The nation’s foreclosure crisis has hurt the entire American economy. But we have long known that communities of color are taking the hardest hits. Black and Latino communities without equal access to affordable credit were targeted for expensive subprime loans during the housing and credit boom years. Then, as this speculative bubble came crashing down to earth, minority homeowners bore much of the brunt as these often-unaffordable loans defaulted at unacceptably high rates.
Yesterday, the Department of Justice’s Fair Lending Division announced a $175 million settlement agreement with Wells Fargo over these discriminatory subprime lending practices. In papers filed in federal court, DOJ explained how Wells Fargo brokers steered African-American and Hispanic borrowers into costly subprime mortgages – with high rates and payment hikes that could lead to “payment shock” and foreclosure – while giving prime-rate loans with affordable terms to white borrowers with the same credit scores. Wells Fargo also agreed to reimburse minority homeowners for charging excessive fees and rates compared to white homeowners – a “racial surtax” in the words of Thomas E. Perez, the Assistant Attorney General for the Civil Rights Division. The agreement was the second-largest fair lending settlement in DOJ’s history, following last year’s $335 million agreement over similar claims against Countrywide Financial Corporation.
These agreements are a step in the right direction, but much more work needs to be done. The Wells Fargo and Countrywide agreements represent just a fraction of the discriminatory lending that characterized the subprime lending boom. And $175 million may seem like a lot of money – but consider that one day later Wells Fargo announced better-than-expected quarterly results, including mortgage banking income of a whopping $2.9 billion, up 80 percent over what the bank made the previous year. Compared to those numbers, $175 million is just a drop in the bucket.
In the meantime, many communities of color are still reeling from the waves of foreclosures that resulted from these predatory practices. And unsurprisingly, the patterns of disparate treatment that characterized the discriminatory lending boom are also playing out during the current bust: the National Fair Housing Alliance recently released a report, entitled “The Banks Are Back, Our Neighborhoods Are Not,” which found ongoing discrimination in the maintenance and marketing of bank-owned foreclosed properties in minority neighborhoods.
This pattern of discriminatory lending has a long history. Starting with the New Deal, federally-sanctioned “redlining” practices denied affordable credit and investment to minority neighborhoods. The same credit-starved communities were ripe targets for “reverse redlining” and unaffordable subprime lending, as today’s settlement reminds us. It is time to break that cycle, and to make sure that the economy that emerges from today’s foreclosure crisis is built on equal opportunity for all.