The social structure of mortgage discrimination

Abstract

In the decade leading up to the US housing crisis, black and Latino borrowers disproportionately received high-cost, high-risk mortgages—a lending disparity well documented by prior quantitative studies. We analyse qualitative data from actors in the lending industry to identify the social structure though which this mortgage discrimination took place. Our data consist of 220 depositions, declarations and related exhibits submitted by borrowers, loan originators, investment banks and others in fair lending cases. Our analyses reveal specific mechanisms through which loan originators identified and gained the trust of black and Latino borrowers in order to place them into higher cost, higher risk loans than similarly situated white borrowers. Loan originators sought out lists of individuals already borrowing money to buy consumer goods in predominantly black and Latino neighbourhoods to find potential borrowers, and exploited intermediaries within local social networks, such as community or religious leaders, to gain those borrowers’ trust.

Keywords:

• Housing finance
• discriminatory lending
• racial equity

Notes

1. This steering of prime-eligible borrowers into subprime mortgages is one of multiple lending practices that can be characterized as predatory, including charging excessive rates or fees, ignoring a borrower’s ability to repay the loan and incorporating abusive or unnecessary provisions that do not benefit the borrower, such as large prepayment penalties or balloon payments (Carr & Kolluri, 2001).

2. The Supreme Court decided a similar case in 2017, Bank of America v. City of Miami (2017), affirming the Fair Housing Act’s broad standing doctrine by holding that the city and its claims regarding the harms of segregation and costs of discriminatory lending were within the zone of interests intended to be protected by the Fair Housing Act, but rejecting the 11th Circuit’s determination that proof of causation required pleading only that the harms of the banks’ discriminatory lending were foreseeable. The Court remanded the case for further consideration of proximate cause.