TheLoop21.com

By: Devona Walker (Add to your loop)
Mon, 06/08/2009 - 14:15

Wells Fargo is accused of targeting blacks for subprime loans.

Many continue to blame minorities for the economic crisis, but according to some loan officers who are taking part in just one of many lawsuits against some of the nation's leading banks, those lenders were intentionally targeting minorities.

The loan officers say the banks were engaged in a sort of reversed or re-vamped redlining, where black folks were intentionally targeted in their most sacred place, the church. The loan officers say the banks disregarded decent credit scores and relatively high wages and intentionally sold black and Latino families the most expensive subprime loans on the market. It was these racist practices, not the irresponsibility of minorities, that has brought down many communities leaving entire city blocks vacant. It has also threatened entire cities such as Detroit or Prince Georges County, Maryland — historically one of the most affluent black communities in the country. In fact, Baltimore, another community adversely affected by subprime lending is also suing the banks.

But unfortunately this story is being told only due to lawsuits. It should be told due to a federal criminal inquiry. While the left parades around talking about a truth commission into the Bush administration's treatment of torture detainees, no one is yet campaigning for a criminal investigation into the banks. 

Beth Jacobson, a former national loan officer for Wells Fargo, said her former employer 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,”  according to the New York Times.

She said loan officers pushed families who could have qualified for prime loans (those with lower interest rates) into subprime mortgages. Another loan officer furthered her remarks in a recent affidavit by saying employees at the bank frequently referred to blacks as "mud people" and to subprime lending as “ghetto loans.”

“We just went right after them,” Jacobson said in the New York Times article. “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.”

Back in the 1980s, some of you might be aware, the banks had a slightly different way of treating its black customers. It was called redlining, an arbitrary refusal to provide financial services or limited financial services to specific neighborhoods, generally because they were either comprised of poorer people or people of color. 

The banks usually allowed blacks and Latinos to have checking accounts and whatnot, services that carried very little risk. But when it came to mortgage or commercial lending, they just denied the loan across the board. This practice goes a long way toward explaining why there were such low home ownership rates among minorities for such a long period of time. The practice was, in fact, an institutional holdover from the original Home Owner’s Loan Corporation back in the 1930s. Back when Roosevelt instituted the New Deal, the banks and insurance industries came up with the idea of color-coding maps of American cities as a way of using racial criteria to categorize lending and insurance risks. New, affluent and racially homogeneous (white) housing areas received green lines while black and poor white neighborhoods were often circumscribed by red lines denoting undesirability. 

Redlining had a very destructive effect on these communities. Without bank loans or insurances, it was nearly impossible for minorities to invest in their own communities, and in many cases their own property. Community redevelopment was nearly impossible even if there was a willing investor. Subsequently, we have entire communities peppered by dilapidated homes, gutted out store fronts and vacant buildings simply because the banks were unwilling to do business there.

These practices went unchecked until the 1960s. Then, the government passed the Fair Housing Act of 1968, which prohibited discrimination in housing. Later, it passed the Home Mortgage Disclosure Act of 1975, which required the release of data on bank lending. But, still the practice continued until the 1990s when the banking industry faced a litany of legal challenges. 

Back in the 1990s, the banks vowed to end these practices and remove discriminatory policies and procedures. But it was also around that time that former President Bill Clinton deregulated the industry. So, there was really no way of making sure the banks did anything they were supposed to do. Consequently, we had the emergence of the subprime lending market, a repackaging of redlining, just another means of discriminating and exploiting minorities.

"What is going on now, its the same thing. In certain areas, the banks have said, 'we will sell you this product, we will finance your home, but here are the terms," said Hilary Shelton, Vice President for advocacy and director to the NAACP’s Washington Bureau. "You will pay higher interest rates. You will pay higher fees. You will have this exploding ARM. Then, overtime, we will take away the escrow and you will have to pay out-of-pocket for insurance...  There is a legitimate role for subprime loans but some of the packages that were being offered, were packages that weren’t intended for this clientele. They were packages for people who were going to see a significant growth in income, but it didn't make sense for a working class Joe is on a fixed salary.”

The government knew, but did nothing

But Shelton also said roughly three years ago, they saw this all coming. They testified before Congress. They spoke directly to  Ben Bernanke,Chairman of the Federal Reserve System, warning him of the depth of mortgage lending abuses that were plaguing the black community. But back then, those warnings fell on deaf ears.

“He said he understands. He said he appreciates the issue. We pointed out to him that African Americans are often the canary in the coal mine for these sort of things, and that it was going to affect many American communities," Shelton said. "But it was not his intention to do anything. It was his intention to let the market work it out."

It’s a problem we experience time and time again. If it happens in the African American community, it’s like what do you expect to happen in the African American community... You have people who are sometimes in power who unfortunately do not see the importance of doing something about it,” Shelton added.

Back in 2001, the Center for Responsible Lending estimated predatory mortgage lending cost consumers $9.1 billion every year. Since then, the subprime market has literally exploded and the total cost of all these bad lending practices has become incalculable, according to the center.

"Was there some type of conspiracy to drive the African American community into some kind of economic tragedy, I don’t know," said Shelton, adding that he doubts that the banks were intentionally trying to destroy black communities. But he did say regardless of their intentions, their actions were clearly in violation of the law."

"I think you have some very greedy people who hoisted these mortgages on African Americans," Shelton said. "Absolutely it was illegal, when you target people because of their race, in this case intentionally defrauding communities of color."

Why we should be pushing for a criminal investigation

In the case of Wall Street, Wells Fargo or CitiBank, one thing is very clear: They will not learn their lesson. A few weeks ago, Congress and President Barack Obama went after the credit card industry, pushing for less abusive policies. Within the next few days, it was already being reported that those credit card agencies, essentially banks, were planning to recoup the money they made from charging excessive fees by raising fees on other customers. Back in the 1990s, when the banks took a hit on redlining, they simply fabricated subprime loans as another means to exploit people of color. Just last year, when they had to be rescued from a mess entirely of their own making by the taxpayer-funded TARP, they extended milion dollar bonuses to the same executives who were engaged in the most destructive practices. 

The only thing that means anything in this country is denying banks who engaged in predatory lending, who clearly developed programs to steer minorities into high-risk loans, of taxpayer funds. The only solution to the banks is to file criminal charges in whoever developed the policies. It's fraud clear and simple. It's a civil rights violation clear and simple. Nothing we have done yet will send a clear enough message to the banks that their actions will no longer be tolerated.

Somebody, most likely many of them, needs to do a perp walk soon.

Devona Walker is TheLoop21.com's senior reporter/blogger.

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