“Well we’re moving on up to the Eastside to a deluxe apartment in the sky. Well, we’re moving on up to the Eastside, we finally got a piece of the pie,” are the lyrics of the theme song of the Jeffersons, a popular 1970’s television sitcom about a successful, noveau riche Black couple who were living the good life in New York City. Because of racial discrimination, Blacks’ opportunity to advance to middleclass status was severely and unconscionably limited prior to 1961. As a result, most were trapped in poor neighborhoods; living in housing that was below national standards. White homeowners in nicer communities refused to sell their homes to Blacks. Realtors were instructed not to show homes in those neighborhoods to Blacks. In addition, banks were niggardly when it came to financing for such transactions.
That all began to change in1962. President John Kennedy issued an executive order aimed at ending racial discrimination in housing. This enabled Blacks to begin purchasing homes in the white suburbs. The civil rights movement sparked another government push to promote home ownership for Blacks and Hispanics by providing some protection from discriminatory financial practices. Just as the fictitious Jeffersons attained middleclass status, so did a few Blacks. The new laws enabled them to move into better housing, and an emerging post-civil rights Black middleclass began taking their pieces of the pie through homeownership. Blacks were moving on up! Still, the white middleclass is far wealthier than the Black middleclass.
The acclaimed actor, Sherman Hensley, who portrayed the character George Jefferson died while this article was being written. He will be missed. But thirty-five years since George Jefferson “became a significant cultural touchstone….he apparently didn’t start a trend” in New York City. According to the New York Times, the proportion of white residents on the Upper Eastside of Manhattan still hovers above 80 percent.
Nonetheless, homeownership was crucial to the rise of the Black middleclass, and became, more so than whites, the prime mechanism for the accumulation of wealth. During the manufactured subprime mortgage crisis, it was discovered that the banks and mortgage companies stole what little wealth Blacks had attained through illegal predatory and discriminatory lending practices. The Black middleclass was decimated, and will unlikely recover for generations to come. Worst still, the banks got away with it.
Prince George’s County, Maryland, a suburb of Washington, D.C., is a prime example of the Black quest for home ownership and the havoc crooked mortgage lenders wrought on the Black community. For decades, Prince George’s was an overwhelmingly white, segregated community. When the government started enforcing equal housing laws in the 1970’s, Black families began a steady migration to the county from the District of Columbia and all around the country; earning it the distinction of being the “first American county where income and education levels rose as the area turned majority Black.” It became, and remains the richest, most educated Black county in America.
By the 1990’s, Blacks had bought up most of the county’s existing housing stock, triggering a building boom. Out of state developers cleared woodlands, and purchased farmland in every corner of the county and neighboring counties to construct sprawling new housing complexes, ranging from rental apartments, to clusters of condominium units and single family homes. A disproportionately greater number of large upscale single family homes and McMansions were built…with price tags well over a million dollars. In fact, the southern part of the county became so saturated with communities of large homes; the county government enacted a moratorium on construction of those homes because residential home growth had outpaced road improvements. Without a check on residential construction, it was also feared that fire and police emergency response times would be adversely affected.
The housing market in the county boomed in the first half of 2000. Developers quickly sold homes in every price range, often before construction started, to school teachers, bus drivers, mid-level government workers and others, even though it was apparent, at least to some observers, that the purchases were beyond their financial means. Financially qualified minority homebuyers with good credit ratings and less credit worthy ones, not just in Prince George’s, but in Black and Hispanic communities around the country, were more likely than whites to be targeted and steered into nontraditional exotic mortgages by dishonest brokers and lenders.
Predatory lending, defined as “unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender.” Subprime mortgages generally involved only paying the interest on the loan with payment on the principal deferred to a later date. The interest rate on those mortgages was fixed for the first two to five years, before converting to a conventional loan with a substantially higher monthly payment. Buyers were told they could sell the home or secure refinancing for a conventional mortgage at a lower interest rate. They trusted their broker, gambled and lost. Homeowners were unaware that the bet was riskier then brokers led them to believe. If housing prices took a downturn, they wouldn’t have enough equity to refinance; the mortgage amount would be higher than the home’s market value. The intentional downturn happened, and homeowners were stuck in a no-win situation. They could not refinance or sell the property because their mortgage was more than the house was worth; sticking millions of homeowners with mortgage payment they could not afford.
The housing bubble burst in 2006, and prices declined. The situation was aggravated by the recession that began in 2007; the longest and deepest in the post-World War II era. There was a steep decline in output, consumption and investment. Many homeowners, particularly Blacks, lost their jobs, and were unable to continue paying their mortgages or sell the property. Defaults and foreclosures proliferated. Indeed, the dramatic rise in foreclosure rates led to the crisis in 2008. The U.S. Treasury Secretary described it as the most significant risk to our economy. Housing prices reached new lows in 2012. Although Black homeownership rates have historically been well below that of whites (46% for Blacks and 74% for whites), it increased by 25.6 percent between 1993 and 2006. This percentage fell precipitously after it peaked in 2006, making Blacks twice as likely to be foreclosed on than whites.
While home equity constitutes the largest share of all American households’ net worth, this asset represented a greatest share of wealth for Blacks than whites and Hispanics to the point that just about everything Black families had was tied up in their homes. With the loss of so many homes to foreclosure, by 2010, twenty-four percent of Black households had no capital or assets other than their car; marginalized economically with the typical net worth of just $2,200 as opposed to white family net worth of $140,700. During that same year, the median Black income compared to whites dropped to 12 cents to the dollar. Thus, the once promising rise of the Black middleclass was reversed, and nearly every economic gain made in the past 30 years evaporated. Given the depth of the decline in Black economic fortunes, the prospect for recovery is bleak for many generations to come or possibly forever if not aggressively addressed. In view of the history of the U.S. towards its black citizens, this may never happen.
It has been argued that conspicuous consumption, not necessarily anything lenders did improperly, caused this unfortunate situation. This contention blames the victim, and downright disregards the responsible parties for the collapse of black wealth. Certainly, some buyers bought homes they could not afford, gambling that they could refinance or sell the property if it became necessary. This is especially true for those who yielded to the temptation to buy large, expensive homes that exceeded their means, just to appear more prosperous than they actually were. But, the vast majority of families simply sought to live in decent housing. Regardless the motivation, mortgage lenders perpetrated financial entrapment by unfairly playing on perspective minority homebuyers’ natural desire to live the American dream of owning a nice house with a white picket fence. Unscrupulous lenders criminally targeted and lured them to do so by offering too good to be true financing schemes. In the process, Black and Hispanic home buyers became unwitting victims of the unlawful pattern and practice of mortgage lending.
Minority homebuyers that had the income and credit rating to qualify for prime mortgages, on the other hand, were also discriminated against by lenders. They were calculatedly and routinely steered into subprime mortgages, whereas similarly qualified whites received prime mortgages.
The nation’s banks are crooks. In 2013, at the time this article was written, twelve of the largest banks in the United States were under investigation for just about every type of fraud imaginable. Wells Fargo, the nation’s largest home mortgage originator, for example, was fighting in courts around the country accusations of a myriad of financial frauds too numerous to list here. Wells Fargo is the corporate equivalent to Jessie James, if the complaints made against it are proven meritorious. The difference between bank robbers and big banks is that robbers are hunted down, criminally prosecuted and thrown in the hoosegow when convicted. Big banks like Wells Fargo, conversely, are obviously immune from criminal prosecution. Instead of facing criminal charges for illegally pushing minority borrowers toward subprime loans and falsifying loan documents that exaggerated their incomes to qualify for loans they otherwise have been able to afford, the Federal Reserve filed a civil complaint against it. In 2011, the bank agreed to settle the lawsuit, without being required to admit guilt, for an $85 million fine. A pittance.
Exactly one year later, Wells Fargo agreed to pay $175 million to settle a U.S. Justice Department civil lawsuit that complained the bank engaged in a pattern and practice in its mortgage lending that discriminated against qualified Blacks and Hispanics between 2004 and 2009. Although the bank denied the allegation, the evidence that it discriminated against minorities was overwhelming. A Justice Department investigation, according to the New York Times, found that “mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk…” The complaint alleged that qualified Black borrowers nationwide were 2.9 times more likely to be steered into a subprime ghetto loan, than white borrowers who were similarly creditworthy. The mortgages carried higher interest rates and on average substantially increased the interest payment by $100,000.
The most glaring of the many problems with the settlement is that only 30,000 homeowners were eligible for compensation from $125 million of the settlement. Hundreds of thousands were victimized. Borrowers steered to subprime mortgages were to receive an average of $15,000, while between $1,000 and $3,000 will be given to borrowers that were overcharged fees. The $50 million balance of the settlement will be used for down payment assistance to homebuyers who lost their homes to foreclosure or for home improvement. Fifty million dollars doesn’t approach the amount of down payment assistance the displaced homeowners would need to purchase a new home. The sad reality is that in America Black families cannot expect proper redress.
While not admitting wrongdoing, the bank attempted to shift the blame to independent brokers it used to place mortgages. That defense was unpersuasive. Its basic credit guidelines gave them discretion and a financial incentive to charge minorities higher interest rates and fees for the less attractive loans.
Compare this to the 2012, prosecution of Tommy Wells, a Black D.C. councilman who was criminally prosecuted, and pled guilty to a federal charge of falsely inflating his income on a bank loan application to qualify for a home equity loan. No allegation was made that he provided false information with the intent of defrauding the bank. He made timely payments on the mortgage. Nevertheless, he was sentenced to a lengthy prison term, whereas, Banks that engaged in the massive falsification of the incomes of tens of thousands, if not millions of borrowers, dwarfed that of the hapless councilman in terms of criminality, yet he is doing time while the bank gets to pay a de minimus civil fine. This shows the hypocrisy of the Obama Justice Department.
This doesn’t deter a Justice Department spokesman to proudly trumpet that the settlement with Wells Fargo provided “swift and meaningful relief” for homeowner victims, and asserted that this “makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination.” Given the enormity of illegal gains Wells Fargo made off the backs of millions of minority homeowners and the utter destruction it has wrought on the economic security of the Black community, the settlement was hollow. The $175 billion payment amounts to a slap on the wrist. Wells Fargo’s net worth is so vast and various, analysis find it difficult to accurately determine its true value; which is conservatively estimated at $230 billion in assets. The combined 2011 and 2012 settlements, totaling $260 million, is a paltry one hundredth (0.001%) percent of its value.
Families lost their homes, and for those lucky enough to be included in the settlement, the compensation offered was woefully inadequate. The vast majority of affected homeowners was excluded and received absolutely nothing. This is in no way can be rationally considered swift and meaningful. There is no doubt that Wells Fargo willfully and maliciously defrauded minority homebuyers. In a fair and just system, they are certainly entitled to compensation far in excess of actual damages. The settlements were shams.
The Justice Department and other government agencies justified their resort to civil enforcement actions instead of criminal prosecutions. They declared it was because they were outgunned and don’t have the financial resources of multibillion dollar companies to successfully prosecute corporate wrongdoers. That’s poppycock! The government has the resources to wage war in all corners of the world. Why won’t it divert some of that money to fight bank corruption? If just one bank and its executive officers engaged in criminal activity are prosecuted to the fullest extent of the law, instead of being made to pay a fine, the other banks would get the message that they can no longer get away with cheating customers. The problem is not a lack of resources, but a failure of political will and courage to hold banks fully accountable for criminal behavior. Absent this, the banks will continue to rob and plunder with impunity as has been allowed by the federal government.
The aggrieved African American homeowners did not benefit in a consequential way. Every American homeowner, especially Black families who were disproportionately impacted more than whites by the nefarious and illegal activities of the banks, should have gotten their homes back or given another one free of charge from the $16 trillion of taxpayer money the Federal Reserve surreptitiously funneled to the banks; or at a minimum financed with conventional mortgages at a low interest rate. That would have been fair and just.