Racial patterns among banks reveal bias against minorities for subprime loans, refinances and foreclosures
Mortgage lenders large and small have been hauled into court to answer for saddling borrowers with illegal or discriminatory loan terms during the height of the subprime mortgage frenzy.
Cases have been filed by individual borrowers, in class actions, and in lawsuits filed by municipalities and state attorneys general.
Bank of America lawsuits
To settle a series of lawsuits filed by 11 states, Bank of America, which had recently purchased Countrywide Financial Corporation (a large subprime lender), agreed to set aside over $8 billion to provide a range of relief to borrowers, including rewriting hundreds of thousands of Countrywide’s subprime loans.
Many homeowners are using a little known DIY tactic guaranteed to stop the foreclosure process in less than a day to buy some time up to several months to work out a solution
Wells Fargo lawsuit
The City of Baltimore filed suit against Wells Fargo, alleging racial patterns in the bank’s lending in that city, and the Attorney General of Illinois recently filed a similar suit, also against Wells Fargo, for alleged racial patterns in lending in that state.
Affidavits in the Baltimore litigation alleged that Wells Fargo officials referred to borrowers of color as “mud people” and subprime loans as “ghetto loans.”
African-Americans were nearly twice as likely to receive subprime loans as whites of similar income
These and other suits alleging discrimination in subprime lending point out that subprime lending often fell along racial lines. In fact, a Federal Reserve study of subprime lending in 2006, which controlled for many factors including income, found that African-Americans were nearly twice as likely to receive subprime loans as whites of similar income (see graph).
Even worse, a recent New York Times study of subprime lending in the NY metropolitan region showed that middle-income African-Americans were five times more likely to receive subprime loans as white borrowers of similar or even lower income.
While these lawsuits are growing in number, and beginning to yield some wins, much more could be done, and recent bank practices around foreclosures and loan refinancing certainly give cause for concern.
Massachusetts banks were more than twice as likely to foreclose on the mortgages of African-Americans compared to those of whites
Indeed, racial patterns appear to be replicating themselves in decisions to foreclose or refinance. As shown by the graph below, research by the Federal Reserve Bank of Boston showed that as of 2007, banks holding mortgages in Massachusetts were more than twice as likely to foreclose on the mortgages of African-Americans compared to those of whites.
Alarming patterns have also emerged in the decision to approve or reject refinance applications. Lending data from 2008 reveal a growing denial rate for African-Americans seeking to refinance their mortgages at the same time that rate is actually declining for whites.
The Obama Administration should use all of the tools at its disposal to pressure banks to modify more mortgages and lower the foreclosure rate. Litigation is a powerful tool that, to date, the federal government has largely hesitated to wield. It’s high time it started.
Source: http://www.huffingtonpost.com/ray-brescia/totally-mod-forcing-banks_b_377267.html
In the meantime, while the government gets around to being more aggressive with these egregious banks…
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