The New Poor
Blacks in Memphis Lose Decades of Economic Gains
Josh Anderson for The New York Times
Tyrone Banks in his home in Memphis. He is in
danger of losing it after the payments on his
mortgage rose and he lost his job at FedEx. More Photos »
By MICHAEL POWELL
Published: May 30, 2010
MEMPHIS For two decades, Tyrone Banks was one
of many African-Americans who saw his economic
prospects brightening in this Mississippi River city.
The New Poor
The Foreclosure Chasm
Articles in this series will examine the struggle
to recover from the widespread strains of the Great Recession.
A single father, he worked for FedEx and also as
a custodian, built a handsome brick home, had a
retirement account and put his eldest daughter through college.
Then the Great Recession rolled in like a fog
bank. He refinanced his mortgage at a rate that
adjusted sharply upward, and afterward he lost
one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.
Im going to tell you the deal, plain-spoken:
Im a black man from the projects and I clean
toilets and mop up for a living, said Mr. Banks,
a trim man who looks at least a decade younger
than his 50 years. Im proud of what Ive
accomplished. But my whole life is backfiring.
Not so long ago, Memphis, a city where a majority
of the residents are black, was a symbol of a
South where racial history no longer tightly
constrained the choices of a rising black working
and middle class. Now this city epitomizes
something more grim: How rising unemployment and
growing foreclosures in the recession have
combined to destroy black wealth and income and
erase two decades of slow progress.
The median income of black homeowners in Memphis
rose steadily until five or six years ago. Now it
has receded to a level below that of 1990 and
roughly half that of white Memphis homeowners,
according to an analysis conducted by Queens
College Sociology Department for The New York Times.
Black middle-class neighborhoods are hollowed
out, with prices plummeting and homes standing
vacant in places like Orange Mound, White Haven
and Cordova. As job losses mount black
unemployment here, mirroring national trends, has
risen to 16.9 percent from 9 percent two years
ago; it stands at 5.3 percent for whites many
blacks speak of draining savings and retirement
accounts in an effort to hold onto their homes.
The overall local foreclosure rate is roughly twice the national average.
The repercussions will be long-lasting, in
Memphis and nationwide. The most acute economic
divide in America remains the steadily widening
gap between the wealth of black and white
families, according to a recent study by the
Institute on Assets and Social Policy at Brandeis
University. For every dollar of wealth owned by a
white family, a black or Latino family owns just
16 cents, according to a recent Federal Reserve study.
The Economic Policy Institutes forthcoming The
State of Working America analyzed the
recession-driven drop in wealth. As of December
2009, median white wealth dipped 34 percent, to
$94,600; median black wealth dropped 77 percent,
to $2,100. So the chasm widens, and Memphis is
left to deal with the consequences.
This cancer is metastasizing into an economic
crisis for the city, said Mayor A. C. Wharton
Jr. in his riverfront office. Its done more to
set us back than anything since the beginning of the civil rights movement.
The mayor and former bank loan officers point a
finger of blame at large national banks in
particular, Wells Fargo. During the last decade,
they say, these banks singled out blacks in
Memphis to sell them risky high-cost mortgages and consumer loans.
The City of Memphis and Shelby County sued Wells
Fargo late last year, asserting that the banks
foreclosure rate in predominantly black
neighborhoods was nearly seven times that of the
foreclosure rate in predominantly white
neighborhoods. Other banks, including Citibank
and Countrywide, foreclosed in more equal measure.
In a recent regulatory filing, Wells Fargo hinted
that its legal troubles could multiply. Certain
government entities are conducting investigations
into the mortgage lending practices of various
Wells Fargo affiliated entities, including
whether borrowers were steered to more costly
mortgage products, the bank stated.
Wells Fargo officials are not backing down in the
face of the legal attacks. They say the bank made
more prime loans and has foreclosed on fewer
homes than most banks, and that the worst
offenders those banks that handed out bushels
of no-money-down, negative-amortization loans have gone out of business.
The mistake Memphis officials made is that they
picked the lender who was doing the most lending
as opposed to the lender who was doing the worst
lending, said Brad Blackwell, executive vice
president for Wells Fargo Home Mortgage.
Not every recessionary ill can be heaped upon
banks. Some black homeowners contracted the
buy-a-big-home fever that infected many Americans
and took out ill-advised loans. And unemployment
has pitched even homeowners who hold conventional mortgages into foreclosure.
Federal and state officials say that high-cost
mortgages leave hard-pressed homeowners
especially vulnerable and that statistical patterns are inescapable.
The more segregated a community of color is, the
more likely it is that homeowners will face
foreclosure because the lenders who peddled the
most toxic loans targeted those communities,
Thomas E. Perez, the assistant attorney general
in charge of the Justice Departments civil
rights division, told a Congressional committee.
The reversal of economic fortune in Memphis is
particularly grievous for a black professional
class that has taken root here, a group that
includes Mr. Wharton, a lawyer who became mayor
in 2009. Demographers forecast that Memphis will
soon become the nations first majority black metropolitan region.
That prospect, noted William Mitchell, a black
real estate agent, once augured for a fine future.
Our home values were up, income up, he said. He
pauses, his frustration palpable. What we see
today, its a new world. And not a good one.
You dont want to walk up there! Thats the
wild, wild west, a neighbor shouts. Nothing on
that block but foreclosed homes and squatters.
To roam Soulsville, a neighborhood south of
downtown Memphis, is to find a place where
bungalows and brick homes stand vacant amid
azaleas and dogwoods, where roofs are swaybacked
and thieves punch holes through walls to strip
the copper piping. The weekly newspaper is swollen with foreclosure notices.
Here and there, homes are burned by arsonists.
Yet just a few years back, Howard Smith felt like
a rich man. A 56-year-old African-American
engineer with a gray-flecked beard, butter-brown
corduroys and red sneakers, he sits with two
neighbors on a porch on Richmond Avenue and talks
of his miniature real estate empire: He owned a
home on this block, another in nearby White Haven
and another farther out. His job paid well; a pleasant retirement beckoned.
Then he was laid off. He has sent out 60
applications, obtained a dozen interviews and
received no calls back. A bank foreclosed on his
biggest house. He will be lucky to get $30,000
for his house here, which was assessed at $80,000 two years ago.
It all disappeared overnight, he says.
Mmm-mm, yes sir, overnight, says his neighbor,
Gwen Ward. In her 50s, she, too, was laid off,
from her supervisory job of 15 years, and she
moved in with her elderly mother. It seemed we
were headed up and then she snaps her fingers it all went away.
Mr. Smith nods. The banks and Wall Street have
taken the middle class and shredded us, he says.
For the greater part of the last century, racial
discrimination crippled black efforts to buy
homes and accumulate wealth. During the
post-World War II boom years, banks and real
estate agents steered blacks to segregated
neighborhoods, where home appreciation lagged far
behind that of white neighborhoods.
Blacks only recently began to close the home
ownership gap with whites, and thus accumulate
wealth progress that now is being erased. In
practical terms, this means black families have
less money to pay for college tuition, invest in
businesses or sustain them through hard times.
Were wiping out whatever wealth blacks have
accumulated it assures racial economic
inequality for the next generation, said Thomas
M. Shapiro, director of the Institute on Assets
and Social Policy at Brandeis University.
The African-American renaissance in Memphis was
halting. Residential housing patterns remain
deeply segregated. While big employers FedEx
and AutoZone have headquarters here, wage
growth is not robust. African-American employment
is often serial rather than continuous, and many
people lack retirement and health plans.
But the recession presents a crisis of a different magnitude.
Mayor Wharton walks across his office to a
picture window and stares at a shimmering
Mississippi River. He describes a recent drive
through ailing neighborhoods. It is akin, he
says, to being a doctor looking for pulse rates
in his patients and finding them near death.
He adds: I remember riding my bike as a kid
through thriving neighborhoods. Now its like someone bombed my city.
Banking on Nothing
Camille Thomas, a 40-year-old African-American,
loved working for Wells Fargo. I felt like I
could help people, she recalled over coffee.
As the subprime market heated up, she said, the
bank pressure to move more loans for autos, for
furniture, for houses edged into mania. It was
all about selling your units and getting your bonus, she said.
Ms. Thomas and three other Wells Fargo employees
have given affidavits for the citys lawsuit
against the bank, and their statements about bank
practices reinforce one another.
Your manager would say, Let me see your
cold-call list. I want you to concentrate on
these ZIP codes, and you knew those were
African-American neighborhoods, she recalled.
We were told, Oh, they arent so savvy.
She described tricks of the trade, several of
dubious legality. She said supervisors had told
employees to white out incomes on loan
applications and substitute higher numbers.
Agents went fishing for customers, mailing live
checks to leads. When a homeowner deposited the
check, it became a high-interest loan, with a
rate of 20 to 29 percent. Then bank agents tried
to talk the customer into refinancing, using the house as collateral.
Several state and city regulators have placed
Wells Fargo Bank in their cross hairs, and their
lawsuits include similar accusations. In
Illinois, the state attorney general has accused
the bank of marketing high-cost loans to blacks
and Latinos while selling lower-cost loans to
white borrowers. John P. Relman, the Washington,
D.C., lawyer handling the Memphis case, has sued
Wells Fargo on behalf of the City of Baltimore,
asserting that the bank systematically exploited black borrowers.
A federal judge in Baltimore dismissed that
lawsuit, saying it had made overly broad claims
about the damage done by Wells Fargo. City lawyers have refiled papers.
I dont think its going too far to say that
banks are at the core of the disaster here, said
Phyllis G. Betts, director of the Center for
Community Building and Neighborhood Action at the
University of Memphis, which has closely examined bank lending records.
Former employees say Wells Fargo loan officers
marketed the most expensive loans to black
applicants, even when they should have qualified
for prime loans. This practice is known as reverse redlining.
Webb A. Brewer, a Memphis lawyer, recalls poring
through piles of loan papers and coming across
name after name of blacks with subprime
mortgages. This is money out of their pockets
lining the purses of the banks, he said.
For a $150,000 mortgage, a difference of three
percentage points the typical spread between a
conventional and subprime loan tacks on $90,000
in interest payments over its 30-year life.
Wells Fargo officials say they rejected the worst
subprime products, and they portray their former
employees as disgruntled rogues who subverted bank policies.
They acknowledged that they knowingly worked to
defeat our fair lending policies and controls,
said Mr. Blackwell, the bank executive.
Bank officials attribute the surge in black
foreclosures in Memphis to the recession. They
say that the average credit score in black Census
tracts is 108 points lower than in white tracts.
People who have less are more vulnerable during
downturns, said Andrew L. Sandler of Buckley
Sandler, a law firm representing Wells Fargo.
Mr. Relman, the lawyer representing Memphis, is
unconvinced. If a bad economy and poor credit
explains it, youd expect to see other banks with
the same ratio of foreclosures in the black
community, he said. But you dont. Wells is the outlier.
Whatever the responsibility, individual or
corporate, the detritus is plain to see. Within a
two-block radius of that porch in Soulsville,
Wells Fargo holds mortgages on nearly a dozen
foreclosures. That trail of pain extends right out to the suburbs.
Begging to Stay
To turn into Tyrone Bankss subdivision in
Hickory Ridge is to find his dream in seeming
bloom. Stone lions guard his door, the bushes are
trimmed and a freshly waxed sport utility vehicle sits in his driveway.
For years, Mr. Banks was assiduous about paying
down his debt: he stayed two months ahead on his
mortgage, and he helped pay off his mothers mortgage.
Two years ago, his doorbell rang, and two men
from Wells Fargo offered to consolidate his
consumer loans into a low-cost mortgage.
I thought, This is great! Mr. Banks says.
When you have four kids, college expenses, you look for any savings.
What those men did not tell Mr. Banks, he says
(and Ms. Thomas, who studied his case, confirms),
is that his new mortgage had an adjustable rate.
When it reset last year, his payment jumped to $1,700 from $1,200.
Months later, he ruptured his Achilles tendon
playing basketball, hindering his work as a
janitor. And he lost his job at FedEx. Now foreclosure looms.
He is by nature an optimistic man; his smile is rueful.
Man, I should I have stayed old school with my
finances, he said. I sat down my youngest son
on the couch and I told him, These are rough times.
Many neighbors are in similar straits.
Foreclosure notices flutter like flags on the
doors of two nearby homes, and the lawns there
are overgrown and mud fills the gutters.
Wells Fargo says it has modified three mortgages
for every foreclosure nationwide although bank
officials declined to provide the data for
Memphis. A study by the Neighborhood Economic
Development Advocacy Project and six nonprofit
groups found that the nations four largest
banks, Wells Fargo, Bank of America, Citigroup
and JPMorgan Chase, had cut their prime mortgage
refinancing 33 percent in predominantly minority
communities, even as prime refinancing in white
neighborhoods rose 32 percent from 2006 to 2008.
For Mr. Banks, it is as if he found the door wide
open on his way into debt but closed as he tries to get out.
Some days it feels like everyone I know in
Memphis is in trouble, Mr. Banks says. Were
all just begging to stay in our homes, basically.