• A.J. Manuzzi

The Big Banks’ War on Black and Latinx Homeownership Never Ended

The murder of George Floyd by officers of the Minneapolis Police Department laid bare the city’s and the country’s failure to reckon with the realities of institutionalized racism in core components of American life. In Minneapolis itself, unrelenting activists have challenged the inherent racism embedded in a municipal criminal justice system headed by police officers who overwhelmingly do not reside in the city itself (just six percent of MPD officers live in the city, compared to the average of 40 percent among the 75 largest American police forces) and are dramatically less diverse than the city they are supposed to serve. Of course, the racism of the American criminal justice system is not exclusive to Minnesota, but rather instrumental to the very identity of the world’s largest carceral state masquerading as a global superpower under a white robe with a pointy top, a mere component of a national nucleus of countless cynical, calculated public policies meant to economically and socially suppress people of color while diluting what little political power the system ever afforded them in the first place.

For various measures of future social welfare, it has become clear that, despite the enduring mythology of the American Dream, there is no more powerful statistical determinant than ZIP code. A child born and raised in some zip codes located in Baltimore, for example, is less likely than a child born and raised in Wellesley, Massachusetts to, among other things, obtain a college degree, earn more than their parents did, and live to the age of 70. It’s not the water in Wellesley that drives these outcomes, but rather a century of de jure and de facto housing segregation and predatory lending that continues to this present day.

Since World War II, the most direct and conventional way for American families to build wealth has been through homeownership. Yet for millions of Americans, this burgeoning pathway to the middle class was not available on the sheer basis of the color of their skin. Between the 1930s and 1960s, Black Americans, even as the military was desegregated and legal school segregation was struck down in Brown v. Board of Education, were systematically excluded from the home mortgage market by legal and extralegal means, even as white American soldiers came home to the G.I. Bill and dirt cheap mortgages that inspired great nationwide prosperity. As Ta-Nehisi Coates recounts in his masterful “The Case for Reparations,” militant white Americans in both the North and the South utilized every method—from restrictive covenants to outright bombings—to keep their neighborhoods segregated.

In the Midwest’s largest city, racist whites in the Hyde Park neighborhood that surrounds the University of Chicago bombed the home of one wealthy Black businessman six separate times while the same white mobs beat Black neighbors with bricks and pipes in the streets, shielded from arrest by white police officers. Not satisfied with merely waging civil war against their fellow Chicagoans, the city’s white politicians and real estate agents sought to enshrine their racism into the legal and social institutions of the city via the Chicago Real Estate Board’s 1927 restrictive covenant strongly discouraging white homeowners from selling to nonwhite people as to avoid lowering the value of their properties. By 1937, racist covenants such as these governed roughly three quarters of Chicago’s residential property, as well as the suburbs of Park Ridge, Skokie, and Evanston. Skokie would not accept a single Black family until 1961, and not coincidentally, when the Jewish and Black population began to grow, neo-Nazis marched in the streets. These covenants were upheld by local judges and politicians until the U.S. Supreme Court struck them down in 1948’s Shelley v. Kraemer.

But racist covenants were neither the most popular nor most destructive form of suppressing Black homeownership and wealth from the post-Depression to post-WWII period. The federal government served as a guarantor for pro-segregation whites when the Federal Housing Authority (FHA), which insured private mortgages, forged a racist system to rate neighborhoods on the basis of stability. A-rated “in demand” neighborhoods were marked in green and were considered good prospects for insurance because they lacked Black or immigrant homeowners. Predominantly Black neighborhoods regardless of socioeconomic status or any other non-racial factor were rated “D” and indicated in red, ineligible for FHA assistance and giving name to this phenomenon of systematic racial exclusion: redlining.

As such, a two-tiered system developed for white Americans and Black Americans in search of the American Dream. While white Americans could count on a consistent, favorable, and legitimate credit system backed by the federal government, Black Americans were denied access to that system on account of their race and were instead steered to shady, predatory lenders who exploited them in a myriad of methods, from lying about their properties’ compliance with city regulations, then sticking the buyers with the liability for their oversights to steering complainants to shady lawyers who were in cahoots with the lenders themselves. Chief among these were contract sellers, or speculators who bought up homes on the cheap by scaring whites into believing people of color were moving into their neighborhoods and then resold them to people of color at a markup. These contract sellers refused to issue mortgages and stuck families delinquent on even a single contract payment with eviction and the loss of their original down payment on the home. Thanks to these predatory policies, while white homeownership more than doubled during this time period, Black Americans found themselves increasingly segregated and stripped of their wealth and opportunity.

The 1965 establishment of the Department of Housing and Urban Development, the 1968 Fair Housing Act, and the 1977 Community Reinvestment Act sought to end these ridiculous and discriminatory schemes, banning government ‘redlining’ and segregation and promoting fair access to the financial system for low and moderate income families of color, as well as the disabled. In eliminating the most blatant acts of housing discrimination and upending segregation at its core, these laws deserve credit for their various successes. Yet the growing banking industry concocted new schemes. New “Too Big to Fail” banks, as Rep. Stewart McKinney would anoint them in a 1984 congressional hearing, leveraged their size to their advantage, doubling down on speculation knowing the government would bail them out even if the risks they took swallowed them. As Matt Stoller writes in Goliath: The 100 Year War Between Monopoly Power and Democracy, “the old boom-and-bust cycle of the robber barons had returned, but with a twist. During boom times, the private financiers would steer money into speculation and away from public priorities such as housing. But when the bust came, private bankers would turn the wheel over to the public officials. Instead of nineteenth-century bank failures, because of the regulated banking sector, there would now be twentieth-century bank bailouts.”

From this emerged a sense of growing impunity within the financial industry, as the new laws gave them plausible deniability of the fact that the racist impacts of their policies could be traced to their intentions and were not mere accidents. In the terms of civil rights litigators, the financial industry insulated itself from claims of “but-for” causation—a type of causation that implies that race is the most important factor in a decision of discrimination, thereby showing preordained animus as opposed to race being merely one of several factors.

Formal redlining may have been on the way out, but by the 1990s and early 2000s, a new crisis was in the works. A housing bubble emerged, with home prices increasing every year from the mid-1990s to 2006 but increasingly diverging from fundamentals like household income. Expectations of continued price increases became commonplace, inflating prices, reminiscent of patterns in other product bubbles. Simultaneously, the share of the mortgage market controlled by the government and government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae (which were tasked with providing liquidity to mortgage markets and ensuring that 30-year, fixed-rate mortgages would be available to all) began to decline and the private securitizations market expanded. Mortgage lending increased dramatically, with most of it being existing homeowners refinancing believing themselves to be taking advantage of low interest rates to build home equity.

Enter subprime lending.

Wall Street’s newest tool for resegregation emerged in this context, exacerbated by a Bush Administration hesitant to regulate lender behavior in favor of creating an “ownership society.” Rather than refusing to loan to Black Americans as the law now forbade, banks prided themselves on loaning to them, but did so by offering either unusually high-interest loans to people who were otherwise too risky to obtain conventional loans or by offering “adjustable rate” mortgage loans, which were initially low-interest but their rates skyrocketed over a short duration of time. Subprime mortgage lending flourished, growing from merely 8.6 percent of all mortgages to over 20 percent in just the five years preceding 2006. That is, it flourished for everyone but borrowers of subprime loans, who are, on average, eight times as likely to default as the norm borrower of less predatory loans.

Steered nominally towards middle-class families with debt and working families seeking to buy in the inflated housing market, these policies suppressed millions of Americans of color, especially Black Americans, under debt and robbed them of opportunities to build wealth through homeownership once the housing bubble burst in 2006. Though not typically understood as a moment of racial discrmination rather than a deep, protracted collective suffering, the fact that families of color were systematically hit harder by the financial crisis for a longer period of time deems it necessary. Call it “reverse redlining.”

The statistics on subprime lending and Black wealth paint a chilling picture that contradicts the way modern American history has been understood: put simply, Big Finance’s war on minority homeownership never relented, even after the civil rights reforms of the 1960s and 1970s. As far back as the pre-Great Recession days of 1993, Black Americans were five to eight times more likely to be holders of subprime loans than whites. In Buffalo, the most extreme example of the impacts of predatory lending, 75 percent of all refinance loans to Black Americans were subprime in 2000. By the beginning of the Recession itself, the Federal Reserve had determined that the financial system so targeted Black Americans that even higher-income Black Americans were four times more likely to have subprime mortgages than white Americans were. A study performed by the Furman Center at New York University additionally concluded that Black and Latinx borrowers were more likely to be offered subprime loans, regardless of credit history, income level, or any other barometer of socioeconomic status. More specifically, a lawsuit against Wells Fargo alleges that the bank employed people specifically to visit Black churches in Baltimore to market subprime loans, even as no similar program existed to market them to white communities and institutions. Much as the federal government had wished that the problem of subprime lending was confined to socioeconomic status, this revelation made clear its ugly racist core.

Formerly redlined Census tracts remained segregated due to subprime and predatory lending. Though white racists in Hyde Park no longer bombed the houses of Black people, the city remained as segregated as ever, with Chicago’s predominantly non-white South Side Census tracts some four times as likely to have subprime loans as the predominantly white North Side, in a trend that mirrored national phenomena. For example, in Census tracts where the population was at least 80 percent non-white, almost half of residents held a subprime mortgage loan compared to less than a quarter of all residents in communities where racial and ethnic minorities made up less than 10 percent of the population. Furthermore, according to the Center for Responsible Lending, borrowers living in ZIP codes where the population is majority non-white are 35 percent more likely to have mortgages with prepayment penalties than borrowers of similar socioeconomic status in ZIP codes that are less than 10 percent non-white. Given the relatively low levels of wealth held by these communities, and with an average of two-thirds of that wealth tied into home equity in these communities, prepayment penalties are disproportionately and systematically looting the savings of already structurally disadvantaged communities.

It is little wonder then that former congressman Brad Miller called the financial crisis and subprime lending “an extinction event” for the Black and Latinx middle class. Nor, as striking as the clarity of their rhetoric may be, is it much of a surprise then that the Obama Administration U.S. Department of Justice noted that, “[t]he more segregated a community of color is, the more likely it is that homeowners will face foreclosure because the lenders who peddled the most toxic loans targeted these communities.” As a result of the crisis and its aftermath, racial inequality in homeownership was exacerbated dramatically: just 46 percent of Latinos and 44 percent of Black Americans own a home compared to 73 percent of white people. As such, the racial wealth gap increased; nowadays, the average Latino household holds just 1/18 of the wealth of the average white family and the average Black household holds 1/20 of the wealth of the average white family.

But the pain imposed by government deregulation and financial industry deception reaches well beyond the mere surface of wealth and homeownership. When one’s ZIP code is as strong of an indicator of future health, wealth, and success as it is in the capitalist hellscape of America, any policy that traps a large swath of the population in a given neighborhood that is isolated from investment by racist government policies and whose schools are underfunded is due to impact every aspect of American society. To start, as researchers Atif Mian and Amir Sufi note, unemployment rates are highest in communities that had the biggest decline in housing prices and the most foreclosures. Inequality in access to financial services and the destruction of minority wealth by the banks also explain why Black Americans and Latinos are three times less likely to have a bank account than the general population. Equally dangerous is the power of financial stressors that influence non-economic conditions of life for minorities in America. Research shows that foreclosures increase suicide rates, increase the risk of health problems in impacted families, and provoke public health crises. Reverse redlining and deregulation, in short, took existing socioeconomic ills and cut off access to credit and wealth building for the most vulnerable communities to those ills, further enshrining inequality. Wall Street thrashed and looted the very concept of socioeconomic mobility, trapping vulnerable working Americans in debt only to summon the audacity to ask the federal government for a bailout paid for by Main Street’s tax dollars.

Unfortunately, legal restitution and recourse for the victims of the banks’ war on Black homeownership is woefully insufficient. As Coates notes, the Justice Department was able to successfully sue some of America’s biggest banks for housing discrimination, including Wells Fargo (who brazenly referred to their subprime loans as “ghetto loans” while targeting them to Black natives of Memphis because they were not “savvy enough” to know they were being exploited) and Bank of America. But as with almost any effort to establish accountability for the reckless and predatory actions that precipitated the financial crisis save for the Consumer Financial Protection Bureau, the vast majority of housing discrimination lawsuits against these financial institutions have recouped mere peanuts compared to the harm the institutions caused. It took until 2016 for a single bank to be found liable for reverse redlining by a federal court and cases brought by state and municipal governments such as Los Angeles have resulted most often in lax settlements. In one class-action lawsuit, the vast majority of plaintiffs received a mere $300 from a government settlement with big banks that had deceived them with unpayable loans and taken their houses from them.

Legislative fixes to subprime lending have yet to materialize. While North Carolina passed a law in the 1990s targeting lending that did not consider a borrower’s ability to pay (and ultimately reduced subprime lending in the state while it rose nationwide), a similar federal version of the bill failed to pass the Senate. Progressive state attorneys general and the creation of public, democratically accountable state banks responsible for lending at low credit, like North Dakota’s, are the absolute minimum reforms necessary to counter subprime lending.

It does not have to be like this. We do not have to live in an America where the government and Wall Street alike encourage middle and working class people to unload their savings into homeownership as soon as possible, an inherently unstable investment given recent history. We do not have to live in an America where the head of the FHA loosens mortgage standards, implicitly targeting vulnerable Black communities. At the same time, we can detach from the common narrative that privileges homeownership and puts it on a pedestal, even as it erects increasingly grand barriers to ownership for the most vulnerable and historically disadvantaged group of people in American housing policy.

Communities of color in America, especially Black Americans, have been ravaged by big banks and the lending industry in increasingly cruel and discriminatory manners. Much as how the Voting Rights Act’s ban on poll taxes and literacy tests led to racist whites enacting new discriminatory election policies like voter ID laws and gerrymandered districts, redlining has given way to reverse redlining, and it brought us the foreclosure crisis, the greatest destroyer of Black wealth in recent American history. The new racism is just as dangerous, racist, and far-reaching as the old racism, and in no other policy is that as clear as in housing. If the well-meaning and somewhat successful housing civil rights reforms of the 1960s and 1970s taught us anything, it is that addressing the racial wealth gap the banks installed is within our capacity, but only if we reimagine, rather than merely reform the lending industry.

Instead of having a tax code that privileges homeowners at the expense of renters and a Trump Justice Department that refuses to prosecute banks for reverse redlining, Americans deserve a tax code that includes a progressive renters’ tax credit for low-and middle-income families ineligible for the federal Housing Choice Voucher program, mass expansion of public housing construction, and an activist Justice Department that names, shames, and criminally punishes subprime lenders. Rather than a government that rewrites housing rules to inhibit school and housing desegregation, federal guidelines on land use and zoning should be set by a commission comprised of civil rights and environmental justice groups. Postal banking, public banks, and expanding the CRA’s jurisdiction to include non-bank mortgage lenders are commonsense ways to expand access to credit in non-white communities.

It is not enough to merely fiddle around the margins of housing policy at the expense of structural change. It is evident that big banks and their conscious decisions to take advantage of minority communities have decimated the entire civil rights project as it pertains to housing. We need to redress the persistent effects of housing discrimination where it originates: in the ivory towers of modern American finance. The era of frequent, cutthroat bank mergers must come to an end, as we must bring to an end too the practice of financial executives neglecting everyday issues like housing for speculation. The government should also adopt a down payment assistance program for people living in historically redlined neighborhoods, allowing them to utilize a federal grant towards a down payment on a home anywhere in America. This would permit thousands if not millions of Americans to buy a home- an opportunity that was denied for far too long to previous residents.

Rather than promoting “an ownership society,” housing policy should instead be targeted at building a more egalitarian society- accounting for past government failures and penalizing perpetrators of segregation. Any major federal housing initiative must invest in the rural, Latinx, and BIPOC communities that were left behind by Wall Street if it is serious about redressing the impacts of redlining and reverse redlining. But one cannot, as Lyndon Johnson put it, bring a man who has been hobbled by chains for decades to the starting line of a race and tell him he is now equal to compete with others. It is one thing to ensure more equal opportunity in the future. It is another entirely to redistribute to account for all a people were unfairly denied in the past. This is why a wealth tax, whose popularity has grown immensely since the Democratic primary, is not only proper but necessary. For too much of its history, America has asked for preciously too little from its wealthiest citizens while neglecting the racial wealth gap. As the wealth gap will persist even after Black homeownership rates increase as a result of these policies, a wealth tax will further erode the racial wealth gap.

Taken together, these ideas would represent the most radical transformation of American housing policy since the Fair Housing Act. Though not exhaustive, their adoption would shift the paradigm of American politics and bend the arc of history a few degrees back towards justice while just plainly improving the quality of life for millions of Americans. For a century, American finance declared a protracted war on Black and non-white homeownership. It is beyond time for the federal government to conjure the Great Society and declare its own war on housing segregation and inequality.

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