Reverend Jesse Jackson was in New Delhi to mark the sixtieth anniversary of the martyrdom of Mahatma Gandhi but the subprime crisis back home was also on his mind. He phoned and said, “If you look at the analysis on TV, everybody is discussing macroeconomics. CNN, CNBC, MSNBC, none of them go deep in their analysis as to what really happened. The lack of enforcement of civil rights laws, of fair lending laws, drives this economic tsunami. This is not an economic miscalculation – this is the price we pay for not enforcing the law.”
Jackson points to the targeting and steering of African-Americans and Latinos who were qualified for prime loans into risky subprime mortgages (defined as 3 percentage points higher than the prevailing rate for long-term Treasury bonds). “Redlining was to not loan to certain areas,” he said. “This is what amounts to reverse-redlining – steering black and brown borrowers into subprime who were eligible for prime. That’s out and out breaking discrimination laws.”
In 2005 and 2006, over 50% of all loans made to African-Americans, and over 40% to Latinos, were subprime – compared to only 19% of white borrowers. Martin Gruenberg, vice chairman of the Federal Deposit Insurance Corporation (FDIC), said at the Rainbow PUSH Coalition’s Wall Street Economic Summit in January, “Only one-sixth of this differential could be accounted for by the ability of the borrower.” Analysis of Home Mortgage Disclosure Act (HMDA) data shows that African-Americans and Latinos in New York City, Boston, Washington, Philadelphia and other cities were two to three times more likely to have subprime, high-cost loans than white borrowers with similar incomes and loan amounts.
The New York Times has reported on two neighborhoods in the Detroit area – one 97 percent white with a median income of $51,000, another 97 percent African-American with a median income of $49,000. In 2006, 17 percent of the loans made in the white neighborhood were subprime, compared to 70 percent of the loans in the predominately African-American neighborhood. Illinois Attorney General Lisa Madigan recently pointed out on National Public Radio, “…An African-American earning more than $100,000 was more likely than a white person who earned less than $35,000 to be put in a high-cost, [subprime] loan…. Clearly there is discrimination going on.” The Times also reported that “… around 90 percent of subprime loans originated between 2004 and 2006 carried exploding adjustable rates. Some 70 percent of subprime loans have prepayment penalties, versus 2 percent of prime loans…. ” Those pre-payment penalties made refinancing impossible for hundreds of thousands of people. “Yield-spread premiums” also paid kick-backs to brokers for steering borrowers into high-priced loans.