Shocking News: Subprime Lenders Took Advantage of Poor People and Minorities

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Remember when conservatives tried to blame the subprime mortgage crisis on poor people and minorities? According to the conservatives’ narrative, a 1977 law called the Community Reinvestment Act caused all of our problems by encouraging the extension of credit to poor people and minorities. The problem with that argument was that the vast majority of subprime loans were made by institutions that were not subject to the CRA, and studies have shown that the act has actually increased the amount of responsible lending to poor families. Even the Federal Reserve has posted research explaining that the CRA argument is bogus.

So why, then, do we keep hearing about poor people and minorities defaulting on subprime loans? Because, as it turns out, subprime lenders didn’t need any encouragement to make predatory loans to people they thought they could easily exploit. The New York Times reports:

As she describes it, Beth Jacobson and her fellow loan officers at Wells Fargo Bank “rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages… Wells Fargo, Ms. Jacobson said in an interview, 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. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans.”

The city of Baltimore and the NAACP are among several parties suing Wells and other banks over these and similar lending practices. Wells Fargo, of course, denies the charges. But the affidavits the Times story highlights are incredibly damning. Perhaps the most disturbing allegation is that it was common practice to steer families who were eligible for prime loans into hugely more expensive subprime loans:

Loan officers employed other methods to steer clients into subprime loans, according to the affidavits. Some officers told the underwriting department that their clients, even those with good credit scores, had not wanted to provide income documentation.

“By doing this, the loan flipped from prime to subprime,” Ms. Jacobson said. “But there was no need for that; many of these clients had W2 forms.”

Other times, she said, loan officers cut and pasted credit reports from one applicant onto the application of another customer.

These practices took a great toll on customers. For a homeowner taking out a $165,000 mortgage, a difference of three percentage points in the loan rate — a typical spread between conventional and subprime loans — adds more than $100,000 in interest payments.

If this is true, there’s a word for it: evil.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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