The Great Recession has technically started to recede, but the banks that sparked it have mostly been allowed to walk. Some even prospered in the aftermath. But a jury just hit back against one predatory lender, restoring a little of the confidence in the system that Wall Street stripped away from Brooklyn during the financial crisis.
The lawsuit, filed by Brooklyn Legal Services, with support from Center for Responsible Lending and private attorneys, charged Emigrant Savings Bank under the Fair Housing Act, Equal Credit Opportunity Act, and New York City Human Rights Law for “aggressively marketing toxic mortgages to Black and Latino homeowners,” using a process is known as “reverse redlining”—pushing high-cost, toxic products that inevitably led homeowners into a financial disaster that still scars the city’s increasingly unaffordable working-class neighborhoods.
The refinancing loan product they marketed, STAR NINA (No Income, No Assets), was tailored toward homeowners who were cash poor but had considerable equity in their properties. Under the “no income, no assets” feature—basically Wall Street’s version of “see no evil”—the plaintiffs, all black, Latino, or immigrant homeowners—got loans that looked reasonable initially, but were embedded with a stealth interest rate ballooning up to 18 percent.
“Emigrant did not want to know the income of the borrower,” says Brooklyn Legal Services attorney Rachel Geballe, “but they could certainly tell.” Financial records the company had tracked displayed subpar credit and past-late payments at lower rates, revealing “that the borrower doesn’t have enough income to cover a much higher payment. In this case, none of the loans was actually affordable.”
The no-verification scheme used in this case was effectively banned by regulatory safeguards recently enacted in the Dodd-Frank reforms. But similar aggressive profiteering could be used to fleece homeowners again given the weakness of current regulations.
According to the suit, Emigrant required no actual proof of the borrower’s financial risk status—just a simple signature certifying ability to handle the debt on a “resource letter.” The bank reportedly “did not discuss the letter with borrowers or explain it to them, and it was typically left unread…. Emigrant knew that the Resource Letter was worthless.”