In 2007, the Chicago Reporter's Kimbriell Kelly wrote a lengthy story on mortgage lending in Chicago's black communities that included some stunning statistics, both small-bore…
But before she bought her first home, Foreman encountered several obstacles, including three rejections for a loan and an involved letter-writing campaign to repair credit she'd damaged trying to help her then-husband. She was finally offered a loan—at an interest rate higher than the 8 percent she had on her best credit card. It wasn't ideal—at the time rates were half that—but she was willing to take it.
…and big picture:
In 2003, whites were denied 24 percent of the time in black census tracts and 10 percent elsewhere. Asians were turned down 19 percent of the time in black areas and 12 percent in other areas. Blacks fared better in white census tracts than whites did in black census tracts.
Of the more than 16,000 applications for properties in black areas in 2003, about 46 percent resulted in mortgages, compared with 70 percent in 1993.
After a presentation by the Reporter, in which they demonstrated that Chicago led the nation in high-cost loans and that Countrywide was the biggest lender of those, Lisa Madigan subpoenaed Countrywide. Around the same time, Bank of America purchased the failing company. Yesterday BoA settled for $335 million, the biggest residential fair-lending penalty in U.S. history.
It's a big victory for Madigan and the Reporter, but there's more to Kelly's story than just the lending practices that put Countrywide in Madigan's crosshairs. A substantial portion of it concentrates on how borrowers would be less vulnerable to subprime lenders if they understood the home-buying process better. And many victimized borrowers don't have a familial history of home-buying:
Researchers, fair housing advocates, lenders and some African Americans seeking home loans point to increased predatory lending in Chicago's black neighborhoods, the reluctance of well-established, mainstream lenders to extend loans to those areas, and the lack of familiarity many blacks have with the home buying process.
African Americans buying homes are often among the first in their families to do so. And while they enter the market with eagerness, they are also often inexperienced, which can lead to rushed decisions and poor choices.
"Just as we are first-time college students in the family, in many cases we are first-generation, or maybe we're second-generation, homeowners. These are not discussions we've had around the dinner table when we grew up," said Bernard Loyd, an African American who founded Urban Juncture, a South Side firm that develops real estate in Bronzeville and other underserved urban markets.
Beryl Satter's Family Properties, one of the best books I've ever read about Chicago or any American city, provides a historical backdrop to the absence of long histories of home-ownership in Chicago, from terrorism (58 bombings of properties of black-owned or -rented property between 1917 and 1921) to "neighborhood associations" formed by the Chicago Real Estate Board (an organization of white realtors that explicitly promoted redlining, a tactic later adopted by the National Real Estate Board), to rioting. Satter documents mobs of thousands of people attacking black-owned properties, including 5,000 at the Fernwood Park Homes, 2,000-3,000 in Park Manor, and 3,000 at the Airport Homes, all in the late 1940s and early 1950s. These were not protests of massive submigrations—all centered around a handful of black-owned or -rented buildings.
Satter goes on to describe how Chicago blacks who did get homes often faced intentionally onerous fees and mortgages, which led to defaults, which allowed lenders to continously re-sell houses. Fees and mortages were also high because redlining, whether enforced by banks or vigilantes, created artificial scarcity in the market. In turn, that scarcity made the actions of the lenders possible and profitable.
The result was a destabilization of a nascent working class and middle class—not just a substantial elimination of wealth, but also of knowledge. Fast forward to 2011, and you have Bernard Lloyd's point: lots of people without ambient knowledge of how to buy a home, or immediate family and friends to turn to for specific advice in a complex and arduous process. The ripples are evident today in the BoA settlement, Kelly's story, and hundreds of other pieces and lawsuits that sprung up in the wake of the economic crisis, and there will be repercussion from those down the line.
Photograph: ricardodiaz11 (CC by 2.0)