2007: “Wealth Building” and the Great Recession
Big Idea
The history of housing segregation and exploitation continued into the 21st century as Bank of America and Wells Fargo devised a new scheme for enticing lower income Black families into risky home mortgages that resulted in the loss of millions in Black wealth.
What’s important to know?
The Great Recession: Banks targeted African American communities enticing them into unstable loans that eventually led to their losing their homes and to the Great Recession of 2008.
Market Impact: Even with laws to protect people of color from unfair real estate practices, transactions in the 2000s still reflected the ongoing issues of systemic racism in America and St. Louis.
The Impact in St. Louis: By July 2008, many African Americans in St. Louis lost their homes to foreclosure. Further aggravating this was the recession that made life even more challenging to those living with less financial reserve.
1: The Great Recession
Due to its long-segregated neighborhoods and municipalities, St. Louis was seriously affected by the Great Recession. Also known as the subprime mortgage crisis, the crash began in December 2007 and lasted until June 2009. Banks like Wells Fargo and Bank of America saw an opportunity to expand into a market desperate to own a home after decades of segregation and systemic racism that had forced them into renting. These lenders offered low-income African Americans what looked like a dream come true: low closing costs, low mortgage rates, and low monthly payments. What was kept hidden from many people of color were the terms of these subprime mortgages. As Coates (2014) notes,
When subprime lenders went looking for prey, they found black people waiting like ducks in a pen… in 2005, Wells Fargo promoted a series of Wealth Building Strategies seminars… but the “wealth building” seminars were a front for wealth theft. In 2010, the Justice Department filed a discriminatory suit against Wells Fargo alleging that the bank had shunted blacks into predatory loans regardless of their creditworthiness.
When interest rates rose on adjustable rate mortgages (ARMs) – which were the loans given to low-income people of color – their monthly payments increased. As banks bundled these loans and sold them to investors, rating agencies considered them a good risk, and so no one saw the crash coming. As interest rates rose in the mid-2000’s, more and more families missed their ever-increasing mortgage payments. And as more and more mortgage payments were missed, more and more banks, like Wells Fargo and Bank of America, foreclosed on properties that were, in most respects, dream homes for families who had been targeted for predatory loans.
2: Market Impacts
The market crash of 2008 revealed, yet again, the long history of systemic racism in American financial and housing markets. Ballooning foreclosure rates, the loss of value for “mortgage-backed securities (MBS) and derivatives,” and the decline of “solvency of over-leveraged banks and financial institutions” (AIG, Lehman Brothers, etc.) caused the Great Recession (Picardo, 2018). Despite laws and regulations enacted to protect people of color from speculators, flippers, and unethical lenders, the real estate transactions in the 2000s continued the long history of systemic racism in America and in the St. Louis area.
While the system benefitted many White individuals, it was structured to control Black advancement and limit their attainment of wealth. African Americans who lacked historic wealth as a result of enslavement and redlining, continued to be forced into housing areas with much less value, and were often defrauded out of housing situations that would normally provide wealth advancement for White Americans. As Bonilla-Silva (2018) notes
The available data on wealth indicate that the disparities in this important area [of wealth accumulation] are greater than in any other economic area, and they are increasing. Blacks owned only 3 percent of U.S. assets in 2001, even though they constituted thirteen percent of the U.S. population. In 2013, the median net worth of whites, $141,900, was about thirteen times that of blacks, which was only $11,000. This represents the largest gap in black-white wealth since the late 1980s. (p. 48)
The exploitation of the African American community by the banking community and ongoing discrimination in housing further segregated Black from White America.
3: The Impact in St. Louis
By July 2008, thousands of people in the St. Louis area lost their homes due to foreclosure. This was further exacerbated by the Great Recession. When it hit, it further devastated the working class and African American communities in the St. Louis area.
Outside of the city, the crippling effect of the recession was exacerbated by the closure of the Chrysler minivan plant in Fenton, Missouri, causing a total loss of “43,000 jobs, when factoring the impact the layoffs had on suppliers and businesses that catered to its workers” (Delach Leonard, 2018, par. 17). Then the situation further deteriorated for the St. Louis African American community when in May 2009, Chrysler closed its north St. Louis plant “which built Ram trucks” (Delach Leonard, 2018, par. 32). Similarly, in December 2008, “U.S. Steel idle[d] its century-old Granite City plant for the first time in its history and laid off about 2,000 workers. The plant would reopen in mid-2009, but halt steel production again in 2015” (Delach Leonard, 2018, par. 23).
The compounding losses of homes and jobs particularly affected those poorer, working class communities within the St. Louis area. Though the Great Recession had affected the entire region, the years of strategic municipal siloing of low-income housing paired with industrial zoning practices led to a situation where communities of color in St. Louis City and North St. Louis County experienced the brunt of the impact.
Your Turn
How did the pattern of home exploitation continue with the subprime loan mortgage crises in 2008? How does this underscore Saidiya Hartman’s “afterlife of slavery” theory?
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NPR article (2008) on “Black Households hit hard by Mortgage Crises.”
Report from the National Low Income Housing Coalition, “Report Shows African Americans Lost Half Their Wealth Due to Housing Crisis and Unemployment.”
Fischer, L. (2010). TARGET MARKETING OF SUBPRIME LOANS: RACIALIZED CONSUMER FRAUD & REVERSE REDLINING. Journal of Law and Policy, 18(1).
Sarra, J., & Wade, C. L. (2020). Predatory Lending Targeted African Americans. In Predatory Lending and the Destruction of the African-American Dream (pp. 69–115). chapter, Cambridge: Cambridge University Press.
Phillips, S. (2012). The Subprime Mortgage Calamity and the African American Woman. The Review of Black Political Economy, 39(2), 227-237. https://doi.org/10.1007/s12114-011-9107-1
Hackworth, J. (2019). Manufacturing Decline: How Racism and the Conservative Movement Crush the American Rust Belt. Columbia University Press.
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Lesson from Wharton Business School on teaching the Subprime Mortgage Crises.
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General Resources:
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Carr, J. H., Anacker, K., and Mulcahey, M. The Foreclosure Crisis and Its Impact on Communities of Color: Research and Solutions. National Community Reinvestment Commission.
Coates, T. N. (2014, June). A case for reparations. The Atlantic. https://www.theatlantic.com/magazine/archive/2014/06/the-case-for-reparations/361631/
Sarra, J., & Wade, C. L. (2020). Predatory Lending and the Destruction of the African-American Dream. Cambridge: Cambridge University Press.
Taylor, Keeanga-Yamahtta. (2019). Race for Profit : How Banks and the Real Estate Industry Undermined Black Homeownership. University of North Carolina Press.
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Bonilla-Silva, E. (2018). Racism without racists: Color-blind racism and the persistence of racial inequality in America. (3rd edition). Rowman & Littlefield Publishers.
Coates, T. N. (2014, June). A case for reparations. The Atlantic. https://www.theatlantic.com/magazine/archive/2014/06/the-case-for-reparations/361631/
Delach Leonard, M. (2018). Economy has recovered, but St. Louis woman's American Dream is still gone. STLPR, NPR.
Picardo, E. (2018). The great recession. Investopedia. https://www.investopedia.com/terms/g/great-recession.asp