Black Americans were unequally issued loans on unfavorable terms during the sub-prime loan bonanza that prefigured the housing crisis and are still suffering in its aftermath, a new report from the American Civil Liberties Union has found.
The resulting economic downturn has adversely affected them to a much greater degree than white homeowners, said the ACLU’s Rachel Goodman, who said the findings suggest banks knowingly preyed on black mortgage-seekers when it came to issuing sub-prime mortgages.
“Race must have been a factor somewhere in the decision-making, because it otherwise doesn’t make a lot of sense,” Goodman said. Goodman pointed out that the report differs significantly from other studies of wealth by race, in that it compares people who are all homeowners and thus presumably fit some definition of “middle class”.
Goodman said the black families in the study, which surveyed 3,000 households (741 of them black), had been subjected to “redlining” – denying or charging more for necessary services – loans to people in historically black neighborhoods, which made the residents of those neighborhoods particularly susceptible to predation by fly-by-night mortgage outfits pushing sub-prime loans so they could turn them around on the then-booming secondary market.
“Traditional banks are less likely to be set up and pushing better credit options to those families,” Goodman said. “It’s just taking advantage of a kind of vacuum.”
The report’s executive summary cited the US Department of Housing and Urban Development (HUD) on the topic, observing that the disparity between mortgage holders varied dramatically by race and had seemingly nothing to do with wealth.
“Borrowers in upper-income black neighborhoods were twice as likely as homeowners in low-income white neighborhoods to refinance with a sub-prime loan,” the HUD report said.
The ACLU doesn’t have specific policy recommendations out of the report, but Goodman did say that some loan market regulation currently being pushed back against by the banks had the potential to help black borrowers. The Qualified Mortgage (QM) standard, a part of the Mortgage Reform and Anti-Predatory Lending Act (a section of the Dodd-Frank Act) sets a high bar for a mortgage that can be turned around and made into part of a security the way sub-prime loans were before the crisis.
Bankers have said specifically that this will keep them from lending to black and Hispanic loan-seekers, since those people have been disproportionately affected by the housing crisis and now have lower incomes.
Goodman isn’t convinced. “We think that’s a really false argument,” she said. It’s only onerous to issue loans to poor people if you insist on terms those borrowers can never meet. “It’s not that it’s impossible to issue safe loans, it’s that if you are invested in taking shortcuts, maybe this is a little difficult.”
