André Douglas Pond Cummings
Permission Pending: André Douglas Pond Cummings, Families of Color in Crisis: Bearing the Weight of the Financial Market Meltdown, 55 Howard Law Journal 303 (Winter 2012) (66 footnotes omitted)
The financial market crisis of 2008 has landed heaviest and hardest upon communities of color. In the minority communities that continue to bear the crushing weight of this crisis--which continues unrequited--women of color, and by extension, their families, are by far the group most devastated by the global market meltdown. In an ultimate irony, most economists, scholars, and commentators now agree that the collapse, which continues to ravage Main Street, was caused primarily by a select group of privileged white men-i.e., Wall Street executives, bankers, and the politicians purchased by Wall Street largess. The impact of Wall Street's fascination with securitizing subprime mortgages, creating worthless collateralized debt obligations, and trading these unregulated exotic instruments recklessly, has been a government bailout of the reckless institutions, absolution of Wall Street banks by the media, and America's leaders, and a citizenry left adrift. No Main Street bailouts have materialized as American citizens continue to deal with foreclosures, joblessness, and chaos. Those citizens struggling most with foreclosure, joblessness and chaos are women of color and their families. Women of color and urban families in the years preceding the mortgage crisis were targeted by the lending industry to receive disproportionate percentages of onerous subprime home loans leading to devastating foreclosure rates in urban city centers and an overwhelming drop in median minority wealth. Further, chaos abounds in minority communities because vast percentages of male wage earners, fathers, and sons, are behind bars, simply absent from their communities, imprisoned on a massive scale due to America's War on Drugs.
Much has been written about the causes of the mortgage crisis of 2008. Wide-ranging agreement focuses primary causation for the crisis on legislative deregulation of the capital markets dating back to the 1970s, a housing bubble that inflated and imploded, and Wall Street's activities and behavior in connection with this deregulation and housing bubble. Legislative deregulation, a housing boom and bust, and Wall Street greed and recklessness nearly collapsed the global economy. Yet, Wall Street executives, national legislators, and most commercial and investment banks responsible for inflating the housing bubble and massively profiting from that bubble prior to the collapse have all mostly escaped the devastation of the mortgage meltdown and now appear either completely recovered or nicely recovering. Conversely, those who continue to suffer crippling unemployment, continuing foreclosure abuse and erratic housing prices, and consequences of a massive taxpayer bailout of Wall Street include the general global public, particularly middle class taxpayers, urban communities, and people of color.
This Essay explores the specific impact the financial market crisis of 2008 has had on families of color, particularly African American families. The Essay begins by detailing the dreadful impact of the financial market crisis of 2008 on communities of color. More than any other group of citizens, minority Americans suffered the crisis burden disproportionately and more harshly than any other because in large percentages minority citizens were predatorily targeted by lenders in the mortgage industry for incredible short term lender profit at the expense of long term needs of the family. Next, this Essay analyzes why communities of color suffered most harshly from the financial market crisis by examining the mass incarceration of men of color and the relationship between financial crises and discriminatory imprisonment. Finally, the Essay concludes.
I. Economic Devastation of Families of Color by the Financial Market Crisis
The mortgage crisis of 2008 had and continues to have a disproportionately harsh impact on minority families and homeowners. Two of the ways in which minority families have suffered the most in light of the crisis include 1) a significant drop in median wealth and 2) a disproportionate rate of mortgage foreclosures based in part on targeted predatory lending.
A. Median Wealth
Minority median wealth tumbled following the mortgage crisis. In a 2011 Pew Center Research report, the relative net worth of families signals the devastating impact of the financial market crisis on minority families. Since the mortgage crisis, the gulf in net worth between white and black families has increased dramatically. The Pew report provides a stark reminder that the disparity in wealth between whites, Latinos and African Americans in this country is a nightmarish problem. In the single largest drop since Pew began collecting data in 1984, Latinos saw their median wealth drop sixty-six percent during the financial crisis period of 2005 to 2009, and African Americans fared just about as poorly with a fifty-three percent drop in median wealth during the same period.
This precipitous drop in median wealth for Latinos and African Americans during the period of the financial market crisis of 2008 can be attributed in part to the fact that minority wealth is often tied to home ownership and equity. As a result, minority communities are extremely vulnerable during housing and economic crises. Contrarily, whites are generally in a better position to diversify their assets between home equity, stocks, bonds and other investment alternatives. The housing crisis not only widened the existing wealth gap, as white wealth better weathered the mortgage meltdown based on diversified portfolios, but also saw white families' median wealth drop only sixteen percent because of this diversification. While white family wealth dropped just sixteen percent during the mortgage crisis, both Latino and African American family wealth plunged more than fifty percent. Furthermore, according to the Pew report, almost one-third of Latino and African American households reported zero wealth--having more debt than assets--during the crisis period.
Perhaps the most startling statistic from the recent Pew report is that while whites had an average median wealth of $113,149 during the mortgage crisis period, African Americans had an average median wealth of only $5,677 and Latinos had an average median wealth of $6,325. This disparity is simply alarming. The financial market crisis exacerbated the median wealth gap, as the years of the financial market crisis show a dramatic drop in minority wealth as well as an awful widening of the wealth gap between whites and minorities. Further, statistics show that besides plummeting median wealth, families of color were foreclosed upon disproportionately more often than white families. Minority families were steered into subprime loans predatorily, at a rate far more frequently than white families.
B. Foreclosures and Predatory Lending
In minority communities, which have been devastated by foreclosures often brought about by subprime loans predatorily extended, women of color have emerged as those most harshly hit. Urban communities have been eviscerated by the mortgage crisis. Emerging evidence confirms that women of color, who often are the heads-of-household, are being disproportionately foreclosed upon, based primarily on the lopsided number of minority women that were steered into subprime loans, often through devious predatory lending. One report indicates that African American women were 256% more likely to receive a subprime loan than white men.
Predatory lending occurs when a lender deceptively convinces borrowers to agree to unfair and abusive loan terms, or systematically violates terms in ways that are difficult for a borrower to defend against. Subprime loans are those loans most likely to be written through predatory lending practices to borrowers who do not meet prime underwriting borrower guidelines, and lenders prefer these loans because profit margins can be significantly higher if a borrower pays out the loan. Subprime mortgages typically are written for borrowers who are adjudged to have very high credit risk, often because they lack a strong credit or work history or have other characteristics that are associated with strong probabilities of default. Subprime loans typically carry much higher interest rates than conventional loans.
It is now well established that predatory lending was a primary driver of the financial market crisis. Mortgage brokers, seeking higher origination fees and profit spreads, fervently sought out borrowers to whom they could sell subprime mortgages. Most often, minority communities were targeted for these predatory loans. In 2006, fifty-five percent of loans to African Americans were subprime, despite the fact that many of those borrowers qualified for prime loans. Additionally, statistics indicate that forty percent of loans to Latinos were subprime and thirty-five percent of loans to American Indians were subprime; however, just twenty-three percent of loans to whites were subprime. Women also received less favorable loan terms across equal presentations of credit worthiness.
Studies indicate that minority borrowers were purposely steered into risky and expensive subprime loans, despite being qualified for better terms. Those lenders who steered minority borrowers into subprime loans were often mortgage brokers who were eager to capitalize on significantly larger profits. For instance, [i]n two audit studies wherein creditworthy testers approached subprime lenders, whites were more likely to be referred to the lenders' prime borrowing division than were similar black applicants. Further, subprime lenders quoted the black applicants very high rates, fees, and closing costs not correlated with risk. Because minority communities and borrowers were targeted predatorily for subprime loans, foreclosures have devastated urban communities and their families.
Additionally, recent evidence indicates that women of color received significantly higher interest rates than white men on precisely the same loan terms and credit scores. Further, unemployment is devastating urban city centers as women of color are facing joblessness at rates significantly more injurious than are white males. The impact of this reality on the black family has been staggering.
Of course, one of the primary reasons that the financial market crisis has hit women of color and their families so hard, notwithstanding predatory lending and subprime loan abuse, is that the African American and Latino family has been dramatically disrupted in the past twenty-five years. Because America massively incarcerates its minority male citizens, women of color as heads-of-household have become routine in minority communities. Hundreds of thousands of male wage earners have literally been removed from minority communities and placed into jails and prisons throughout the nation. The United States has adopted as official policy, a drug war that incarcerates men of color at unprecedented rates and percentages that exceed any other country in the world.
II. Mass Incarceration
One of the primary reasons that the minority family, particularly families headed by women, has been crushed by the market crisis is that since the 1970s, America has waged a campaign intent on imprisoning, in overwhelming numbers, African American and Latino men. Since 1980, the rate of incarcerated Americans has skyrocketed. The United States has increased its incarceration rate in the last thirty years by an incredible 335%. Since 1980, imprisonment for drug crimes alone has increased an astonishing 1,412%. The United States now imprisons more of its citizens than any other nation on Earth. Despite its relatively small population size when compared to other nations globally, Americans are imprisoned at rates that far exceed any other country. The United States has less than 5 percent of the world's population. But it has almost a quarter of the world's prisoners. The vast majority of prisoner increase in the U.S. has been that of African American and Latino male citizens. The United States imprisons a larger percentage of its black population than South Africa did at the height of apartheid.
Professor Michelle Alexander author of The New Jim Crow: Mass Incarceration in the Age of Colorblindness, endeavors to address this unconscionable explosion in prison population by examining America's continuing subordination of its black and brown citizens. Alexander boldly traces the Southern Strategy of the Richard Nixon era to the racial coding of the Ronald Reagan and George Bush, Sr. era, through Bill Clinton's New Democrat era and concludes that these eras of divisive racial politics and tough on crime rhetoric led to a new era of subordination just as nefarious as slavery and Jim Crow. The War on Drugs allows racial subordination without explicitly naming race. Mass incarceration of African Americans and Latinos based almost entirely upon soft drug crimes allows the United States to deprive minority citizens--men in particular--of their constitutional rights, while appearing race neutral.
As a result, this War on Drugs has overwhelmed the black community. With prisons literally teeming with minority prisoners, some have argued that current U.S. incarceration is similar to the impact of slavery upon early American society, as the focused machinery of the war on drugs and its disparate impact on African-American prisoners fractures families [,] . . . destroys individual lives[,] and destabilizes whole communities. To wit, current drug policies and regulations have direct and devastating impacts on family structure and particularly impact women and children.
Clear collateral damage of the War on Drugs is the black family. With so many men of color serving out prison sentences for soft drug crimes, women and children in urban city centers are forced to work and live exclusive of their fathers, sons and partners. It is no wonder then, that when a housing market collapses, the brunt of the consequences falls hardest and heaviest on those mothers and children.
Not only will millions of people lose their home and family wealth but neighborhoods will be decimated and tens of millions of other homeowners will see their home values decline precipitously, says Julia Gordon, senior policy counsel at the Center for Responsible Lending. A disproportionate percentage of subprime loans are made in low-income neighborhoods. Black and Latino communities were especially hard-hit by the foreclosure crisis, which has wiped out the asset base in many neighborhoods across the country.
In fact, a study by United for a Fair Economy examining housing and racial bias found the subprime-lending mess has caused the greatest loss of wealth to Blacks and Latinos in modern U.S. history. During the past eight years, Black borrowers have lost between $72 billion and $93 billion from subprime loans, while Latino borrowers have lost between $76 billion and $98 billion during that same time period, according to the report.
This loss is exacerbated by the literal absence of scores of minority men in those urban communities most harshly hit by the financial crisis. Much has been written about the genuine loss suffered by families of color based on massive imprisonment in urban communities. The fallout from the financial market crisis of 2008 simply adds insult to injury: evaporation of minority wealth, disproportionate foreclosure based on predatory lending, and unemployment visited on those families that remain in our nation's city centers, while their husbands, fathers, brothers, and sons sit in prison.
In light of the 2008 collapse of the mortgage industry and global capital markets, the concomitant carnage that envelopes minority communities in the United States flows inexorably from America's mass incarceration policies. This period of mass incarceration must come to a close. One condition precedent to gnawing wealth disparities and financial crises devastating urban communities is the massive imprisonment of men of color, wage earners, in American cities. As argued by Professor Alexander, mass incarceration is the civil rights issue of our generation.
The financial market crisis has revealed a deep-seated cultural antagonism toward women of color, and by implication families of color. When faced with the bleakest economic crisis since the Great Depression, white male Wall Street executives and bankers are not held responsible for their recklessness. Instead, black and Latina female heads of household are forced to answer for the sins of corporate executive duplicity. When consequences are visited upon those least responsible for an economic crisis in order to prop up the powerfully entrenched and those most responsible for an economic crisis, then society stands at a serious, underappreciated crossroads.
. Professor of Law, West Virginia University College of Law; J.D., Howard University School of Law.