It’s getting increasingly more difficult for me to sit and listen to supposedly knowledgeable people as they try to blame the entire Wall Street financial crisis on black people and their "mishandling" of subprime mortgages. Sometimes the uninformed "experts" can be heard irresponsibly “running their mouths” on network and cable news shows; sometimes they even have the temerity to present their unsubstantiated claims “live and in color.” Almost always, their faulty logic in this matter goes unchallenged and they’re allowed to move right along with the rest of their presentation as if it really could be possible that black people, the most consistently marginalized players in the history of the U.S. economy, actually have the capacity to do unilateral, structural damage to America’s financial centers.
Just this past week, for example, I attended a presentation by an influential local business group, here in town, and the opening speaker, in attempting to explain how the Wall Street financial crisis began, said that one of the primary problems for the U.S. economy was that bankers and mortgage lenders had mistakenly stopped the practice of “red-lining,” in recent years, which led to unqualified minority borrowers receiving mortgage loans, to the detriment of the entire economy.
Seriously... that’s what he said.
He went on to say that when the nation’s banks began making loans in previously “red-lined” communities (i.e., minority neighborhoods), they set off a series of financial occurrences that led to the current crisis.
When historians look back on the 2008 U.S. financial crisis, they will undoubtedly have much to say about mortgage foreclosures, the decline of the U.S. auto industry, the failure of the five largest investment banks, the loss of 401(K) and pension funds, run-away unemployment, “off-shoring” of jobs and the so-called $700 billion “Bail-out."
What they won't discuss very much, as they tend not to do, even now, is how the pattern of unrelenting greed drove bankers, mortgage lenders, and consumer finance companies to create residential and consumer credit agreements that were so blatantly abusive that they “killed the golden goose" of the consumer-driven, credit-based economy in this country.
The new mortgage agreements now had to include “adjustable rates,” with interest payments that would increase, over time, making them more and more appealing to lenders and investors, but impossible to repay for a significant percentage of borrowers – black or white. Here’s how bad it is: According to the Mortgage Bankers Association, nine percent of the nation’s home owners are either behind in their mortgage payments, or in foreclosure. The biggest scam running is the one that tries to present the banks as having been involved in a grand social experiment to improve access to home ownership by minorities. According to Saara Nifici of the Neighborhood Economic Advocacy Project of New York, lenders who structured abusive high-interest, adjustable rate loans targeted those loans disproportionately to black and Hispanic borrowers.
In fact, the city of Baltimore has gone so far as to file a federal law suit against Wells Fargo Bank, accusing the institution of intentionally selling high- interest-rate, unfairly priced mortgages, more to blacks, regardless of their credit rating, than to whites, an outright violation of federal law.
According to the Atlanta Journal and Constitution, in 2007, 41 percent of blacks earning more than $100,000 a year were steered into a subprime mortgage, as compared to just seven percent of whites in the same income category.
Another blatant example of how even middle class blacks were targeted by greedy, unscrupulous lenders is what happened in Prince George’s County, a predominantly black, middle- and upper-middle income suburb of Washington DC. About 43 percent of Prince George's County residents, who refinanced their homes in 2005, received high-cost loans, as compared to 24 percent of homeowners in other parts of the region. Even in the most affluent parts of Prince George's County, 34 percent of homeowners who bought or refinanced a home received high-interest loans in 2005, compared with 4.5 percent of residents in majority-white Northwest Washington, where residents have virtually the same income levels.
Subprime mortgages carry an interest rate that is typically 300 basis points higher than market rate mortgages. Here's the short version of how it happens: Lenders make more money when they classify a borrower – regardless of income or credit history – as “subprime” and so, in pursuit of the greatest possible yield on their mortgages, they placed unsuspecting blacks in subprime categories, forcing them to pay substantially more than similarly educated, similarly employed whites – right up to the point when the adjustable rates in their mortgage agreements rose so high they could no longer afford to pay. As a direct result of these tactics, today, Prince George's County has the highest foreclosure rate in the state of Maryland. This has occurred despite the fact that a 2005 study by a credit rating agency found that residents of the county had credit scores that were, on average, higher than the state average and that Maryland's average credit scores ranked higher than the national average.
Despite all of that, the terrible truth, if anyone on Wall Street, in the mainstream media, or in Washington DC really wants to know, is that the four states in the country with the highest foreclosure rates are Nevada (7.9 percent black population), California (6.7 black population), Florida (15.8 percent), and Arizona (3.8 percent black population). In fact, Utah, which ranks ninth among the 50 states with the highest state foreclosure rates, has just a one percent black population.
It appears that despite aggressive steering of blacks into high-cost and subprime mortgage packages, the black community has had less impact on the current mortgage debacle than mainstream real estate speculators. Accordingly, the Mortgage Bankers Association reported, in June 2007, that the national foreclosure rate would have been well below the average of the last ten years if not for “special circumstances” in Florida and several other states. The Association went on to conclude that “...foreclosures in Florida, Nevada, California, and Arizona (the four states in the country with the highest concentration of foreclosures), are heavily influences by speculators who are walking away from properties, now that home prices are starting to fall." In the same report, the Association pointed out that Nevada has the highest share of investor-owned defaults, followed by Arizona, Florida, and California. Maybe I'm crazy, but, with all of this information, it sure looks like a "stretch" to try to pin the blame for the deterioration of the U.S economy on black folks, even if many of them actually were "tricked" into subprime loan agreements, regardless of their income or credit standing,
Even as we begin to isolate the factors that actually contributed most directly to the mortgage crisis, we still have not factored in what may be, potentially, an even greater negative impact on the national economy, i.e., the looming specter of the $2.6 trillion in increasingly delinquent, also abusively structured, U.S. consumer debt, which dwarfs the $1.3 trillion of outstanding subprime mortgages.
All of these issues were, of course, supposed to be managed by the "best and brightest" minds on Wall Street and in the commercial banking industry. And, up to now, most of us actually believed that those people were smart enough to ensure that nothing would go terribly wrong.
I don't know about you, but I began to get a little nervous about their ability to figure all of this out when I heard them try to blame all of the country's current economic problems on black people.
Seems like they could have come up with a better story.
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