The financial services industry has wrung more money from racial minorities than any other force in modern U.S. history, researchers at the think tank United for a Fair Economy said Tuesday in a new assessment of the mortgage crisis gripping this country.
'The subprime lending debacle has caused the greatest loss of wealth to people of colour in modern U.S. history,' said the latest annual 'State of the Dream' report from research and advocacy group United for a Fair Economy (UFE).
To be sure, whites also have been mangled by the mortgage industry but the organisation's economic and social science researchers see clear evidence of racial discrimination in the distribution of substandard loans with ballooning interest rates among borrowers of different race but similar financial standing.
'If subprime loans had been distributed equitably, losses for white people would be 16.5 percent higher and losses for people of colour would be about 22 percent lower,' said the report.
'The almost 40 percent difference is the racial cost of subprime lending in the U.S. This is evidence of systemic prejudice and institutional racism,' it added.
People of colour people -- mainly African Americans and Latinos -- will have lost 163 billion-278 billion dollars to subprime loans taken during the past eight years by the time the crisis runs its course, researchers said.
Even before the current crisis, blacks were 594 years from achieving parity with whites in net worth, a measure of the value of an individual's or household's assets minus liabilities. The report based its figures on an analysis of official trends for 1982-2004.
For home ownership, long the principal or sole asset of those without great wealth, blacks were 5,423 years from equivalence with whites.
'The current crisis is likely to make it take much longer' to achieve parity, the report said.
Mortgage lenders, represented by the Mortgage Bankers Association, have defended subprime loans as necessary to enable them to extend credit to chancy borrowers, the alternative being to deprive those with low incomes or spotty credit histories from entering the housing market in the first place.
UFE remained unconvinced.
'In the hands of the mortgage lending industry, subprime loans became predatory loans -- a faulty product that was ruthlessly hawked even though financial institutions were aware of its defects,' UFE said.
'Hungry for new and different products, the financial services industry added features to these loans -- exploding adjustable rates, balloon payments, penalties for early re-payment -- that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all,' it added.
Whole communities are wrecked as pauperised borrowers default on loans and lenders repossess their homes.
Even a few foreclosures in a given neighbourhood can result in increased crime, the devaluation of surrounding properties, the erosion of the local tax base, and consequent revenue shortfalls that in turn force local authorities to cut public services.
In some U.S. cities, foreclosures have increased by as much as 300 percent since 2000. More than half a million U.S. borrowers have lost their homes since 2006 and the figure could rise to one million by the end of this year, according to industry sources.
'The crisis is having a negative impact on property owners as well as neighbourhoods and local and state governments,' the report said.
Local authorities, unhappy with the pace and scope of the federal response, have taken financial firms to court.
The city of Baltimore, in the eastern state of Maryland, filed a federal lawsuit last week accusing leading mortgage lender Wells Fargo & Co. of steering black borrowers to subprime mortgages while granting safer traditional loans to similar applicants who were white. The company denies the charges.
Cleveland, in Ohio, is suing 21 lenders in hopes of recouping lost taxes and money spent on cleaning up foreclosed homes that, it said, the lenders should have maintained. Buffalo, in northern New York, also is trying to hold lenders responsible for maintaining homes in foreclosure.
Additionally, Maryland officials have gathered evidence that lenders steered disproportionate numbers of women into subprime loans.
Tuesday's report recommended measures it said would promote and protect lower-class home ownership. It offered specific prescriptions but urged that broad economic inequalities be addressed in order to ensure their success.
U.S. taxpayers are able to deduct the cost of mortgage interest from their annual income tax bill, but the limit for the indirect subsidy is set so high and the bureaucratic steps required to claim it are so cumbersome that much of the benefit accrues to wealthy homeowners as two in three eligible taxpayers find it too costly and bothersome to apply for the deduction. The report urged fixing this.
UFE further recommended sticks and carrots to spur affordable housing, saying builders lack incentives to construct anything but expensive housing. The process and costs of securing a mortgage should be simplified, it added, and regulations governing truth in lending and the settlement of disputes should give borrowers greater protection.
Beyond such measures, the organisation urged restoring affirmative action, shorthand for diverse measures aimed at promoting equality and representation.
'Throughout the world, from Finland to Brazil to India to South Africa and in countless other countries, affirmative action policies for racial, ethnic, language, economic, gender, and other types of groups have been effectively used -- and are still used -- to fight institutional and historic discrimination,' the report said.
The United States, UFE lamented, began to turn its back on such policies following King's assassination in 1968.
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