A subsidiary of a New England bank has, in effect, just agreed to make $1 million in otherwise bad loans under threat from the Justice Department, the Federal Reserve and the Federal Trade Commission.
And everyone is happy about it, including the bank president and the stock analysts who follow the banking company.Happiest of all will be the unsuspecting recipients of the booty - blacks and Hispanics who were fortunate enough to be turned down for a mortgage loan by Shawmut Mortgage Co., a subsidiary of Shawmut Services Corp., a bank holding company headquartered in Hartford, Conn.
The bank president is happy because, in exchange for the $1 million, the Federal Reserve has withdrawn its opposition to Shawmut's acquisition of the New Dartmouth Bank in Manchester, N.H. The stock analysts are happy because the roadblock to Shawmut's acquisitions has been removed, and the value of the bank's stock and the share prices of pending acquisitions have risen in the market.
The Justice Department, the Federal Reserve and the FTC are happy because they have succeeded in establishing a precedent that banks must divert a percentage of their capital into otherwise bad loans to minorities in order to avoid regulatory problems with the federal government.
As of yet, no one has identified the individuals who suffered the alleged discrimination. Believe it or not, not only has no one successfully proved discrimination, but there were no individual complaints from minorities.
Being in the mortgage business, Shawmut wanted to write as many mortgages as it could. It aggressively sought mortgage business, and it already had given its loan officers broad discretion to approve loan applications that failed to meet normal guideline requirements. The bank permitted loan officers to fall back on "compensating" criteria when normal requirements could not be met.
The Justice Department, however, found discrimination in the fact that Shawmut had no internal review mechanism to make sure that each loan officer provided every less-qualified applicant with the identical advice and help in how to substitute "compensating" criteria for bad credit and employment records.
In other words, the bank was a victim of its own policy of leaning over backward to grant loans to people who could not meet the normal criteria.
The Justice Department brought to court no evidence of a single case of discrimination. What it brought were statistics that the mortgage denial rates for blacks and Hispanics were numerically higher than for whites. Creditworthiness was not a factor.
Once upon a time, discrimination required intent; a person could not accidentally or unintentionally discriminate. If one racial group was more economically successful on average than another, it would show up in loan approval rates. Today, discrimination simply means statistical disparities.
In the Shawmut case, there is literally no evidence of what would normally be construed as discrimination. None. To the contrary, between 1990 and 1992, when the discrimination allegedly occurred, the mortgages granted to minorities doubled and the mortgage rejection rate fell by 45 percent for blacks and by 26 percent for Hispanics.
Now that Shawmut has agreed to pay $1 million or more, the "victims" have to be found somewhere so they can be rewarded. The bank and the Justice Department have put together a team to search out 75 to 150 people who can be said to have been "unfairly" turned down for mortgages. The unsuspecting parties selected by the team will receive between $10,000 and $15,000 each.
Of course, no whites were unfairly turned down, so no rejected white loan applicants will qualify for the lottery. By agreeing on the payments, Shawmut and the government has created a new game for qualified minorities: Make loan applications to as many lending institutions as possible, and sooner or later a regulator will award you a jackpot.