April,1999

HEADLINE: Unfair Housing Acts
HUD is shaking down lenders for billions of dollars in settlements on specious
grounds of racial discrimination, all to justify government as the last line of
defense against moral barbarism.

BYLINE: James Bovard. ;
James Bovard is the author of the new book Freedom in Chains: The Rise of the
State & the Demise of the Citizen, published in February by St. Martin's Press.

BODY:
It was the kind of triumphal photo-op that the embattled president needed. On
January 18, Martin Luther King Day, President Clinton was "pleased to announce"
the largest-ever settlement for a home-lending discrimination suit. "The


Columbia National Mortgage Company will offer--listen to this--$6. 5 billion in
home mortgages and extra effort to help 78,000 minority and low- and
moderate-income families unlock the door to home ownership," the president
boasted. The same day, at King's old church in Atlanta, Housing Secretary Andrew
Cuomo also touted the settlement: "If companies know we're going to enforce the
law, you'll see more compliance. And $6.5 billion says we're going to enforce
the law."

There was just one problem. The entire settlement was a sham.

It wasn't the first time--and it likely won't be the last--but Columbia
National's ordeal illustrates this administration's idea of fairness when it
comes to faceless, private corporations: wild accusations and record
settlements, all to convince voters that the federal government is the sole
force preventing America from slipping into moral barbarism. And all in the name
of correcting "racist" practices that never existed in the first place.

$150 Million a Minute

The Columbia National case began in 1996, when the Fort Worth Human Relations
Commission received a $100,000 grant from the Department of Housing and Urban
Development to send pairs of testers--each pair comprising a white and
minority loan "applicant"--to investigate possible fair-housing violations by
mortgage companies. Three pairs went to a Columbia National office.

The first two pairs found no problems, but the third uncovered sufficient
discrimination to alert HUD: The white male tester spent an hour with a female
loan officer, while the Hispanic male tester spent only 20 minutes with a male
loan officer. According to the commission's report, the loan officer who saw the
Hispanic male, after shaking his hand, "excused himself to use the restroom.
About two minutes later, he returned from the restroom and the interview began."
The report concluded that there were no " extenuating circumstances" to justify
the interruption, and the subsequent $6. 5 billion "settlement" could make this
the most expensive bathroom break in history. (Never mind that the white male
tester waited five minutes to see his loan officer.)

The official settlement from HUD stated the department's grave concern about
an alleged difference "in the level of encouragement given to apply for a loan"
between the Hispanic and white applicant. The Columbia National officer did seek
to pre-qualify the Hispanic for a mortgage, providing him with a loan
application and his business card. But HUD judged that the difference in the
time the loan officers spent with the two applicants was conclusive proof of
wrongdoing.


The department later admitted that the two testers gave different
information. The Hispanic, for instance, claimed to have less personal savings
than did the white tester. Neither would provide his Social Security number or
an address, nor did either allow the loan officer to pull his credit reports.
Columbia National CEO Dave Gallitano noted that such conduct " is very unusual.
It would result in a good sales person spending time with them--being
courteous--but they will not spend a huge amount of time because it is not an
application yet."

Nevertheless, White House and HUD press releases on the case implied that the
company was being fined $6.5 billion--largely for a 40-minute differential in
interviews for a single pair of people. That's over $150 million per minute.

A HUD official involved in the case, speaking on condition of anonymity, says
that "no formal investigation was ever completed; therefore, there was no formal
finding one way or the other." Yet according to Columbia National's Gallitano,
HUD "equal opportunity conciliator" Gary Lacefield threatened the company,
warning that, if the company did not sign the agreement, "the alternative was
(for HUD) to come in and audit us to death." A HUD official stated that "the
dynamic in this case was that we will proceed with a full blown investigation if
they do not choose to voluntarily conciliate."


The formal agreement made a mockery of Columbia National's supposed
wrongdoing. The firm admitted to no crime, and the Human Relations Commission
waived the right to take any further legal, administrative, or investigative
action. While HUD trumpets the agreement as a "settlement" of serious charges,
the only payout consisted of a pledge by the company to send $5,000 to the
commission to "further fair housing initiatives through education, outreach, and
testing." Columbia National did "commit annually" to make certain levels of
loans to minorities during the following five years, but the agreement contains
no penalty clause if the company does not meet the lending goals.

Yet the $6.5 billion settlement figure left the average listener thinking
the government had nabbed some heinous criminal and achieved a great triumph for
social justice.

"Clinton gets on national TV and makes us sound like bigots," complains
Gallitano. "This is the kind of statement from a person in his position that
could put us out of business." The White House/HUD press release made hay of the
fact that Columbia National had made zero loans to blacks or Hispanics in ten
states--states where the firm has no offices and does almost no business.

Race-Baiting to Racial Harmony


The same type of deceptive, high-handed methods used in the Columbia National
case also characterized HUD's settlement with AccuBanc, a Texas- based mortgage
lender last year.

The Fort Worth Housing Human Relations Commission also sent several pairs of
testers to an AccuBanc office. One pair consisted of a white couple with good
credit history and a black couple with severe credit problems. The AccuBanc
lenders spent an hour with the white couple and 20 minutes with the black
couple. One high-ranking AccuBanc official observed, "We did not deny credit to
the black couple--but there was less we could do for them," considering their
bad credit record. That was all that HUD needed to bring the roof down on the
company. "They claimed that they just needed to finalize the paperwork," the
AccuBank official said. "'We just need to tie up the loose ends by the end of
the year,' they said--and we agreed to sign it. The next day, we got blasted by
Mr. Cuomo in one of his television statements." Company officials were shocked
at this scapegoating; the reconciliation agreement between HUD and the company
did not require the company to do anything that it had not already been doing
for three years. "If Mr. Cuomo were not trying his darndest to position himself
for vice presidency, he might not be quite as rabid," the corporate official
muses.


With great fanfare, Cuomo announced the AccuBanc settlement in a press
release "commemorating the 30th anniversary of Dr. Martin Luther King Jr.'s
assassination and the passage of the Fair Housing Act" on April 3, 1998. (The
same press release announced a HUD lawsuit against four men accused of burning a
cross in Missouri to intimidate a Portuguese immigrant.) In an interview a month
later, Cuomo mischaracterized the agreement: "Just a few weeks ago, we settled
the largest federal suit ever, with a penalty of $2.2 billion" against AccuBanc.
But commission chief Vanessa Ruiz Boling, who conducted the tests, disagrees:
"There was no penalty imposed," she said in an interview. "It was a no-fault
agreement. If Secretary Cuomo is using the term penalty, that is an interesting
word--we should not penalize anyone who we did not make any findings against or
who was not a subject of an investigation."

Failing the Fairness Test

The Fort Worth Human Relations Commission has become one of Cuomo's favorite
federally funded fair-housing investigators. The secretary brags that 100 pairs
of testers sent out by the commission have produced $10 billion in settlements.
This appears to be the Clinton administration's idea of a productive government
investment. But commenting to the ABA Banking Journal last year, commission
chief Boling seemed upset with HUD's grandstanding. "We filed complaints (with
HUD) not because there was evidence of discrimination, but because there were
differences in treatment that had been explored and discovered," she said. "The
spirit in which the agreements were made was very positive. It's unfortunate
that any other light was cast on these agreements." Boling is not the only
government employee disenchanted with the political posturing; one official
commented: "We peons are not in a position to control the mouths of the
secretary or the president."

The federal fair-housing law was first enacted in 1968 and primarily sought
to ban overt prohibitions on blacks' freedom to rent or buy housing. Since then
the law has mushroomed, and after amendments in 1988, far more types of private
behavior are verboten. Forms of discrimination include "discouraging the
purchase or rental of a dwelling...by exaggerating drawbacks or failing to
inform any person of desirable features of a dwelling or of a community,
neighborhood, or development." Does this mean that a realtor or landlord's
failure to mention that a nearby deli makes excellent hot pastramis could be a
federal civil-rights violation?

Top Cuomo adviser William C. Apgar, last year warned: "Fair-housing
violations are now very subtle." Cuomo echoed this in November: "Housing
discrimination is much more insidious today than it was two to three decades
ago." Therefore, government must become more devious to ferret out violators.


Seeking new harvests of violators, HUD plows money into local fair-housing
councils and local government agencies that enforce discrimination laws. Since
Clinton took office, federal handouts to such organizations have almost
tripled--reaching $40 million in 1999. (Clinton is asking $47 billion for this
holy war in FY2000.) Much of their activity amounts to institutionalized
entrapment--with a maximum incentive for the testers to vary their conduct
sufficiently to generate different responses from lenders. Some have even sued
local papers, magazines, and realtors for not having the correct racial
composition in their advertisements.

HUD barely polices how fair-housing advocacy groups use their federal grants.
A Michigan landlord believed himself defamed by a federally funded fair-housing
council and threatened to sue. The Civil Rights Division of the U.S. Department
of Justice promptly threatened to sue him. The Justice Department warned on May
23, 1996, that merely by filing his suit, the landlord violated a federal law
making it "unlawful to coerce, intimidate, or threaten any person" exercising
fair-housing rights.

And the federal government has taken a more aggressive stance on fair
housing. At a September 30, 1997 press conference, Cuomo announced, "We will
double the number of enforcement actions against (fair-housing violators) in the
president's second term." One wonders if HUD investigators had previously
ignored half the violators they detected--or if the standard for criminal
conduct was going to be lowered to fulfill the new prosecution quotas. A
doubling of lawsuits was portrayed by the Housing secretary as a doubling of
justice.

Thanks to Cuomo's vigilance, any difference in the treatment of testers that
does not favor the member of the "protected class" becomes sufficient to accuse
companies of violating fair-housing laws. The prospect of being prosecuted for
racism by the federal government and repeatedly denounced by high-ranking
officials during a long trial is sufficient to make most companies raise the
white flag and open the checkbooks. And each settlement sets a precedent for
expanded HUD powers. (For more on Cuomo's tactics inside HUD, see page 40.)

Insurance Racket

HUD is also using testers to intimidate insurance companies. The department
bankrolled a case by Housing Opportunities Made Equal (HOME), a local activist
group in Richmond, Virginia, to prove that Nationwide Insurance Co. violated the
Fair Housing Act by quoting different insurance rates to homeowners in black and
white neighborhoods. A jury convicted Nationwide and ordered the company to pay
$100 million in damages. The trial exposed some of the fraudulent methods of
HUD-financed testers, who asked for rate quotes on homes of differing sizes,
values, and ages; the resulting disparities supposedly proved racial bias.

But as Citizens for a Sound Economy analyst Robert Detlefsen noted last
December in National Review, "inner-city homes tend to have substandard heating
and wiring components (generally a function of age) and to be located in
neighborhoods with much higher than average rates of burglary, vandalism, arson,
and building abandonment--all of which are significant risk factors."
Regardless, Cuomo hailed the verdict: "I congratulate HOME for its outstanding
work on this case, and I am proud of HUD's involvement as HOME's partner in the
fight for housing equality." He added ominously: "This $100 million verdict
tells companies loud and clear that it is now their turn to pay a terrible price
if they continue to discriminate."

In cracking down on insurance companies, HUD ignored some of its own data.
The department had paid the Urban Institute $650,000 for an exhaustive analysis
of insurance markets in Phoenix and New York. Though largely completed by 1995,
HUD suppressed the report. The Urban Institute finally published it on its own
last November. The study found that in Phoenix, " testers in white neighborhoods
received quotes 98 percent of the time; testers in Hispanic neighborhoods, 97
percent." It concluded that "white testers were not favored over minority
testers in either Phoenix or New York." Insurance executives believe the study
was buried because it did not provide the answer that HUD wanted.


Cuomo is championing the idea that racism is the reason why far fewer black
families own homes than do white families (45 vs. 72 percent). "We will not
tolerate a continued home ownership gap as wide as the Grand Canyon that divides
Americans into two societies, separate and unequal," Cuomo has said. But a 1995
Federal Reserve Board study illustrates that these charges of pervasive lending
bias are bogus. The study examined over 200,000 mortgage loans made in the late
1980's and, according to the Wall Street Journal, found:

Blacks defaulted about twice as often as white borrowers....The finding
undercuts arguments that lenders often hold minority applicants to higher
standards than whites. If that were true, they said, their study should have
found lower default rates--since minorities would presumably be exceptionally
qualified given the alleged higher standards.

HUD's efforts to strong-arm lenders into granting more loans to minorities of
questionable creditworthiness guarantees future bumper bankruptcy harvests. In
the same way that easy credit policies by the Farmers Home Administration (under
severe pressure from congressmen to throw money at as many farmers as possible)
caused the bankruptcy of thousands of farmers, HUD's obsession with maximizing
lending to minorities will eventually blight many people's credit history.


Other Fair-Housing Absurdities

HUD bankrolls local governments to detect and punish slumlords deemed to be
renting overcrowded housing. At the same time, HUD's Office of Fair Housing
prosecutes apartment owners who are guilty of limiting occupancy, claiming that
this amounts to discrimination against families with children. In California,
HUD prosecuted an apartment owner for refusing to rent a two- bedroom apartment
to a family of four. A federal court in 1996 denounced HUD's action as
"reprehensible" and "appalling" since HUD had made " inconsistent and misleading
representations to those regulated by the (Fair Housing Act) and, in so doing,
had led them down the garden path" to violating HUD's revised interpretation of
the law.

Clintonites have also stretched the Fair Housing Act to plunder banks.
Following a Washington Post series on alleged bias by Washington, D.C.-area
banks in 1993, the Clinton administration sicced their hounds on Chevy Chase
Bank. Federal investigators went through thousands of loan files and found no
case in which Chevy Chase had clearly discriminated against a black applicant.
Rather than exonerate the bank, the Justice Department concocted new rules and
proclaimed the bank guilty.


The Justice Department announced in August 1994 that the Montgomery County,
Maryland-based bank was guilty because it did not pursue and bankroll potential
black borrowers in neighboring Washington and Prince George's County, Maryland.
Justice condemned Chevy Chase for not opening any branches in census tracts with
a majority of black residents. The bank had several branches in census tracts
that had a combined majority of blacks, Hispanics, and Asians; and according to
federal banking law, regulators are supposed to look at all officially certified
minority groups in judging whether a pattern of discrimination exists. Yet in
this case, Justice chose to count only blacks.

Ironically, federal agencies had twice denied Chevy Chase permission to
expand into black areas, concerned that losses from loans to minorities with a
higher default rate than whites could result in the bank's financial collapse.

The Justice Department held a major press conference on August 22, 1994, to
announce that Chevy Chase had granted its demands. Attorney General Janet Reno
declared, "To shun an entire community because of its racial makeup is just as
wrong as to reject an applicant because they (sic) are African American." Reno
accurately called the settlement "unprecedented"--but that was true only because
Justice had ignored the law. As former Assistant Treasury Secretary Paul Craig
Roberts observed, "The Justice Department is simply trying to establish by
consent decree a system of racial quotas in lending regardless of credit risks."

The feds used the same arguments in 1997 to punish Albank Federal Savings
Bank for not doing business in minority areas in the Northeast U.S. As Mortgage
Banking magazine noted in 1996, after the Chevy Chase settlement, " fair lending
laws are to be read as imposing an affirmative obligation to direct marketing
efforts to all markets equally, with little or no guidance as to how one is to
accomplish that as a practical matter."

Federally Sponsored Urban Terrorism

The Clinton administration is using other methods to forcibly redistribute
private capital. Take, for example, the Community Reinvestment Act. Enacted in
1977, the CRA purportedly prevents banks from taking deposits in one
neighborhood and making loans in other neighborhoods.

Under CRA, in order to get government approval to merge with some other bank
or open a new branch--or in some cases, even to set up a new ATM machine- -a
bank must also get approval from community activist groups. The natural result
is that banks routinely make loans or grants to organizations with a left-wing
agenda. Many of these groups are explicit about their goal in maximizing bank
payouts; an executive director of one even describes himself as an "urban
terrorist." Sen. Phil Gramm (R-Texas), chairman of the Senate Banking Committee,
said in January that CRA was compelling banks to make " kickbacks and bribes" to
activist groups--a process which Gramm said "is little more than extortion."

Cornell University professor Jonathan Macey explains how the rules
effectively invite this extortion:

You see really weird things when you look at the Code of Federal
Regulations...like federal regulators are encouraged to leave the room and
allowing community groups to negotiate ex parte with bankers in a community
reinvestment context....Giving jobs to the top five officials of these
communities or shake-down groups is generally high up on the list (of demands).
So, what we really have is a bit of old world Sicily brought into the U.S., but
legitimized and given the patina of government support.

Edward Crutchfield, chairman of First Union Corp., one of the nation's
fastest growing financial organizations, denounced the CRA process as "pure
blackmail." Bank loans made to fulfill CRA pledges have a default rate six times
higher than other bank loans, according to Sen. Gramm.

Acting civil-rights chief Bill Lann Lee has indicated plans to further expand
prosecutions against other lenders. At a banking meeting last October, Lee
warned: "We're the last people you want to hear from, because when we call on
your door we're there with a case, and often a big case."

As usual, most victims of these policies are afraid to complain. Harold F.
Still, former president of the Pennsylvania Bankers Association, recently wrote:
"The threat of action from the so-called community groups...caused all of us to
keep our mouths shut."

Amazingly, HUD still retains some respect with much of the media and American
public. Despite the agency's endless antics, perennial deceit, and continued
bankrolling of public housing projects that have destroyed more neighborhoods
than crack and heroin combined, HUD marches on. It is time to recognize that
fair housing laws have become largely pretexts to allow politicians to stretch
their power and to plunder one industry or target after another. Insofar as
people are schooled to believe that government power is inherently just, thus
far will people be abused and exploited by the State.