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Predatory Lending and the Deliberate Destruction of Black Economic Power

black community predatory lendingBy David A. Love

Economic exploitation in the Black community is real, and a reminder that racism goes far beyond hating Black people and calling us names.  Not to downplay the effects of that individualized, person-to-person discrimination, but we need to focus far more on institutional racism, the policies that pick our pockets and rob us blind for generations.  Old patterns of systemic discrimination continue, stealing from the Black community and placing it at a disadvantage with wealth accumulation.

Financial institutions still engage in the economic exploitation of Black America, a reality which was brought home amid the devastation of African-American and Latino communities during the Great Recession.  As was published in the most recent edition of the journal Social Problems, Black borrowers in segregated cities have been preyed upon with subprime mortgages, destroying families and entire communities.  The U.S. housing meltdown and the foreclosure crisis was a racialized process.

Sociologists Jacob Rugh, Len Albright and Douglas Massey focused on the operations of Wells Fargo in Baltimore.  The financial services company—which paid $175 million in 2012 to settle claims related to predatory lending in Black neighborhoods across the country—targeted Black Baltimore residents with higher rates than whites at every stage of the game.  Think of it as a racial penalty that costs a Black homeowner thousands upon thousands of dollars.

The analysis found that Black borrowers paid an extra 5 to 11 percent in monthly payments that white borrowers did not have to pay.  Meanwhile, those in the study who experienced foreclosure lost over $2 million in home equity.  On a 30-year mortgage, the typical Black borrower paid an additional $14,904, and nearly $16,000 if that person lived in a Black neighborhood. Black borrowers with incomes over $50,000 were targeted for extra discrimination, under the observation that Blacks with higher incomes experience greater exposure to racial discrimination because of their increased contact with whites.

Further, the report paints the U.S. as a society where racial categories help determine the ability to own property, transfer wealth and own a home.  Moreover, whiteness is itself a form a property that confers both psychological and tangible benefits to white people in the accumulation of wealth through home ownership.

“We conceptualize race as a cumulative disadvantage because of its direct and indirect effects on socioeconomic status at the individual and neighborhood levels, with consequences that reverberate across a borrower’s life and between generations,” the authors noted.

Meanwhile, the Department of Housing and Urban Development just settled with Associated Bank for its policy of redlining, specifically discriminating against Black and Latino borrowers in Wisconsin, Illinois and Minnesota.  The Department of Housing and Urban Development (HUD) alleged that between 2008 and 2010, the bank denied mortgage loans to qualified Black and Latino borrowers in so-called “majority-minority census tracts.”

Under the agreement, Associated Bank must, among other things, pay $10 million in down payments and closing cost assistance to borrowers of color, and invest nearly $200 million through increased lending activity in Black and Latino areas.  HUD called it “one of the largest redlining complaints” the federal government has brought against a mortgage lender.  In addition, according to a study from the University of Minnesota, very high income Blacks were 3.8 times more likely to receive subprime mortgages from Wells Fargo and other institutions than whites with very low income, and 1.9 times more likely to receive subprime refinancing.

Although the practice of redlining sounds like something relegated to the dustbin of history, redlining is alive and well.  For years, from the creation of the Federal Housing Administration in 1934—which openly refused loans to Black people before it was outlawed by the Fair Housing Act of 1968—redlining was an established practice.  It conjures up images of banks taking a map and physically marking off by race the “risky” communities that would receive no access to capital, no mortgages, no business investment.

Poor white home buyers were far more likely to receive loans than affluent Black home buyers.  This placed Black people at a severe disadvantage, and as a consequence Black neighborhoods were allowed to collapse and crumble, the businesses closed without others to take their place, and the people in those communities had no access to basic services. The poverty rates we see today in Baltimore and elsewhere correlate with the redlining maps used during the past century.

Now, Wall Street has found new ways to profit from the suffering of Black people who have foreclosed on their homes by getting into the rental market.  As Jacobin magazine reported, Wall Street investors have bought up hundreds of thousands of foreclosed single-family homes and converted them to rental properties, thus becoming the new landlords of many of these foreclosed former homeowners.

The bursting of the housing bubble and the subprime mortgage crisis represented the largest theft of Black people in modern history.  Black borrowers have lost between $72 billion and $93 billion due to these fraudulent loans, and Latino borrowers between $76 billion and $98 billion according to United for a Fair Economy.  And the Pew Research Center notes that while the net worth of white households dropped 16 percent, Black families experienced a remarkable 53 percent decline in net worth.

Meanwhile, it is worth noting that Black Wall Street—the Black community of Tulsa, Oklahoma that was destroyed by a white mob in 1921—lost over 600 businesses, including banks, real estate and insurance companies.  Money circulated throughout the community, and Black residents controlled their economic destiny.

It is said that when America catches a cold, Black folks get pneumonia. Well, in this case the crimes perpetrated against Black people are the economic and financial equivalent of the Tuskegee Experiment.

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