One of the most disturbing features of the subprime meltdown is the way it highlighted racism in the United States. Last year, I did a blog entry showing how the US banks targeted the African American and Hispanic communities for predatory and toxic loans. They don't have the money and they tend not to be sophisticated investors which makes them prime targets.
It was only a matter of time before this would end up the courts and, sure enough, BusinessWeek now reports that Illinois Attorney General Lisa Madigan has filed a lawsuit against Bank of America Corporation's Countrywide unit claiming the company discriminated against black and Latino borrowers. According to the lawsuit, Countrywide steered minority borrowers into risky subprime mortgages more than it did white borrowers and forced minority borrowers to pay more than other borrowers for all Countrywide mortgages.
Countrywide need to be hauled before the courts but what they did there only reflects a deeper problem. And it all boils down to race.
An alarming report from the Center for Responsible Lending shows that while most families who lost their homes were non-Hispanic and white, the African-American and Hispanic communities were disproportionately affected by subprime. Nearly 8% of both African Americans and Latinos have lost their homes to foreclosures, compared to 4.5% of whites. According to the study, African-American and Latino borrowers are more likely to be at imminent risk of foreclosure (21.6% and 21.4% respectively) than non-Hispanic white borrowers (14.8%). Similarly, American Indian (16.5%), Native Hawaiian or other Pacific Islanders (18.6%), and Asian borrowers (15.7%) all also show an increased likelihood of being at-risk. The study estimates that 17% of Latino homeowners, 11% of African-American homeowners, and 7% of non-Hispanic white homeowners already have lost or are at imminent risk of losing their home. And it says that between 2009 and 2012, $193 and $180 billion, respectively, will have been drained from African-American and Latino communities as a result of subprime.
Countrywide should be prosecuted. But it's part of the national condition. Unfortunately, US policy makers have a long way to go to putting in place measure that will protect communities. Instead, they seem to be more intent on protecting banks.
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