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The Color of Credit: Cities vs. Banks

posted by Alan White

Appendix 4 Foreclosures Miami Reduced

On Election Day, the Supreme Court will hear argument in the cases of  Wells Fargo v. City of Miami and Bank of America v. City of Miami. At issue is the standing of cities to sue banks for mortgage redlining and reverse redlining.

The history of redlining is well known. Banks, in concert with the housing agencies of the New Deal, drew lines around minority neighborhoods where no home mortgage loans would be made (or backed by federal agencies). Starting in the 1990s and until the 2008 crisis, subprime mortgage lenders, some of them affiliates of major banks, targeted the same minority neighborhoods for high-cost, high-risk loans. Inevitably, the same minority neighborhoods have been devastated by the recent wave of foreclosures.

Less well known is that since 2008, the overcorrection and severe tightening of mortgage loan approvals has had a hugely disparate impact on communities of color, especially in cities. Redlining is back. 


The hypercautious approach banks have been taking with mortgage approvals has meant that millions of applications that would have been approved in 2001 (before the deterioration of underwriting standards) were denied in 2014. There were 55% fewer home purchase loans to African-Americans in 2012 than in 2001; the decline for white borrowers was 41%. Because African-American and Latino applicants have lower average savings and credit scores, more minority mortgage seekers will be in the band of good but not exceptionally good credit qualifiers who are being excluded by unduly strict underwriting. The situation would be even worse but for the F.H.A. mortgage insurance program, which was relied on by two-thirds of African-American home buyers in 2014. The full story is laid out in an amicus curiae brief we filed in the case, available here.


Well this is a very sad state of affairs to be sure. Of course here in the UK we have had much stricter mortgage underwriting as well but I don't think it has had quite the effect that it has had in the US on the minorities.

It's pretty ironic that an approach that began with greed by the people at the top of the financial tree that be should now, year later, be affecting the people at the bottom of the financial pecking order

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