Remember back in 2008 how the U.S. had a terrible financial crisis caused by too many subprime mortgages being issued by banks? Apparently, Washington doesn't. Even if you're cynical about the government's ability to learn from its mistakes, it seems unthinkable that it could be pressuring banks into making more subprime loans again. But according to a recent Bloomberg article, that's exactly what's happening.
Let's go to the article by Clea Benson:
Lawyers and bank consultants say regulators and the Obama Administration are scrutinizing financial institutions for a practice that last drew attention before the rise of subprime lending: redlining. The term dates from the 1930s, when the Federal Housing Administration drew up maps using red ink to delineate inner-city neighborhoods considered too risky for lending. Congress later passed laws banning lending discrimination on the basis of race and other characteristics. "The agencies have refocused on redlining because, in the wake of the subprime explosion and sudden implosion, they are looking at these disadvantaged neighborhoods and not seeing any credit access," says Jo Ann Barefoot, co-chair at Treliant Risk Advisors in Washington, D.C., which consults with banks on regulatory issues.
Let's start with a clear, unequivocal statement: racial discrimination is wrong and should not be tolerated. But is that really what's necessarily going on here? As the housing market struggles to find its footing, its problems have become highly localized. Even in a given county, one city might see housing price stabilize, while prices in another city continue to fall.