The welfare state advances by demonizing one private industry after another. In the end, people are taught that government alone can be trusted. Truth is no impediment for federal chieftains determined to blacken the reputation of the private sector.
In recent years, the federal Department of Housing and Urban Development has been at the forefront of demagoging private business. We will examine two cases from HUD’s 1999 Greatest Hits List.
On January 18, 1999, Martin Luther King Day, President Bill Clinton declared that he was “pleased to announce the largest settlement in history in a lending discrimination [case], for home lending…. 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 announcement gave Clinton a photo opportunity and a triumphal newspeg to divert attention from his ongoing Senate trial.
The settlement was a hoax. The Martin Luther King Day announcement epitomized the Clinton moral methods – little more than continual far-fetched accusations, continual record “settlements,” and continual efforts to convince people that the federal government is the sole force preventing America from slipping into barbarism. The Clinton administration used explicitly racially biased standards to denounce and convict private companies – and then used the settlements with those companies to persuade everyone that America suffered from an epidemic of racism.
The Fort Worth Human Relations Commission received a $100,000 grant in 1996 from HUD to send pairs of testers to mortgage companies to investigate possible fair-housing violations. The commission sent three pairs of testers to a local Columbia National loan office to see whether the company discriminated against people of different races or ethnicities.
There was no problem with the first two pairs, but the third tester pair uncovered sufficient discrimination to electrify HUD headquarters. A white male tester spent an hour with a female loan officer, while a Hispanic male tester spent only 20 minutes with a male loan officer. The white male had to wait five minutes after arriving before seeing his loan officer, but that was irrelevant. However, the loan officer who saw the Hispanic male, after shaking his hand, “excused himself to use the restroom. Within approximately two minutes, he returned from the restroom and the interview began,” according to the official report on the incident by the Fort Worth Human Relations Commission. The report concluded that there were no “extenuating circumstances” to justify the bathroom break during the interview with the Hispanic male. The subsequent $6 billion “settlement” could make this the most expensive trip to the bathroom in history.
Behind the settlement
In the official settlement statement on this case, HUD stressed its grave concern about an alleged difference “in the level of encouragement given to apply for a loan” between the Hispanic and the Anglo applicant. Yet the Columbia National officer sought to pre-qualify the Hispanic for a mortgage and provided him with a loan application and his business card. However, HUD believed that the difference in the time the loan officers spent with the two applicants was conclusive proof of wrongdoing. (One wonders why anyone would encourage any citizen to endure more than the sheer minimum of time with a mortgage loan officer).
HUD later admitted that the two testers gave different information; the Hispanic tester, for instance, claimed to have less personal savings than did the Anglo tester. Neither individual would provide his Social Security number or an address, nor would they allow the loan officers to pull their 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.”
It is standard operating procedure to drop the entire weight of HUD’s enforcement machinery on a company for a single alleged violation of equal treatment. A HUD official involved in the case, who spoke on condition of anonymity, said, “No formal investigation was ever completed – therefore – there was no formal finding one way or the other.” HUD could not even make an estimate of how many other HUD-subsidized testers had visited Columbia National offices around the country sniffing for discrimination.
Distorting the settlement
Columbia National was blindsided by the president’s announcement. The formal agreement mocked Columbia National’s supposed vast crimes. Columbia National made no admission of any crime and the Human Relations Commission waived the right to sue the company or take any further administration or investigative action against the company regarding the charges in this case. The only payout in the agreement consisted of a pledge by the company, within 90 days of the agreement, to “send the Fort Worth Human Relations Commission $5,000. The money will be used by 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 specified that the “term ‘commit’ … shall be qualified … subject to the availability of sufficient qualified borrowers” and “the reasonable business discretion of respondent.”
In other words, if business continues good, the company would continue doing business as usual. While HUD trumpeted the agreement as a “settlement” of serious charges, the agreement contained no penalty clauses in case Columbia National did not fulfill the lending goals.
Regardless of whether the agreement generated any new loans to favored groups, “$6 billion” made the average television viewer believe the government had nabbed some heinous criminal. Gallitano observed, “Clinton gets on national TV and makes us sound like bigots. This is the kind of statement from a person in his position that could put us out of business. And it could cause a large number of our employees who are minorities to become very demoralized and begin to wonder whether we or the president are telling the truth.”
The “record settlement” with Columbia National was officially part of President Clinton’s “One America Initiative.” Clinton announced the initiative in June 1997 as a means to seek to ease racial tensions. However, Clinton had a different agenda: two months later, he announced that increased enforcement of the Fair Housing Act would become a major goal “as part of our initiative to create One America of equal opportunity.” The Clinton administration used the initiative to inflame the sense of persecution and entitlement among minorities – and thereby tighten his lock on his most loyal constituency.
HUD law-enforcement quotas
HUD Secretary Andrew Cuomo used the Fair Housing Act to build up his national image. 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.” Cuomo stated that he had been ordered by Clinton to double the number of enforcement actions against fair-housing violators to 60 or 70 a month. Cuomo did not specify whether HUD investigators had previously ignored evidence of guilt of fair-housing violators – or whether they would “lower the bar” so that twice as many private actions were now classified as federal crimes.
HUD feels obliged to target any industry related to housing. In 1995, HUD gave a $1.5 million grant to five housing groups to bankroll testers to dragoon insurance companies. HUD financed a lawsuit by Housing Opportunities Made Equal (HOME), a Richmond, Virginia, activist organization, to prove that Nationwide Insurance Co. violated the Fair Housing Act by quoting different insurance rates in black and in white neighborhoods. A jury, after hearing a deluge of racist denunciations, quickly convicted Nationwide and ordered the company to pay $100 million in damages.
This trial revealed the slanted methods of HUD testers. HUD’s testers asked for rate quotes on homes of differing sizes, values, and ages; the resulting disparities supposedly proved racial bias. Some testers destroyed most of their notes, making verification impossible.
Robert Detlefsen noted in National Review that “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.”
Cuomo also subtly noted: “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.”
Targeting insurance companies
The $100 million verdict was overturned by the Virginia Supreme Court in January 2000. Even so, the jury verdict had aided other shakedowns. The Richmond Times Dispatch reported on May 7, 1999: “An insurance company [Liberty Mutual Group] that was facing a fair-housing complaint filed by Housing Opportunities Made Equal has promised to give the organization $4.25 million over the next two years to promote home ownership in Richmond.”
HUD bankrolled the crackdown on insurance companies despite its possession of a $650,000 study it contracted for by the Urban Institute entitled “Testing for Discrimination in Home Insurance.” The Urban Institute conducted an exhaustive analysis, using testers, of insurance markets in Phoenix and New York. The study was largely completed in 1995 but HUD effectively suppressed the report. However, the Urban Institute finally published the study itself in November 1998. The study found that in Phoenix, “testers in white neighborhoods received quotes 98 percent of the time; testers in Hispanic neighborhoods, 97 percent.” The study concluded that “white testers were not favored over minority testers in either Phoenix or New York.” George Galster, the project director, observed: “What was most surprising is the lack of discrimination on virtually all measures.” Naturally, HUD had no choice but to pretend that the study had never been conducted.
The government cannot be trusted to define “fair housing” – any more than it can be trusted to define “fair trade.” The American people have made great progress in becoming more racially tolerant in recent decades. However, there is always some old retrograde like HUD lurking to stir up old animosities.
