Bank executives will be the first to blame the housing crisis on home buyers who overextended themselves buying homes they knew they could never afford. But revelations from banking insiders themselves reveal a different story, one where banks played the leading role in the foreclosure crisis, often preying on minority borrowers in the process.
In 2009 Wells Fargo loan officer Beth Jacobson spilled the beans spelling out how she and her co-workers systematically singled out African-Americans in Baltimore and suburban Maryland for high interest subprime mortgages.
According to the NY Times,
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.”
Recently, former banker James Theckston relayed a similar story of predatory lending at Chase. As regional vice president for Chase Home Finance he recalls how employees intentionally lured minority buyers into more costly and risky subprime mortgages.
“…… some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.
These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.”
According to the Center for Responsible Lending, African-Americans with good credit scores were not only more likely to be offered high-risk subprime mortgages, but once they fell behind on mortgage payments they were foreclosed on at rates twice as high as white borrowers.
The resulting mortgage crisis gutted African-American communities. In fact, The Center for Responsible Lender estimates a minimum of $194 billion in wealth will have been wiped out from black communities as a result of mortgage foreclosures.
Some communities are fighting back. The City of Memphis brought suit against Wells Fargo asserting the bank intentionally led minorities toward loan products that led to foreclosures. The bank’s foreclosure rate in predominantly black neighborhoods, according to the city, was almost seven times greater than rates in predominantly white neighborhoods.
But the damage may have already been done. The loss of housing wealth has blown open the black white wealth gap to record levels. According to 2009 data, the Pew Research Center estimates that for every dollar of wealth held by the typical white household, the typical black household holds just five cents.
Photo Credit: Jeff Turner (flickr)
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