Myron Orfield says mortage bankers ripped off homeowners in the Twin Cities to the tune of $20.5 billion through redlining and racist practices from 2008 to 2012. As the charts above show, minority areas were targeted for subprime loans—which meant higher rates and higher fees, which meant homeowners were more likely to default on their mortgages.
In his recently released “Twin Cities Lending Report,” written for the Institute on Metropolitan Opportunity at the University of Minnesota’s Law School, he says, “Between 2008 and 2012, the estimated loss from foreclosures and declining property values in the entire Twin Cities metropolitan area was a staggering $20.5 billion.”
“Communities of color have been hardest hit by the mortgage meltdown. Before the housing crisis, subprime lenders targeted people of color, racially diverse neighborhoods and majority non-white areas. Between 2004 and 2006, exactly half of the mortgage loans received by black homeowners were subprime, compared to 37% for Hispanics, 20% for Asians and just 10% for whites.
“Though blacks and Hispanics typically have lower incomes than white borrowers, income differences do not explain the disparities—very high income blacks and Hispanics were more likely to receive subprime loans than very low income whites. In fact, very high income blacks were 3.8 times more likely to receive subprime loans for home purchases than very low income whites, and 1.9 times more likely to receive subprime refinance loans. Although income is not the sole determinant of whether applicants obtain loans, it is hard to believe that credit profiles or economic factors other than income could justify differences of this magnitude between very high income black applicants and very low income white applicants.
“Majority non-white and racially diverse tracts had subprime lending rates at 1.8 to 2.6 times greater than predominately white tracts (more than 70% white). In these areas, both borrowers that are white and people of color have been affected, regardless of their income. Even high and very high income whites were 1.8 to 2.9 times more likely to receive a subprime loan in majority non-white areas than their counterparts in predominately white areas.”
In the Phillips community from 2004 to 2006, banks made 986 loans to homeowners. 38% of those loans were subprime. Out of the 393 loans to white homeowners, 22% were subprime, and out of the 462 loans to minorities, 50% were subprime. In Powderhorn in the same period, out of 4,917 loans, 28% were subprime, and of that number, 2,811 were to whites and 19% were subprime, and of the 1,441 loans to minorities, 44% were subprime. In Nokomis out of 5,864 loans, 17% were subprime. Out of 4,215 loans to whites, 14% were subprime. Out of 801 loans to minorities, 39% were subprime. In Longfellow, 17% of the 2,945 loans were subprime. Out of 2,121 loans to whites, 13% were subprime. Out of 375 loans to minorities, 36% were subprime.
“Although most mortgage lenders of every size in the Twin Cities have a poor track record of lending to communities of color, disparities with the largest lenders have had the greatest impact regionwide. The region’s largest lender (Wells Fargo) accounted by itself for about a fourth of the lending shortfalls in the region’s racially diverse and predominantly non-white neighborhoods.”
The devastation that subprime lending by Wells Fargo has done to minority communities in North and South Minneapolis is, in the final analysis, incalculable. We can’t measure the pain and suffering of losing a home, of families being uprooted, of children having their education interrupted. But Orfield gives us some idea of how much real worth in real estate value was taken from our communities by Wells Fargo.
If Orfield is correct when he says, “Between 2008 and 2012, the estimated loss from foreclosures and declining property values in the entire Twin Cities metropolitan was a staggering $20.5 billion,” and if the losses to Minneapolis were half that amount, or $10 billion, then if Wells Fargo accounted for 25% of the subprime loans in Minneapolis during that period, then Wells Fargo owes the City of Minneapolis $2.5 billion.
Our elected officials are sworn to protect the public welfare. Racist acts of discrimination and redlining of communities is illegal. Our elected officials have a responsibility to enforce the laws, arrest and prosecute the criminals and recover damages on behalf of the victims of these crimes. For many of the homeowners it’s too late. Their homes have become vacant lots. They’ve moved on. But they are entitled to recovery of damages. For those homeowners still paying subprime mortgages, they are entitled to damages, and Wells Fargo must be compelled to renegotiate those loans without the taint of racism or redlining.
We, the City of Minneapolis, are perhaps the biggest victims. Our communities have been destroyed. The tax base has been severely damaged. Emergency services have been strained. Our city government must take the lead in fighting for justice in this struggle—to repair the damage that has been done, to help those still struggling against this injustice, and to make sure that future generations not suffer this same tragedy.
A commentary by David Tilsen
In addition to punishing the criminals, there is more the city can do. The city can use its powers of eminent domain to take ownership of the foreclosed properties or of properties facing foreclosure. This would require paying the fair market value for the properties, which are often less than the outstanding mortgage. The city could then sell the property to the previous homeowner or to another resident homeowner for the home’s current value. No loss to the city, effectively a fair compensation to the bank (more than they deserve) and a renegotiation for the homeowner. The neighborhood gets a lived-in home, instead of a boarded up danger, and the tax base in the city gets a little better. We are all winners. The city has used its eminent domain authority to help the Federal Reserve Bank, Target, Wells Fargo, The Minnesota Vikings billionaire owner, and many more wealthy individuals and corporations. We believe it is time that the city use this power for the good of the community and the hardworking residents of the city.