From Redlining to Target Practice
Redlining was a practice that banks once used: hang a map on the wall, draw a red line around minority neighborhoods, and deny all mortgage loans inside the line. The results were devastating--depressed prices because no one could get financing to buy homes and underinvestment in African American and Hispanic communities.
But those bad old days are gone. Now some lenders seem to draw a line around minority neighborhoods, then paint a big bulls-eye on them. That's where they target their worst mortgages. Massachusetts Attorney General Martha Coakley filed suit yesterday against Option One, the mortgage arm of H&R Block, alleging that they piled on costs for non-white families.
The specific examples are breath-taking: A black borrower with a 523 credit score paid $10,635 to refinance $167,000, while a white borrower with a 520 credit score paid $2,275 to refinance $200,000. Coakley said this was happening systematically across Massachusetts and elsewhere in the country.
The things hit me as I read this story:
1. Hurrah for Martha Coakley. This isn't the first public conversation about about systematic discrimination in subprime lending. I'm glad to see a state AG step up, investigate and, if the facts bear it out, bring charges. Where are the rest of the AGs? Each one of them should be investigating mortgage practices.
2. Why isn't there an outcry against H&R Block? This is a well-known company with offices in minority and white communities across the country. Yes, they sold their housing unit this spring, but Coakley says this company followed procedures that systematically targeted minorities to pay far more than whites for the same loans. Coca-cola made national headlines years ago when some executives were caught on tape making racist comments. What about following policies that, if proven, show that this company stripped hard work black and Hispanic families of their money? Where are the boycotts and the cover stories in Newsweek and Time?
3. This short article refers to a nice interplay between the academic world that identified the problem, the private practitioner (a shout-out to Gary Klein of Boston) who brought the first suit, and the AG who followed up with a state investigation. Good people, all pushing to expose serious problems.
Some lenders have abandoned redlining because they have figured out that they can make more money by target shooting at minority families. Either way, the devastation is extensive.