Economic Justice, Subprime lending, and the Erosion of Black Americans’ Wealth

On Sunday, the Washington Post ran a piece entitled “For black Americans, financial damage from subprime implosion is likely to last.” The piece effectively chronicles the rise in importance of the credit score, a seemingly neutral measure of a person’s worthiness of credit, and the disproporionate impact subprime lending has had on the black community, including the black middle class. As Ylan Miu writes, “For most people, credit is the key to accessing the trappings of the American Dream, such as higher education and homeownership. That makes the scores, and the detailed personal financial reports that accompany them, one of the most important factors in determining financial opportunity.”

Profitable subprime loans became a massive industry, but introduced significant financial instability into the economy – instability that ultimately led to the 2007 housing crisis and accompanying economic turmoil. The recently released Federal Reserve Survey of Consumer Finances and Pew research on wealth disparities present data showing the dramatic impact of the crisis, particularly on Americans of color. Our Assets Report infographic, shows this disparity clearly: for example, black Americans lost 66% of their wealth between 2005 and 2009, compared with just 16% for white Americans.

As the Post explains, the impact of the crisis is not only on the current economic situation of families. Financial problems stemming from the housing crisis have mushroomed for many families, resulting in damaged credit scores. Credit scores can take years to improve after unfavorable records drag them down. For families this may mean that financial recovery is a long way off: as one woman remarked in light of her overwhelming financial situation: “I don’t really think there is such a thing as catching up.”

The words of civil rights attorney John Relman in the Post provide some context to this gap in wealth declines: “Race and economic injustice always go together in this country,” he explains. Racially discriminatory lending practices, disparate access to credit and wealth building opportunities, and a broader lack of economic opportunity remain embedded in the social and economic fabric of the U.S. Until we’re able to end these forms of structural inequality, we’re going to have a very hard time seeing much improvement in the racial wealth gap and the economic prosperity for millions of Americans of color.

The whole article is worth a read.