After reading an enlightening and shocking piece on Racism Review about alleged predatory lending by Wells Fargo that specifically targeted blacks in the Baltimore area, I thought I’d blog about it if not only to spread the word, but also force myself to learn more about the subprime mortgage fiasco as well as deepen my understanding of structural racism.
From the original NYT article cited by RR, Beth Jacobson, a former loan officer at Wells Fargo, claims they
“rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages.
Wells Fargo, Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans.”
Apparently, WF targeted high-earning blacks for high-risk, high-interest loans (subprime loans) when they could have qualified for lower-risk, lower-interest loans (prime loans). What’s more, prime loans were offered to lower-income white borrowers, the kind of borrowers who, to my understanding, subprime loans were meant for (based on income, not race). So basically, credit profiles held equal, blacks were getting more subprime loans than whites. This lending policy has led to higher percentages of defaults and foreclosures in black communities. The article notes that “more than half the properties subject to foreclosure on a Wells Fargo loan from 2005 to 2008 now stand vacant. And 71 percent of those are in predominantly black neighborhoods.”
And it isn’t limited to Baltimore
The New York Times, in a recent analysis of mortgage lending in New York City, found that black households making more than $68,000 a year were nearly five times as likely to hold high-interest subprime mortgages as whites of similar or even lower incomes. (The disparity was greater for Wells Fargo borrowers, as 2 percent of whites in that income group hold subprime loans and 16.1 percent of blacks.)
On Wells Fargo’s strategy
“We just went right after them,” said Ms. Jacobson, who is white and said she was once the bank’s top-producing subprime loan officer nationally. “Wells Fargo mortgage had an emerging-markets unit that specifically targeted black churches, because it figured church leaders had a lot of influence and could convince congregants to take out subprime loans.”
In Chicago, a similar situation exists. According to an article by the Chicago Reporter
More than 34 percent of African American borrowers received high-cost loans [in the Chicago area], the highest percentage of any racial group. At more than 11 percent, Asian borrowers were the least likely to get high-cost loans.
African Americans earning more than $300,000 were more likely to get high-cost loans than Asian, Latino and white borrowers earning less than $40,000.
This has led to, as of July 31st, 2009, the state of Illinois suing Wells Fargo for discrimination. Moreover, the NAACP is pursuing lawsuits against nearly two dozen mortgage lenders across the nation, a sign that these examples are only symptoms of a much larger problem.
Proponents of subprime lending claim that subprime loans extend capital to people who might otherwise not qualify for a prime loan. Indeed, this thinking was behind a move by Fannie Mae in 1999, pressured by the Clinton Administration, to expand mortgage lending (and ultimately home ownership) to lower-income and higher-risk Americans through reducing down payments but increasing interest rates.
Though, of course, the idea was specifically tied to income and credit rating, not race. And when it does become tied to race, as the above examples suggest, the result is a system intended to help people now perverted into a system that now seems specifically designed to hurt them. In other words, a “prime” example of institutionalized racism.
Tagged: business, structural racism, subprime, wells fargo