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NY Times: "The New Poor" -- surprise, Black like the old poor, thanks to banks' racism

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  • Michael Novick
    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
    Message 1 of 1 , May 31 8:21 PM
      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 »
      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.

      “I’m going to tell you the deal, plain-spoken:
      I’m 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. “I’m proud of what I’ve
      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 Institute’s 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. “It’s 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 bank’s
      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 Department’s 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 nation’s 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, it’s a new world. And not a good one.”

      Porch View

      “You don’t want to walk up there! That’s 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.

      “We’re 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 it’s 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 city’s 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 aren’t 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 don’t think it’s 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, you’d expect to see other banks with
      the same ratio of foreclosures in the black
      community,” he said. “But you don’t. 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 Banks’s 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 mother’s 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 nation’s 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. “We’re
      all just begging to stay in our homes, basically.”
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