Segregated communities more likely to receive subprime loans, says new testimony

"Mud people.” That’s how Wells Fargo loan officers described
minority borrowers in Baltimore, according to an affidavit signed by a former
employee. Wells Fargo is now facing a lawsuit
from the City of Baltimore accusing the bank of systematically steering
minority borrowers toward high-cost subprime loans—or, as some employees
allegedly dubbed them, “ghetto loans.

Baltimore is not the only community that disproportionately gives high-cost loans to minority borrowers. George Washington University Professor and Woodstock Institute board member Gregory Squires pointed this out in his testimony last month to Congress’ Joint Economic Committee. Dr. Squires made the case that persistent segregation and worsening economic inequality laid the groundwork for the subprime mortgage crisis.
 
The testimony found that highly segregated communities of color are far more likely to receive high-priced loans than integrated communities, even after controlling for other factors such as credit rating and education. It also found that the problem of segregation is not going away anytime soon—in large metropolitan areas where the majority of African-Americans live, the black/white index of dissimilarity continues to hover around .80. The index of dissimilarity measures how evenly two groups are distributed across a certain geographic area; high levels of segregation are considered to be above .60.  
 
While financial industry reforms are necessary and important steps on the way to financial equity, changes must also be made to address the broader structure of discrimination and inequality. To see Dr. Squires’ full testimony and policy recommendations, click here.