The NAACP has filed lawsuits against two of the nation’s largest mortgage lenders — HSBC and Wells Fargo — alleging “systematic, institutionalized racism” in their subprime lending (image from here).  But this lawsuit is really just the tip of a very large, and deeply racist, iceberg.

Part of this has to do with the way that housing – and what former President George W. Bush once called ‘the ownership society’ – was the only path to wealth creation in the U.S.   In other words, most of the wealth that people have and accumulate in the U.S. is through home ownership.  This has been a central tenet of the American Dream for decades.  Unfortunately, this dream was only available to a few and that availability was often based on race.   Listen to this short video (1:52) in which Professor Kimberlé Crenshaw explains the roots of this inequality with journalist Laura Flanders.

Joe Sims of Political Affairs, writes in his extensive piece entitled, “The End of Neo-Liberalism and Bush’s Last Scam: How Racism Sparked the Financial Collapse,” that:

Still, as the main civil rights organizations charged in the summer of 2008, the racist origins of the subprime mess are difficult to ignore. A cursory glance at some of the statistical highlights provides ample evidence. An excellent study authored by United For a Fair Economy entitled “Foreclosed” suggests several indicators, chief among them the disproportionate numbers of people of color holding subprime loans: over 50 percent of all mortgages held by African Americans fall into this category. The figure is 40 percent for Latinos.

While some political leaders blamed the “mismanagement” of Fannie Mae and Freddie Mac and demagogues like Ann Coulter and Pat Buchanan blamed Black and Latino families for the economic collapse of the subprime mortgage market, the fact is, as Sims points out that bad credit was not the primary factor for distributing the loans, a myth conveniently circulated and repeated to this day. Sims refers to Rep. Charles Schumer who refutes the bad credit explanation, quoting the Wall Street Journal:

Based on the Journal’s analysis of borrowers’ credit scores, 55 percent of subprime borrowers had credit scores worthy of a prime, conventional mortgage in 2005. By the end of last year, that percentage rose to over 61 percent according to their study. While some will have damaged their credit in the interim, it’s clear that many subprime borrowers have the financial foundation for sustainable homeownership, but may have been tricked into unaffordable loans by unscrupulous brokers.

Basically, the subprime mortgage scheme was a way for Wall Street bankers to drive up profits (some were pushing for 25% profit margins, according to Sims) and doing it on the backs of mortgages to predominantly African American and Latino homeowners.  Sims speculates:

Perhaps this explains at least in part why no Wall Street insiders had qualms about their activities or why in recent weeks the issue seems to have almost disappeared from discourse on the economic recession.

So what made the loans predatory?  According to Sims and a study by a group called United for a Fair Economy:

One factor is their marketing and sales to inappropriate customers. Another is pre-payment penalties. Seventy percent of subprime loans had such penalties. A third element was Adjustable Rate Mortgages (ARMS), which often carried unexplained ballooning interest rates that increase payments by as much as one-third. A majority of subprimes were ARMS. Yet another condition was the exclusion of tax and insurance costs when estimating the monthly payment for a potential home-buyer. And finally the encouragement of ordinary borrowers to take interest-only loans, where in the initial year or two only the interest is paid on, after which the principal rates kick in raising the cost dramatically.

The stimulus package and economic recovery needs to acknowledge that what are often referred to as “marginal”  home owners or borrowers were largely Black and Latino working-class families struggling to make ends meet, targeted by Wall Street financiers.  Recovery is likely to further entrench racial inequality if leaders fail to acknowledge the role of racism in the current economic crisis.