Obama admin attacking 'redlining' now?

The Obama regulatory state marches on.

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.

They’re not the only ones. Just about nobody is getting lines of credit right now. Loan approval standards have gone up in the wake of millions of foreclosures, people just walking away from loans as they have gone underwater, and so forth. Therefore it’s harder for everyone to get a loan, and the less likely you are to repay loans, the less likely you are to get loans. Pretty simple, and not discriminatory. Just basic banking.

It seems that this administration still hasn’t learned a fundamental fact: ‘Social justice’ doesn’t work outside the rules of ordinary economics. Not that they will let that stop them.

To some banks the crackdown has come as a surprise, say consultants and lawyers representing financial institutions in discussions with regulators. Like Midwest BankCentre, some lenders are being cited for failing to operate in minority and low-income census tracts near their branches, even when they have never done business there before. “If you put your branches only in upper-income areas, the regulators are not accepting that anymore,” says Warren W. Traiger, a lawyer at BuckleySandler in New York, which advises banks on fair lending issues.

Interesting. In the age of Hope and Change, businesses are on the one hand being slapped hard for building new plants in red states, while on the other hand banks are being slapped hard for not building branches in blue inner cities. Gotta spread the wealth around, or at least the overbearing government.