Predatory Lending Points to Racial Gap

The difference between the wealth of White Americans and Americans of Color has consistently increased over the past thirty years. Levels of education achievement on the part of Americans of Color have dramatically increased yet the level of disparities between the wealth among White Americans and Americans of Color have yet to begin to level off.

The median White American family has eighty eight cents on the dollar more the median Latino American family. Black American families have ten cents for every White American family dollar. The fact that White Americans are wealthier than their Latino and Black Americans counterparts has been widely written about but the context has been without benefit. The predatory lending that has occurred over the last decade provides us with an opportunity to further illustrate the disparities and bring into context the structural and institutional racism that inhibits the economic advancement of Americans of Color today.

It is important to distinguish the difference between Predatory Lending and Subprime Lending. Predatory Lending is when lenders steer borrowers and or target a certain set of borrowers into expensive loans even when those borrowers qualify for lower interest rate loans. In addition, predatory lending involves excessive fees and or fees that are unnecessary. Subprime Lending involves extending mortgage loans to borrowers who have low incomes and lower credit scores that would not otherwise quality for a conventional loan or prime loan. Typically the interest rate is higher due to the higher risk revolving around the borrower’s credit. Subprime loans for the most part have assisted in low income families being able to purchase a home.

Investigators from Federal, State and local agencies have revealed that across the nation real estate professionals have sought out Americans of Color for predatory loans. Many cases involve Americans of Color who would have qualified for a prime or conventional loan were steered into subprime loans.  The National Community Reinvestment Coalition reported in 2006 of the seventy percent of neighborhoods it investigated, Americans of Color were twice as likely as White Americans to received subprime loans even though the incomes of those American sets were equal.

Predatory Lending has drained the Americans of Color due to foreclosure of approximately two hundred billion dollars.

Predatory Lending was not just reserved to private companies most are publicly sold companies on Wall Street. It is important to understand the relationship between Predatory Lenders and The Secondary Market aka Wall Street.  Wall Street firms such as Lehman Brothers, Bear Stearns and Merrill Lynch provide large loans to nonbank mortgage lenders. The nonbank mortgage lenders use these loans to back the subprime and prime loans that have been sold by mortgage brokers and loans officers to the general public. The nonbank mortgage lenders then pool the loans that were sold and sell them to major financial institutions on Wall Street to investors. The nonbank mortgage lenders are funded when the pool is sold. Predatory lenders could not exist without Wall Street firms who require a return on their investment for their investors. The process itself requires that nonbank mortgage lenders target consumers and subprime lenders did just that.

Several predatory lenders and the financial institutions that did business with them have defaulted. However these companies help in the draining of billions from the Americans of Color in the United States. Predatory Lenders still exist and are targeting Americans of Color and thus widening the gap of wealth between them and their White American counterparts. To not discuss that racial targeting exists only implies that the wealth gap is simply due to income disparities and not to the causes of those disparities.

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