A favorite conservative trope is to blame the housing crisis (or even the entire economic meltdown) on lending in low-income, typically minority, neighborhoods, done under the auspices of the Community Reinvestment Act (CRA). “I don’t remember a blaring call that said, Frannie and Freddie are a disaster, loaning to minorities and risky folks is a disaster,” Fox News’ Neil Cavuto put it.
As CAP’s Tim Westrich noted, the reality is that “CRA-covered institutions succeed at bringing conventional, prime loans to lower-income communities, while non-covered institutions are the ones that drove bad practices.” And according to some of its former loan officers, bailed-out bank Wells Fargo was, for a decade, “systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages”:
These loans, Baltimore officials have claimed in a federal lawsuit against Wells Fargo, tipped hundreds of homeowners into foreclosure and cost the city tens of millions of dollars in taxes and city services. Wells Fargo, [former loan officer] 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.”
As Nick Baumann at the Mojo Blog put it, “if this is true, there’s a word for it: evil.” The nasty racism is bad enough, but the fact that these aspiring homeowners were actively steered toward subprime loans when they qualified for a prime loan makes it all even worse.
After all, as the New York Times noted, “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.” As Judd Legum pointed out, “many of the individuals who were pushed into these loans may have been able to avoid foreclosure if they were offered the prime loans for which they were qualified.”
This is all part and parcel of the ugly growth of subprime lending — driven by non-CRA covered institutions and encouraged by Wall Street banks ready to buy and securitize anything. That — and not lending in low-income neighborhoods — was really the culprit behind the housing implosion.