Disparate Impact: The president’s new credit watchdog agency is warning lenders they could be investigated for discrimination if they scrutinize welfare recipients applying for home loans. Here we go again.
In an agency bulletin, the Consumer Financial Protection Bureau specifically advised mortgage lenders not to verify the income of people receiving Social Security Disability Insurance benefits.
SSDI enrollment has exploded under Obama, and fraud is rampant in the program. A recent probe by Congress found doctors rubber-stamping claims for the generous benefits. A random review found more than 1-in-4 cases failed to provide evidence to support claims.
No wonder mortgage lenders are asking for verification.
Last year, the number of Americans receiving payments skyrocketed to a record 15 million-plus. A disproportionate share of enrollees are African-American — blacks make up 12% of the population, but over 17% of all SSDI recipients — and black groups have complained to regulators that mortgage underwriters are making unreasonable demands for income verification.
The NAACP argues disability payments are a “critical source of financial support” for blacks, noting their average monthly benefit is almost $1,000.
“The program’s benefits provide a significant income boost to lower-earning African-Americans,” NAACP asserted, noting the share of blacks on federal disability is more than double that for whites.
In response, CFPB has issued a five-page edict warning mortgage lenders they could face “disparate impact” liability if they question whether “all or part” of a minority applicant’s income “derives from a public assistance program.”
If they know what’s good for them, they’ll “avoid unnecessary documentation requests and increase access to credit for persons receiving Social Security disability income.”
In a separate warning, HUD was more forceful: “A lender shouldn’t ask a consumer for documentation or about the nature of his or her disability under any circumstances.”
We can’t say we’re shocked. As we’ve reported — contrary to other media reporting — CFPB’s new Qualified Mortgage rule mandates payments from “government assistance programs are acceptable” forms of income for home loan qualification. (It’s in the 804-page regulation, if financial journalists would just take the time to read it.)
More, the Justice Department has ordered the biggest mortgage lenders in the country, including Wells Fargo and Bank of America, to offer loans to people on “public assistance.” They’re even required to post branch notices promoting the risky welfare acceptance policy.
The administration is actually forcing banks to target high-risk borrowers for 30-year debt under threat of prosecution.
Though President Obama’s worried about a plunge in new-home buying among jobless minorities, he’s just setting them up for failure all over again. A mortgage requires a stable job and income to avoid defaults and foreclosures.
Failure to require income documentation contributed to the mortgage crisis and was something CFPB was created to stop.
Exempting public-assistance income from the rules exposes the bogus nature of Obama’s financial “reforms.”