by Ajmel Quereshi, Assistant Counsel at the NAACP Legal Defense and Educational Fund
On Election Day, the Supreme Court will hear argument in a highly consequential case about lending discrimination and the subprime mortgage crisis. In this case, the City of Miami is trying to hold Wells Fargo and Bank of America accountable for well-documented deceptive, predatory lending practices. However, the banks, in an attempt to evade liability, are arguing that cities cannot seek relief from them for violations of the Fair Housing Act.
Wells Fargo has, of course, recently been in the news for secretly creating as many as 2 million unauthorized loan accounts in response to the company’s loan quotas, prompting investigations by the Department of Justice and even a Saturday Night Live sketch. But the misconduct at issue in the case before the Supreme Court runs far deeper than that: as has been well-documented, several regional and national banks targeted African American communities for deceptive, predatory loans in the lead up to the financial crisis of 2008. One of the most common types of loans used was the predatory subprime mortgage. Subprime mortgages were directed at communities that had been historically denied credit and included hidden fees, undisclosed costs, and masked terms that resulted in ballooning interest rates.
In the run-up to the financial crisis, these deceptive and predatory loans proliferated exponentially. In the five years between 1994 and 1999, the subprime mortgage market expanded from $35 billion to $160 billion, and by 2007, totaled approximately $650 billion, roughly 25 percent of the overall mortgage market. A strong undercurrent of prejudice was unmistakable in these predatory lending practices. By 2008, 55 percent of African American mortgage holders nationwide had high-risk, subprime loans, compared with only 17 percent of white mortgage holders. According to a loan officer’s affidavit, lenders used racial slurs in characterizing subprime loans to African Americans, who they referred to as “mud people” receiving “ghetto loans.”
Accordingly, when these predatory loans all came crashing down, the damage was predictably severe for communities of color. High-risk subprime loans originated between 1999 and 2007 cost borrowers of color collectively between $164 billion and $213 billion. Between 2005 and 2009, a staggering two-thirds of median household wealth in communities of color was wiped out. Waves of foreclosures pushed families out of their homes, causing lasting damage to neighborhoods and livelihoods, depressing property values, and suppressing tax revenues. In cities like Miami, the damage and harm was compounded: reduced tax revenue reduced basic services available to residents. The lost tax revenue also negatively impacted municipal efforts to combat housing discrimination and foster integration.