With worldwide economic markets tumbling for months now due in no small part to the worsening subprime mortgage meltdown in the United States, everyone—left, center and right—is asking "How did this happen? Who is to blame?" Perhaps not surprisingly, some have come up with this answer: people of color including illegal immigrants.
It's true, racial minorities including some legal immigrants (and the key word here is "legal") purchased homes in the United States' overheated housing market with subprime mortgages probably as far back as the late 1990s, and some of those toxic mortgages began to fail in such numbers that they began raising eyebrows as early as 2007. This makes minorities the obvious scapegoats for our current economic situation by America's racists (not that it takes much for racists to scapegoat non-whites). That it appears minorities are losing jobs faster than whites in this economy, of course, does not help them keep their adjustable rate-mortgaged homes. When civil rights groups, including the National Association for the Advancement of Colored People, called for at least a half-year moratorium on foreclosures almost two years ago, it was largely ignored by the banking industry and most elected officials. But when the stinky started to hit the fan—that is, when the toxic mortgages climbed to such heights that they began to affect employment, neighborhood crime rates, foreign investment markets, Wall Street, bank-to-bank lending, the auto industry, and eventually big-bank bailouts and the emergence of tent cities—some on the right increased their blame on minorities.
Thankfully, the Left is punching back. The NAACP filed a lawsuit March 13th accusing Wells Fargo Bank and HSBC of steering blacks into risky home loans. This quote from Jesse Washington sums up part of the class-action lawsuit's claim:
African-American homebuyers have been 3 1/2 times more likely to receive a subprime loan than white borrowers and six times more likely to get a subprime rate when refinancing, [Austin] Tighe [co-lead counsel for the NAACP] said.
It's important to know that the NAACP is not saying that these two banks tried to help unqualified minorities get homes in good faith and in doing so failed the borrowers. The lawsuit accuses the banks of directing blacks, much more than whites, into subprime mortgages even when credit scores, down payment amounts, home prices and family incomes were identical between blacks and whites. Racism is the only explanation that comes to mind when a real estate agent steers a white family to purchase or rent a home in a white neighborhood (instead of a more integrated neighborhood), and when s/he steers a black, Asian, or Latino family away from purchasing a home in a white neighborhood. Racism too is the only thing that comes to mind when a bank or mortgage company offers only a subprime loan to a qualified black family while offering a less risky, less expensive home loan to an equally white family (important variables such as those above in bold being equal).
Wells Fargo has denied any wrongdoing. This from the AP dated March 13th:
Melissa Murray, vice president of corporate communications for Wells Fargo & Co., called the lawsuit "totally unfounded and reckless." The bank is receiving federal bailout funds.
"We have never tolerated, and will never tolerate, discrimination in any way, shape or form in any of our business practices, products, or services," Murray said.
HSBC said it does not comment on litigation. "HSBC stands by its fair lending and consumer protection practices, and we are confident that we are treating our customers fairly and with integrity," said Neil Brazil, vice president for public affairs.
Let's suppose that Wells Fargo and HSBC did not engage in racist lending, and let's also suppose that the United States banking industry as a whole does not engage in racist lending. With this latter assumption in mind, it's fair to examine the 163 banks considered to be troubled by experts at American University. These are banks with scary numbers: high percentages and high dollar amounts of toxic loans. They are banks that went in full-tilt with subprime lending; these are the banks whose so-called toxic assets taxpayers may wind up paying for. I stared at that list of 163 troubled banks for a long time and I saw randomness: the banks were located in 28 states found in all areas of the country (with two in Puerto Rico), and some of the banks were small (having only few million dollars worth of assets) and some of the banks were huge with hundreds to thousands of millions of dollars in assets. And as I looked at the list of 163 banks, I couldn't help but think about the NAACP's lawsuit. Then I started to crunch the numbers, and when I was finished, what I found was anything but randomness. Here's what I did and what I found.
I took the locations (the cities and towns) where each of the 163 troubled banks are doing business and I examined their racial composition as reported by the U.S. Census (according to actual 2000 census figures, not estimates). As you read the rest of this diary, keep in mind that in 2000 the United States was comprised of 12.8% Blacks/African-Americans, 80% Whites (including those who also identified as Latino in ethnicity), 15.1% Latinos (of any race), and 4.4% Asians. I decided that a city or town is to be considered relatively skewed racially if that city or town had one or more race categories (White, Black, Latino, Asian) at 7% or higher than the national average. For example, Colorado
Springs, Colorado (the home of one of the 163 troubled banks) had this racial composition in 2000: whites = 80.66%; blacks = 6.56%; Latinos = 12.01%; and, Asians = 2.82%. None of these figures are 7% higher than the national averages. Thus, Colorado Springs is not, by my definition, considered to be a racially skewed city. However, Macon, Georgia (the home of another of the 163 troubled banks) is racially skewed. In 2000, Macon's racial composition was: whites = 35.46% (as opposed to the national average of 80%, which also includes Latinos identifying as white); blacks = 62.45% (which is well-above the 7% threshold rate of 13.7% that I set); and, Latinos = 1.2% (the 7% threshold rate for Latinos is 16.16%). Thus, Macon, Georgia is a black skewed community.
The 163 troubled banks do business out of 141 cities in the United States (including two cities in Puerto Rico). Fifty-three of these cities (37.6% of all 141 cities) are black skewed communities; 29 (20.6%) are Latino skewed cities; 15 (10.6%) are Asian skewed cities; and 50 (35.5%) are white skewed cities. Note that a city can be skewed by more than one racial category (Chicago, for example, is skewed by Latinos [28.1% of Chicago's population] and blacks [35.6%]), so that the four categories are not mutually exclusive. And, as I showed with Colorado Springs, a city may not be skewed at all racially (nine were not).
Of the 53 black skewed communities, the average percentage of black residents is a whopping 39.98% which is three times the national average. In 14 of these 53 communities, blacks comprised over 50% of the population. The range of population figures for blacks in these 53 communities goes from 14.74% (Commerce, Georgia) on the low end to 95.48% (Tuskegee, Alabama). Of the 29 Latino skewed communities, the average percentage of Latino residents is 29.11% which is about twice the national average. In two of these 29 communities, Latinos comprised over 50% of the population (Latino community population range: 16.5% to 70.98%). Of the 15 Asian skewed communities, the average percentage of Asian residents is 12.12% which is 2.75 times the national average. In four of these 15 communities, Asians comprised over three times the national average (Asian community population range: 5.42% to 29.83%). Finally, of the 50 white skewed communities, the average percentage of white residents is 92.9% which is about 16% higher than the national average. In 19 of these 50 white skewed communities, whites comprised over 95% of the population (white community population range: 85.7% to 99.14%).
Two states, both of which are sociopolitically conservative states, had more of their fair share of troubled banks. A total of 35 banks do business in Georgia, and 19 of the troubled banks do business in Florida.
So, blacks comprise 12.8% of the population, yet 37.6% of cities with a troubled bank have significantly higher black populations than the nation as a whole. Latinos comprise 15.5% of the population, yet 20.6% of cities with a troubled bank have significantly higher Latino populations than the national average. Asians comprise 4.4% of the population, yet 10.6% of cities with a troubled bank have significantly higher Asian populations than the national average. What's more, just because blacks comprise 12.8% of the population does not mean that 12.8% of all American towns have relatively more blacks living in them than the rest of the country. Because whites drove out and/or denied blacks from living in many hundreds, if not thousands of American towns as documented in James W. Loewen's book Sundown Towns, it is very probable that the number of black skewed communities is much lower than 12.8% of all American cities and towns. That also likely holds true for Asians (who were also driven out of some communities in the past), and it may hold true for Latinos as well.
My mathematical computations do not prove widespread racism in mortgage lending; and, they don't point the finger at any one bank (and by the way, Wells Fargo and HSBC were not on the list of 163 troubled banks). But, I firmly believe that this non-random picture that I've unearthed about troubled banks, one that I've described here, says this: the NAACP—if it has the time, will-power and resources—could probably easily file many more class-action lawsuits against many more lending institutions for participating in racist lending. If they get a hold of my figures (and I'd be happy to send them the database I created of the 163 troubled banks and the racial compositions of the cities where those banks do business), they might want to probe into whether or not they think any of our nation's currently troubled banks fell onto hard times because of racist lending.
I received an email yesterday from NAACP president and CEO Ben Jealous who said that the NAACP has filed suit against 12 other mortgage industry lenders besides Wells Fargo and HSBC. Mr. Jealous wrote:
Racial discrimination in banking and real estate is an old problem. But the NAACP is ramping up its fight to make sure that banks that practice systematic racism, like Wells Fargo and HSBC, stop these practices now! Forcing expensive, sub-prime loans on highly qualified African American borrowers is absolutely unacceptable -- especially when studies show that African Americans were placed in sub-prime loans 54% of the time, compared to 23% of the time for Caucasians.
For those who can afford to pitch in, the NAACP would appreciate support in fighting racist lending. Here's where to do it.
If true reform is going to happen in the banking industry along with toxic asset buy-outs and bailouts, then that reform must include strict regulation and strict enforcement in housing lending so that minorities are not targeted in the future to purchase homes with what the lending industry has euphemistically called "creative financing." To President Obama and Congress, we must insist on it. If my calculations actually lead someone to discover widespread racism in lending practices, then it ought to serve as an example of how racism hurts everyone.
UPDATE, March 26, 2009: The 163 "troubled banks" has now climbed to 197 (same link in the diary gets you to this updated list). Thanks for the "Diary Rescue" and for everyone's intelligent comments in the thread.