With landmark lawsuit, Barack Obama pushed banks to give subprime loans to Chicago’s African-Americans

by NEIL MUNRO September 4, 2012

President Barack Obama was a pioneering contributor to the national subprime real estate bubble, and roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices.

As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide mortgages to poor African Americans.

The startling failure rate among Obama's private sector clients was discovered during The Daily Caller's review of previously unpublished court information from the lawsuit that a young Obama helmed as the lead plaintiff's attorney. 

Since the mortgage bubble burst, some of his former clients are calling for a policy reversal.

"If you see some people don't make enough money to afford the mortgage, why would you give them a loan?" asked Obama client John Buchanan. "There should be some type of regulation against giving people loans they can't afford."

Banks "were too eager to lend to many who didn't qualify," said Don Byas, another client who saw banks lurch from caution to bubble-inflating recklessness.

"I don't care what race you are. ... You need to keep financial wisdom [separate] from trying to help your people," said Byas, an autoworker.

Nonetheless, Obama has pursued the same top-down mortgage lending policies in the White House.

Obama's lawsuit was one element of a national "anti-redlining" campaign led by Chicago's progressive groups, who argued that banks unfairly refused to lend money to people living within so-called "redlines" around African-American communities. The campaign was powered by progressives' moral claim that their expertise could boost home ownership among the United States' most disadvantaged minority, African-Americans.

Progressive activists' ambition instead contributed greatly to a housing bubble that burst in 2007, crashed the nation's economy in 2008, wiped out at least $4 trillion in equity, kept unemployment above 8 percent for four years, and damaged the intended beneficiaries of looser mortgage lending standards.

In the White House, Obama has continued to intensify regulatory pressure on banks to provide more risky loans to African-Americans and Latinos. He has used lawsuits to fund his allies. And taxpayers are now unwittingly contributing to a re-inflation of housing prices.

Meanwhile, the president has blamed the housing bubble on supposed GOP deregulation, even though President George W. Bush expanded the regulation-expanding, anti-redlining policies established by progressives during Bill Clinton's presidency.

"Governor Romney's plan would... roll back regulations on big banks," Obama says of his Republican challenger Mitt Romney in a 2012 TV ad titled "The Choice."

"But you know what? We tried that top-down approach. It's what caused the mess in the first place."

The Lawsuit

Fay Clayton, a Chicago progressive activist, initiated the discrimination lawsuit in 1994. Obama's employer, a lawyer named Judson Miner, allied with Clayton to file a class-action lawsuit a year later.

Obama appeared at Clayton's office "saying he was the new associate on the case," Clayton said in a statement to The Daily Caller. "I remember Barack arriving - he was industrious, he enjoyed the work, he was clearly smart and dedicated."

The suit named three African-American plaintiffs, but later added 183 whom Citibank or its subsidiaries had allegedly rejected for mortgages in 1993 and 1994.

Some of the plaintiffs told TheDC about their rejections by Citibank.

Citibank's lending agent "told me that I needed to put thousands of dollars down [to increase equity]... I was so upset at that, I said ‘'Do I look like I have ‘stupid' on my forehead?'" said Maudestine McLeary.

Byas said he had a Citibank mortgage on his property in Austin, a West Side Chicago neighborhood, but was rejected when he sought a mortgage to buy a house in the troubled Maywood district.

"Chicago had been redlining people for years and years ... [and] you knew this kind of crap happened," said Dale Freeman, an operations manager at the Federal Reserve Bank of Chicago. He quickly got a loan from another bank to buy a house in the wealthy South Side neighborhood of Hyde Park, where he and his family still live.

Citibank defended the cautious way it loaned out its shareholders' money, saying that "the underwriting criteria were racially neutral on their face ... [and] that each of the named defendants was denied the home loans he or she requested due to his or her lack of financial qualifications," according to a June 1995 summary by the judge who heard Obama's discrimination case.

Citibank had a significant amount of data to back up its case.

For example, when the 186 clients submitted their names for compensation in 1998, it turned out that least 19 had bankrupted or received foreclosure notices even before December 1997. Another 18 of the 186 clients would go under within three years because of financial pressures. 

Yet Citibank settled the case in December 1997.

That settlement came as Citibank's top executives sat down with leading progressives in Bill Clinton's government to bargain for their future. Their future was at stake because of a successful campaign by Obama's allies in Chicago.

Their "anti-redlining" political campaign began in the 1960s, when new federal housing laws and federal financing laws helped African Americans in overcrowded city blocks buy houses in Chicago's white, middle-class neighborhoods.

This resulting migration accelerated white flight to the suburbs and was dubbed "block-busting." That's because many previously white neighborhoods transformed into all-black neighborhoods, and many later suffered from blight once buyers proved unable to pay their mortgages.

Yet the Chicago housing activists sought to shield their own neighborhoods --- such as Austin and Oak Park --- by pressuring banks to fund many more mortgages inside the so-called redlines that marked African-American neighborhoods.

The anti-redlining campaign scored repeated courtroom victories, and also drove Congress to pass the Community Reinvestment Act in 1977.

Congress repeatedly expanded the law, and in combination with a 1994 "Joint Statement" by Clinton's regulators, effectively gave progressives in government the power to paralyze -- and atrophy -- any bank's business if it did not increase mortgages inside the redlines.

Citibank felt that power in April 1998, when it sought federal approval for a merger with Travelers Group. It only got approval from the Clinton administration progressives after it promised in May to provide $115 billion for anti-redlining loans.

Executives at numerous other merging banks were also submitting to the progressives' top-down terms. Their anti-redlining promises added up to $600 billion between 1993 and 1998, according to a 2000 Treasury Department report.

Before striking its deal with the federal government progressives, Citibank got rid of the Chicago lawsuit by paying off the Chicago lawyers.

While the settlement provided $950,000 for the lawyers, it provided $20,000 for each of the three named plaintiffs, and $360,000 in benefits to be divided among the 183 other clients.

Obama's Role...

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