Mortgage Crisis Tainted by Racism

Racial segregation policies by builders, corporations and the federal government help us understand the current mortgage crisis, University of Minnesota housing studies Professor Jeff Crump said November 6 at a forum sponsored by Jewish Community Action.

Housing segregation has been furthered through zoning laws, restrictive deed covenants and discrimination by real estate and mortgage companies. The 1938 FHA underwriting manual specified the “prohibition of the occupancy of properties except for the race for which they are intended. Lenders refused to provide mortgages in minority or integrated neighborhoods, Crump said. Minorities were rank ordered in terms of suitability for mortgages.

Redlining, where real estate companies basically dictated where minorities could live, resulted in the deterioration of minority neighborhoods. The Community Reinvestment Act in the 1970s mandated nondiscriminatory lending. By the 1990s, “green lining” emerged where predatory lenders discriminated against minorities in the cost of credit.

The current housing foreclosure crisis is the product of subprime marketing to racially segregated neighborhoods that were redlined a generation ago, he added. The historical geographic patterns of discrimination are being reinforced by the current crisis, Crump said. A moratorium on foreclosures would help but the hedge fund managers say “no” to that idea.

Hennepin County Commissioner Gail Dorfman said the crisis has spread to the suburbs and the suburbs could expect federal money to address blight resulting from vacant homes. What will become of Minneapolis’ Northside community? Lack of a federal law against predatory lending is a serious issue.

Some of the fallout from the foreclosures and unemployment include domestic abuse and suicides in Minneapolis, Dorfman added.

Recommended background reading For a historical perspective on this issue, I suggest reading Upton Sinclair’s book, The Jungle, which details how recent immigrants to Chicago at the turn of the century were victims of housing industry and predatory lending abuses. Many evictions resulted and occupants thought they were buying when in fact they were actually renting.

JCA is identifying Northside residents with adjusted rate mortgages with upcoming reset dates. In partnership with community groups they will contact these residents and invite them to meetings with foreclosure counselors.

David Zarkin is retired from Minnesota state government and is a former reporter for UPI and The Idaho Statesman.