Several class action mortgage discrimination claims have been filed against lenders across the country, alleging that those lenders disproportionately targeted minorities for high cost, high risk
subprime lending, which has resulted in disproportionately higher rates of default and foreclosure for minority African American and Hispanic borrowers. FHA loans, a federal mortgage program, went to the white majority and reached few minorities. In a study done in Syracuse, between 1996 and 2000, of the 2,169 FHA loans issued only 29 or 1.3 percent went to predominantly minority neighborhoods compared with 1,694 or 78.1 percent that went to white neighborhoods. Mortgage discrimination played a significant part in the real estate bubble that popped during the later part of 2008, it was found that minorities were disproportionately steered by lenders into subprime loans. In 1993 President
Bill Clinton made changes to the
Community Reinvestment Act to make mortgages more obtainable for lower and lower-middle-class families. In 1993 the Federal Reserve Bank of Boston issued a report entitled "Closing the Gap: A Guide to Equal Opportunity Lending". The 30-page document was intended to serve as a guide to loan officers to help curb discriminatory lending "Closing the Gap", instructs banks to hire based upon diversity needs, sweeten the compensation structure for working with lower income applicants, encourages shifting high risk, low income applications to the sub prime market, by saying "the secondary market [Subprime Market] is willing to consider ratios above the standard 28/36", and "Lack of credit history should not be seen as a negative factor". While, "Closing the Gap" was not an industry-wide mandate, it illustrates the efforts banks made to meet public pressure to overcome mortgage discrimination. Under the Clinton administration community organizers pressured banks to increase their loans to minorities. Karen Wegmann, the head of Wells Fargo's community development group in 1993 told the
New York Times, "The atmosphere now is one of saying yes." The same
New York Times article echoed "Closing the Gap", writing, "The banks have also modified some standards for credit approval. Many low-income people do not have credit-bureau files because they do not have credit cards. So lenders are accepting records of continuously paid utility bills as evidence of creditworthiness. Similarly, they will accept steady income from several employers instead of the length of time at one job." Because of looser loan restrictions many people who did not qualify for a mortgage before now could own a home. Minorities willingly entered sub-prime mortgages in far greater numbers than whites and represented a disproportional percentage of foreclosures, Recently, the
NAACP has submitted a lawsuit concerning alleged injustices in the lending industry. An analysis, by N.Y.U.'s Furman Center for Real Estate and Urban Policy, illustrated stark racial differences between the
New York City neighborhoods where subprime mortgages were common and those where they were rare. The 10 neighborhoods with the highest rates of mortgages from subprime lenders had black and Hispanic majorities, and the 10 areas with the lowest rates were mainly non-Hispanic white. The analysis showed that even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender. An example of this occurred in the 1960s and 1970s on the near northside of Chicago. Thousands of blacks, Latinos, and poor people were systematically dislocated and prevented from acquiring loans by realtors and lending institutions with the blessings of the city's urban renewal program. A 2015
Measure of America study commissioned by the
American Civil Liberties Union examined the likely effect of discriminatory lending leading up to the financial crisis on the
racial wealth gap for the next generation, and found that, among families that owned homes, white households had started to rebound from the worst effects of the Great Recession while black households were still struggling to make up lost ground. The analysis projected that the racial
wealth gap will be significantly greater in the next generation because of the differential impact of the Great Recession.
Reverse redlining Reverse redlining is a term that was coined by Gregory D. Squires, a professor of Sociology and Public Policy and Public Administration at George Washington University. This phenomenon occurs when a lender or insurer particularly targets minority consumers, not to deny them loans or insurance, but rather to charge them more than would be charged to a similarly situated majority consumer, specifically marketing the most expensive and onerous loan products. These communities had largely been ignored by most lenders just a couple decades earlier. However these same financial institutions in the 2000s saw black communities as fertile ground for subprime mortgages.
Wells Fargo for instance partnered with churches in black communities, where the pastor would deliver "wealth building" seminars in their sermons, and the bank would make a donation to the church in return for every new mortgage application. There was pressure on both sides, as working-class blacks wanted a part of the nation's home-owning trend. A survey of two districts of similar incomes, one being largely white and the other largely black, found that branches in the black community offered largely subprime loans and almost no prime loans. Studies found out that high-income blacks were almost twice as likely to end up with subprime home-purchase mortgages as low-income whites. Loan officers were clearly aware that they were exploiting their customers, in some cases referring to blacks as "mud people" and to subprime lending as "ghetto loans". Several state attorneys general have begun investigating these practices which may violate fair lending laws, and the
N.A.A.C.P. have filed a class-action lawsuit charging systematic racial discrimination by more than a dozen banks. These suits have met with some success.
Occupy Our Homes Reverse redlining has been cited as justification for the
Occupy Our Homes movement. In Occupy Our Homes, protesters camp out at a person's foreclosed home to gain concessions from the lender, such as a delay in eviction. ==Laws==