in and requires striking this “disparate impact” standard from the mortgage-lending rule book.
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