From his time overseeing credit default swaps as a partner at Goldman Sachs in Manhattan to his job heading foreclosure filings at OneWest Bank in Pasadena, Steve Mnuchin, President-elect Donald Trump’s nominee for Treasury Secretary, has been tagged by Sen. Elizabeth Warren the “Forrest Gump of the financial crisis.” The disclosure of OneWest’s pernicious foreclosure practices during the Great Recession—while the bank was headed by Mnuchin—has brought forth a great hooting and hollering of news coverage and Congressional outrage. Mnuchin has been labeled the “foreclosure machine,” the “foreclosure king,” the “anti-populist from hell.” Seemingly every newsroom has run (at least) one round of stories castigating his notoriously corrupt lending record. And now, as the confirmation hearing for Trump’s prospective Treasury Secretary nears, the next round of stories revealing Mnuchin’s bad-faith banking has begun to be posted to news sites and advocacy-group forums.
Meanwhile, OneWest and Mnuchin have also been accused of flagrantly employing the practice of redlining, a euphemism for forced racial housing segregation. The data is clear. The case is considerable. And yet the accusation that Mnuchin and OneWest practiced widespread housing discrimination has drawn a relative whisper. Only a handful of news outlets have covered the charge. A headline here. A sentence there. No independent media or Congressional investigations have been opened to judge Mnuchin’s redlining culpability. His turn as a movie producer of the likes of X-Men and Avatar has made more noise. For it appears we have entered a new political era in housing reform in which the camera’s focus has shifted from the Civil Rights Movement to Occupy Wall Street, an age in which racial segregation and urban blight have been replaced on the front page by the epidemic of callous foreclosures and “too big to fail.”
This very lack of attention on the allegation of OneWest’s redlining is indicative of the problem. Although illegal and deemed culturally unacceptable in the mainstream, redlining endures discreetly. So that, the questions become, if Mnuchin is found to have authorized the racist practice, can he be entrusted to serve as the cabinet member in charge of the nation’s monetary regulations, the lead administrator assessing many of this country’s discriminatory complaints and the overseer of the Community Development Financial Institution Fund, the very bureau that works to “expand economic opportunity for underserved people” and further “economic revitalization?” Forty-nine years after the passage of the Fair Housing Act, should a clear signal be sent that such racist actions will not be tolerated?
It is of both symbolic and concrete concern. Symbolically, with the long-standing practices of segregation by local, state and federal governments and now the appointment of an allegedly aggressive redliner in Mnuchin as Treasury Secretary, the “government imprimatur normalize[s] a series of ethnic and racial prejudices, ” argues the Harvard Professor and Dean of the Radcliffe Institute for Advanced Study Lizabeth Cohen. At the same time, on concrete grounds, as Slate’s Jamelle Bouie and Emily Badger, then of The Washington Post, have thoroughly outlined, “racism is still rampant in real estate.”
Redlining is the banking scheme of not lending mortgages to minorities in majority white neighborhoods. During the heyday of segregation, northern lenders aggressively employed the informal practice of segregation in lieu of the unabashed, violent methods of segregation carried out in the South. The idea was that an all-white neighborhood would yield higher rents than a mixed or minority neighborhood. Mortgages would be paid. Driveways would be paved. The idea was that by redlining, landlords could keep their properties clean of the “taint” of minorities.
In 2014 and 2015, across a swath of land in Southern California where 52 branches of Mnuchin’s OneWest were located, the bank doled out only two mortgages to African American borrowers. The advocacy group California Reinvestment Coalition (CRC) found that, out of the bank’s 74 Southern Californian locations, none were placed in majority African American neighborhoods. Mnuchin’s bank located only eleven in Latino communities while Asian areas housed one.
Branch data and mapping by National Community Reinvestment Coalition and CRC
Furthermore, in 2015, Latinos made up 43.3% of Los Angeles residents. While the industry average of mortgages loaned to Latinos was 22.4%, only a paltry 8.4% of OneWest’s loans were given to Latinos. African Americans were less than half as likely to receive a mortgage when compared to the industry standard. Most mercilessly, during the Great Recession, in 2009, the bank lent only 424 mortgages in majority minority neighborhoods while foreclosing on 11,970 homes in those same zip codes, a ratio of 1 to 28.
Branch data and mapping by National Community Reinvestment Coalition and CRC
The Fair Housing Advocates of Northern California (FHANC), one of CRC’s partners in investigating Mnuchin’s bank, observed that in white neighborhoods serviced by OneWest, nearly all of the lawns in front of REO [Real-Estate Owned] homes were well-mown, healthy green and clearly picketed “for sale.” By contrast, OneWest’s minority neighborhoods were ravaged by blight as if exploited and forgotten.
The executive director of FHANC, Caroline Peattie, found yards replete with dead and overgrown grass, littered with garbage. Among unswept leaves, untamed plants and untended shrubs, weeds tangled out of freshly fractured cracks. Peattie noted busted fences. She saw “unsecured” and “broken doors.” Some were “boarded-up” like many of the windows (if they weren’t smashed.) Siding was busted. Gutters hung or were missing. Some utilities appeared “exposed or tampered with-.” And unlike their white-owned counterparts, these lots lacked visible “for sale” notices. According to FHANC, 61.5% of REO properties in these majority minority communities exhibited such signs of urban decay while in white neighborhoods, Mnuchin’s bank dutifully kept all of the REO homes well-maintained and ready for sale.
The figures are drawn from studies by the pair of fair-housing advocacy groups CRC and FHANC with the aid of the Urban Strategies Council and the National Community Reinvestment Strategies Council. The advocacy groups lodged a joint grievance against OneWest’s discriminatory policies with the Department of Housing and Urban Development (HUD) in mid-November. Their hope is that HUD will mandate CIT bank (formerly OneWest) to open branches in majority minority neighborhoods, fix up their crumbling REOs and lend at an equivalent interest rate to minorities or face federal fines.
For his part, Mnuchin denies the charges and declines to comment on the issue. Former CEO Joseph Otting maintains that their bank “worked hard to focus on building an easily accessible platform serving all clients and all communities across its physical network of branches.” Through thin times, Otting adds, the company line persisted: “while new mortgage originations were minimal in 2014 and 2015, OneWest remained committed to fair lending.”
And yet during that part of 2014 and 2015, Mnuchin and Otting’s bank “was far more likely to foreclose in communities of color than to make loans available,” CRC’s Associate Director Kevin Stein shoots back. Two-thirds of the bank’s 25,000 foreclosures between 2009-2015 were handed out to minorities. For years Mnuchin’s OneWest has boasted of their extending affordable housing. But, as Stein sums up his coalition’s findings, “the branches aren’t really there, and the home-lending is not really there. It’s like what are they doing? What is this bank? They’re primarily foreclosing on people…kind of like a foreclosure machine.”
Branch data and mapping by CRC
It was a journey for Mnuchin from successful New York hedge-fund manager to successful Pasadenan bad-faith banker. OneWest was actually a new name slapped onto the insolvent IndyMac bank, “one of the first major lenders to collapse as a result of its [mortgage] portfolio” and the second largest bank to crash during the Great Recession. The transformation of the crumbling IndyMac to the booming OneWest became the stuff of legends in the industry—the golden bank “born from the ashes of [a] failed high-risk home lender,” exclaimed the Los Angeles Times—and made Mnuchin, perhaps not a god or a titan of industry, at least an expert in assessing risk and rebranding. (The redlining was, of course, for a different story.)
The bankrupt IndyMac combined a toxic mix of frequent loan-servicing with Fannie Mae and Freddie Mac with a collection of tens of thousands of subprime and predatory mortgages. Still living in Manhattan, Mnuchin first set sight on the ailing lender in far-off Southern California while watching a TV news segment that pictured an angry line of customers trailing out of the doors of an IndyMac branch. That “bank is going to end up failing,” Mnuchin turned to a co-worker. For it wasn’t misfortune but opportunity that caught Mnuchin’s eye. The lines at IndyMac, the bank scare, it all reminded him of the savings and loan crisis of the Reagan years. “We need to figure out how to buy it,” he concluded. “I’ve seen this game before.”
Due to a strategy of President Barack Obama’s administration that focused on bank bailouts and stimulus spending to dig out of the financial crisis of 2008, as Bloomberg recalled, the federal government, “through its discount window, was practically giving money away.” Amidst the collapse, “a run on the [IndyMac] bank triggered its takeover” by the Federal Deposit Insurance Corporation (FDIC). At a price tag of $13 billion, the deal amounted to the most expensive handout of federal bank deposit funds ever. And after bailing out the failing IndyMac, the FDIC needed to offer a sweetheart deal to unload the enfeebled asset on a willing buyer. “In 2008 the world was a scary place,” Mnuchin recalled. “When we agreed to buy the bank, committing capital to the financial system was viewed as a pretty risky proposition.” A similar anxiety arose from the other end of the bargaining table. “There was no price certainty at that point,” the former FDIC Chairman William Isaac remembered. “The financial markets had ceased functioning, nobody wanted to buy anything.” To put a cherry on it, seemingly intent on bringing together all of the bad-faith actors of the financial crash, the FDIC enlisted the soon-bankrupt investment firm Lehman Brothers to advise the deal.
To make the agreement palatable in the uncertain and non-competitive banking environment, the FDIC agreed to dole out $9 billion of financing, cover IndyMac’s losses from its assemblage of rotten loans and sell the $23.5 billion portfolio of loans and mortgages for $13.9 billion. Mnuchin and a consortium of billionaires (including George Soros) jumped at the bid. He, more than any of his competitors, it seemed, had spotted the opportunity amidst crisis. “Which is how,” writes Bloomberg, one night in October 2011, Mnuchin “found himself trying to explain to his three children why approximately 100 protestors waving ‘Make Banks Pay’ signs had set up camp outside the family’s 21,000-square-foot, $26 million Bel Air mansion.”
For Mnuchin, the IndyMac deal was no side project. Renamed OneWest, it was a step up from his hedge-fund management days in New York. It was the first bank he had ever run. For it, Mnuchin made an undisclosed but “significant personal investment.” And under Mnuchin, the bank was an astonishing success. Between the end of 2009 to the end of 2010, buying up smaller banks, OneWest’s capital base rose twofold. By 2011, the bank had markedly appreciated, holding $27 billion in assets. The plan was to increase earnings by 12% to 14% a year.
And yet, amidst its success, the bank would be loudly dogged by advocacy groups and Occupy protestors for flagrant foreclosure scandals. As early as 2012, as Glenn Greenwald’s The Intercept_ first reported, the heads of California’s state attorney general’s Consumer Law Section sent a 22-page memo to then-Attorney General, now-Senator Kamala Harris’s office. The brief outlined “a thousand legal violations in the small subsection of OneWest loans they were able to examine.” Hoping to grease the legal organs, the state consumer advocates even included a sample legal complaint for the AG alongside their findings beseeching Harris to file suit, to force OneWest to reform and pay millions-of-dollars worth of fines. She ignored the recommendations. “We went and we followed the facts and the evidence, and it’s a decision my office made,” Harris recently defended her inaction to The Hill. “We pursued it just like any other case. We go and we take a case wherever the facts lead us.”
Mnuchin may come across to many as tight-lipped, maybe overly amenable or stiff. “I’m never the main attraction,” he explained. “I’m the facilitator.” And he means it on a minute level. Take an episode at a presidential-campaign fundraiser hosted at a country club in Canton, Ohio while Mnuchin still worked for Trump as his finance chairman. While his boss was busy with the cameras outside, Mnuchin took stock of the dining room and the “U-shaped table” around which they would mingle and hobnob with their donors. Mnuchin decided that his boss’s chair was two feet too close to the wall. So concerned with this detail of Trump’s possible discomfort, just minutes before the meal was to commence, he scurried the staff to rearrange all of the furniture. “Mnuchin is an oasis of blankness in a campaign of chaos and fervor,” Bloomberg concluded.
And yet, as The New York Times notes, “Mnuchin is known among Manhattan’s elite as part of one of the city’s most influential families.” His father climbed the ranks of Goldman Sachs to its management committee. He reinvented himself as an art dealer and showed exhibits of Jackson Pollock and Willem de Kooning. And, as bland or unassuming as he may present himself, like his father, Mnuchin always has his sights set higher. To date, the acquisition of IndyMac was by far the most significant business venture of his career. The turnaround of the toxic lender into a robust OneWest gained him great accolades in the upper circles of the financial cast. Yet Mnuchin was not satisfied. First he was thinking of taking OneWest public and jumping back into his old Wall Street climes in Manhattan. Then, in 2014, together with his partners, he sold the bank to CIT Group, one of the largest financial holding companies in the US, for $3.4 billion (Mnuchin et. al. had paid $1.55 billion cash in the original purchase.)
Perhaps Icarus had flown too close to the sun. The deal was too big not to draw the attention of all of the housing watchdogs in the state of California. For it was then, while looking into the proposed OneWest-CIT merger, as part of their routine duties monitoring the large banks in the state, that CRC advocates smelled something rotten. It was then that they began to notice the disparities, disparities that seemed to correlate with race. First FHANC concluded their investigation on Mnuchin’s bank, producing a report that demonstrated the vastly different levels of investment in REO-home maintenance between white and black neighborhoods. Then there were the discrepancies in the location of OneWest’s branches and the gaping inequities in home lending according to race.
“All banks are different but it’s not surprising to find banks engaging in problematic behavior in one or more aspect,” reflects CRC’s Stein. “But it is surprising to find a bank that’s not engaging in some of the positive behavior…like lending money to people to become homeowners or lending money to small businesses which are vital parts of the community or helping to invest in…the development of affordable housing[,]…even to engage in philanthropy that will support economic development.” It was not just the apparent infractions over race. Stein was taken aback by discovering OneWest’s apparently singular, profit motive: “there are banks with more foreclosures, but most banks do something beneficial…[Mnuchin’s] just didn’t seem to be doing any of that.”
As the complicated merger progressed, CRC and FHANC gathered their findings of banking violations and filed eight comment letters, pushing for investigations of OneWest’s lending and foreclosure practices. They addressed the formal complaints to government regulatory agencies including the Federal Reserve Board, FDIC, Consumer Financial Protection Bureau and the Treasury’s Office of the Comptroller of the Currency. The final letter, the eighth, explicitly accused Mnuchin’s organization of redlining. It lobbied for a “fair housing and fair lending investigation.”
As the merger procedures progressed, the advocacy groups heard no reply. Just as Harris’s office passed on prosecution regarding Mnuchin’s foreclosure practices, the Feds did not seem interested in the new round of allegations. In August 2015, regulators approved the bank merger. OneWest was no more, swallowed up by the “too big to fail” goliath, CIT. Mnuchin earned a $10.9 million severance. At that point CRC and FHANC forwarded their redlining charges against OneWest, now CIT, to HUD.
“Unfortunately,” HUD Secretary Julián Castro lamented to CNN last July, “too many Americans find their dreams limited by where they come from.” His mantra at HUD was that a “ZIP code should never determine a child’s future.” And yet, a banker accused of redlining, of furthering and expanding segregation, Mnuchin is expected to be confirmed on January 19th without further investigation. Beyond the black and white statistics, segregationist policies along the lines of the redlining alleged against Mnuchin’s OneWest have had deleterious effects for decades. The “basic danger,” explains the prominent sociologist of Public Policy and Administration at George Washington University, Prof. Gregory D. Squires, is the “undermin[ing of] quality of life and future opportunities (e.g. access to good schools, jobs, healthy food, [and a] clean environment.)” In its latest form, the sudden flight of grocery stores from urban and minority neighborhoods has earned the nickname, “supermarket redlining.”
As a result segregated neighborhoods “perpetuate…[the] powerlessness” of the powerless, argue Princeton sociologist Douglas S. Massey and University at Albany-SUNY sociologist Nancy Denton. Segregation “concentrat[es] drug use, joblessness, welfare dependency, teenage childbearing, and unwed parenthood.” More and more, the “Black English” of the ghetto has grown distinct from Standard American English, slowing its users’ advancements through school and work. As Massey and Denton conclude, “these conditions [have become] not only common but the norm.” And the kicker: by the very definition of segregation, far-flung whites can hear a figure or read a news clip, but they do not see, let alone experience, the extremity of urban blight. So that locked away in the poverty of the ghetto, poor African Americans and Latinos are locked in a cruel stereotype as well: no job, unwed and pregnant, illiterate, lazy, snide and dependent.
The numbers tell this story clearly. The “costs of ghettos,” Harvard Profs. David M. Cutler and Edward L. Glaeser calculated, are lower rates of high school graduation, a higher likelihood of being “idle (neither in school nor working)” and greater rates of single motherhood. In turn, segregated minority neighborhoods correlate with higher crime rates—not all types of crime like theft and larceny—but with “violent crimes such as aggravated assault and robbery.” Pointing specifically to the on-going practices of redlining like Mnuchin’s and the re-segregating of public schools as primary causes, in 2011, the public policy organization Demos determined that in comparison to the median wealth of white households ($111,146), black families held down just $7,113, a ratio of 15.6 to 1.
Since the 1930s, redlining has existed, dating back to the days when mortgage lending was adopted as the primary mechanism for financing home loans. In the late 1960s, the Northwestern University sociologist John McKnight first used the term to describe the actions of the Home Owners’ Loan Corporation (HOLC), established in 1933, an offspring of Franklin Delano Roosevelt’s New Deal. The HOLC aimed to refinance loans for millions of families struck down by the Depression. To capture mortgage data, the HOLC drew maps, differentiating between the most desirable neighborhoods for lending and those in disrepair.
At the top of the community ratings were green-outlined “Type A” blocks, the best neighborhoods, “hot spots.” They were, as the HOLC described, “homogeneous,” a none-too-veiled euphemism for all-white, specifically affluent Protestants. Outlined in blue, “Type B” filled largely with “less desirable whites” (Jews, Irish, and Italians) and were described by the HOLC manual as a “1935 automobile still good, but not what the people are buying today who can afford a new one.” The next level down, “Type C” neighborhoods were outlined in yellow. They were “Jerry built” and “characterized by age.” They had been “infiltrate[ed by] a lower grade population…lacking homogeneity” (read: working-class whites) and suffered from “inadequate transportation” and “insufficient utilities.” Finally, “Type D” housing blocks, circled with a red line and crowded with African Americans and Latinos, were deemed riskiest for mortgage lending. They housed “undesirable population[s].” And were characterized by “very poor maintenance,” where “vandalism prevail[ed].”
With these maps, the HOLC aimed to aid the collapsed housing industry by giving a tool to the lending industry that could help organize banks’ targeting of potential mortgage seekers. Banks streamlined their practices by using the colored maps drawn by the HOLC to discriminate. Just as the different “Types” suggested, somewhat implicitly, somewhat explicitly, the banks gave loans in the wealthiest neighborhoods to whites while reserving the poorest neighborhoods for minorities. Lenders copied the exercise by drawing maps of their own in order to expand segregated communities. The practice was especially rampant in McKnight’s nearly segregated Chicago. At the same time, Prof. Cohen adds, “redlining was a particularly pernicious contributor to the segregation of metropolitan areas…because [as part of the New Deal,] it began as part of…a federal program…to help homeowners protect their homes in the depths of the Great Depression [italics added.]”
The practice of redlining was reinforced by other public programs that damaged minority neighborhoods. The Federal Housing Administration (FHA) was another part of FDR’s greater New Deal, forged from a coalition of Northern Democrats and segregationist Southern Democrats. In order to forward their agenda of social reform, the Northerners compromised with segregationist demands. The FHA, bending to its discriminatory Southern wing who “fear[ed] possible future integration,” consistently followed loan practices to keep the races separate. Further depressing minority communities, Bouie adds, “public housing projects…were placed in these segregated, depressed neighborhoods as a compromise with conservatives who opposed them outright.”
When suburbs like Levittown, NY—usually thought of as the “original suburb,” although the historian Kenneth Jackson has found that the residential phenomenon dated back to Babylon and third millennium B.C., the word to Geoffrey Chaucer’s Canterbury Tales—when hundreds of suburbs like Levittown were constructed in the late 1940s, 1950s and 1960s, developers like Levitt and Sons worked hand-in-hand with the FHA. The Levitts had the idea of bringing mass production to the real estate business to offer “inexpensive home[s] with state-of-the-art gadgets in a…storybook town.” Each home immaculate. Each home identical. A “cookie-cutter suburb,” as the historian David Kushner has called it, a “brave new town.”
For to live in these brand-new suburbs like Levittown, you had to sign a certain covenant. And there were quite a few rules in these leases: “Item 17: No fences, either fabricated or growing…Item 21: No laundry poles or lines outside of the house.” The key stipulations in the covenant were capitalized: “THE TENANT AGREES TO CUT…THE LAWN AND REMOVE…TALL GROWING WEEKS AT LEAST ONCE A WEEK BETWEEN APRIL FIFTEENTH AND NOVEMBER FIFTEENTH.”
Abraham Levitt, the founder of the company business and the father of William Levitt, the founder of the development, made the rounds in his bulky black Cadillac, slowly surveilling the neighbors, the “nascent lawns and saplings.” He penned a column for the Levittown Tribune called “Chats on Gardening” that became a list of grievances and violations. “I have said so many times that the use of a hose with a metal nozzle attached should never be used in a garden,” he complained and continued. Nonetheless, “I see hundreds doing this very thing and then wondering why their trees and plants die.”
But there was one more rule to realize the stuff of Stepford, another capitalized statute in the Levittown covenant that prospective residents needed to sign: “THE TENANT AGREES NOT TO PERMIT THE PREMISES TO BE USED OR OCCUPIED BY ANY PERSON OTHER THAN MEMBERS OF THE CAUCASIAN RACE.”
As the Economic Policy Institute’s Richard Rothstein lays out, there was no way that William Levitt could have gathered the money by himself to build his gated dream, “to construct 17,000 homes where there were no buyers.” Levitt’s solution was government lending. It was, Rothstein explains, “the only way he assembled the capital to build that development, and this is true of every metropolitan area nationwide where they were…building these suburbs in the ‘40s and 50s and 60s.”
So to build, on mass, the new American landscape with a sprinkler on every lawn and a Cadillac in every driveway, real estate developers struck a deal just as the Northern Democrats had with their segregationist Southerners to pass the sweeping legislation of FDR’s New Deal. In exchange for federal loans “came the condition, [along the same lines as HOLC’s maps,] that no homes be sold to African Americans.” It was a literal segregationist covenant, signed and delivered, that, regardless of the lenders’ personal views on race, was mandated by the federal government. And so, the construction of the suburbs, Rothstein concludes, became the codification of segregation in the United States.
Furthering the legacy of whites-only Levittowns and other mass-produced suburbs, has been the fiscal phenomenon that racially exclusive suburban homes that sold in the 1940’s for $8000 (a price that many working-class African Americans could have afforded at the time if not prohibited from owning by the FHA,) these homes now go on the market for $500,000. What was once an affordable step-up out of the ghetto morass for working-class black families is now an unaffordable leap, a dream.
Moreover, these white families further widened the wealth gap as they invested the exponential earnings of their home equity appreciation into investments, college funds, retirement packages and life insurance. As Prof. Cohen writes, “as homeowners’ houses increasingly became their greatest asset in the postwar period, those ratings contributed to great inequality in the investments of individuals and in turn in their accumulated wealth.” In other words, the insidiousness of segregation was that with white flight to suburbs so too went future earning potential.
Meanwhile many in local, state and federal governments continued to support redlining. On the lines of Levittown, in the 1950s, the Federal Housing and Veterans mass-produced suburbs on both coasts East and West. They relied on federal loans, drawn up like Levittown’s covenants, on the “explicit condition” that African Americans would be barred from buying their homes and, furthermore, that owners could not re-sell their properties to African Americans. The FHA would not budge on retaining its right to evaluate mortgage insurance applications on racial lines. In 1961, as EPI’s Rothstein states, President John F. Kennedy’s “FDIC Chairman Erie Cocke asserted that it was appropriate for banks under his supervision to deny loans to African Americans because white homeowners’ property values might fall if they had black neighbors.”
The turn came finally with the Civil Rights Movement. Redlining was first banned with the Fair Housing Act of 1968. In 1975 the law was strengthened by the Home Mortgage Disclosure Act, requiring banks to share their lending data with the public in order to help community groups fight discrimination. With the Community Reinvestment Act of 1977, banks were required to lend in underserved communities. It was a step forward for urban renewal even though it had no impact on ameliorating desegregation. It took until 1992, when the Federal Reserve Bank of Boston released a report on on-going redlining in the limits of its city, that the Federal Reserve began to systematically gather data on discriminatory practices in home-lending.
And yet, researchers from the Universities of North Carolina, Pittsburgh and Philadelphia found that, from 1999 to 2004, blacks were “almost two times as likely” to be turned down for a mortgage than their white counterparts. Mnuchin and OneWest is another such case. In another, as Badger noted in a May 2015 article for the Washington Post titled “Redlining: Still a Thing,” HUD settled a housing discrimination case against Associated Bank, the largest bank in Wisconsin. Although a settlement, the case was deemed by HUD to be a victory against “one of the largest redlining complaints” ever made. Currently, the cities of Memphis and Baltimore both have pending cases against Wells Fargo for redlining practices.
Banking practices to widen the wealth gap and reinforce another generation, even generations, of segregation have continued to develop. In the early 1990s, there developed a new discriminatory scheme for banks like Mnuchin’s for a new financial climate. It was called reverse redlining, a term coined by Prof. Squires. Instead of the redlining practice of denying loans and housing; employing reverse-redlining, banks targeted minorities who had worked and waited desperately their whole lives to escape the ghetto confines to middle-class, even working-class, neighborhoods. Banks convinced these disadvantaged home-seekers to sign toxic, often subprime mortgages that they could not afford nor, given how convolutedly constructed, could they hope to understand. It was, as CRC described, “the latest iteration of Wall Street Predation.”
To maximize their revere-redlining portfolios, banks developed a myriad of ways to rope in new, vulnerable minority clients. Leading up to and during the financial crisis, Countrywide, which built its image as a “dream factory” for poor and minority homeowners, aired a set of ads portraying “canny black women talking their husbands into signing mortgages.” In 2012 Countrywide stood before Obama’s Department of Justice, accused of 200,000 instances of reverse-redlining. The statistics were not on the bank’s side: a “strong correlation” was found between race and the shadiness of their mortgage provisions. Countrywide settled for $335 million, a large number that, nonetheless, compensated each victim only $2000. Wells Fargo employed a different tactic to generate customers, persuading black reverends to host “wealth-building seminars” in their parishes. In exchange for every loan made, the bank promised to give $350 to the church’s favorite charity (most often the church.) As the longtime advocate for the poor, Barbara Ehrenreich found at Wells Fargo, subprime mortgages were often called “ghetto loans”; minorities received the nickname “mud people.”
The Baptist Reverend Clyde Hargraves of Washington, DC preached of Bibles and brimstone to a principally black congregation in his Greater Little Ark Baptist Church at Second and S streets, NW. He had about 120 faithful. And he had a problem. His church owed $70,000-worth of debt. As if from some benevolent Providence, it was then that his phone rang. The call was unsolicited, a broker from Capital City Mortgage whose name the pastor had never heard, but who had apparently heard of the church’s debt problem. The broker convinced the clergyman that the church could never find an offer for a smaller loan. So that Hargraves agreed to borrow $160,000, which, he learned only at their last meeting, had a $26,000 origination fee (or 16% of the loan) tacked on. Moreover, Hargraves learned only in their final meeting that in the first four years of the loan, the Little Ark Baptist Church would have to pay an additional 25% interest rate.
In the agreement Hargraves signed, “many of the key loan terms [were] left blank, such as interest rates, monthly payments, and [the] duration of the loan.” He was refused a copy of the final note and deed of trust. And after settlement, when he called the Capital City offices for a coupon payment book and to argue over the addition of the last-minute $26,000 fee, Hargraves received a message that his broker’s phone had been disconnected. He had no recourse. For two years he labored to make the loan payments of $4,200 a month (mostly to cover the 25% interest payments.) The broker then “arbitrarily and fraudulently” hiked up the church’s monthly due. For the next two years, unable to afford the $160,000 balloon payment that had kicked in (although he had been promised that no balloon payment would incur,) Hargraves waited for the worst. Targeted for a loan whose many-hidden provisions he could never hope to pay, Hargraves had been the victim of reverse redlining.
When the day came, the church-goers were “stunned [and] confused…when federal marshals served an eviction notice” at their place of worship. “It don’t make no sense,” Gwendolyn Turnbow remarked, smoking a cigarette as she watched the team of evictors disembowel her church. They just kept removing things. “It’s embarrassing, is what it is,” Turnbow continued, “putting a church out like that. No, sir, never seen them put a church out before.” Insolvency had finally caught up to the Greater Little Ark Baptist Church at Second and S. Capital City foreclosed. By the end of the day, nearly everything the church owned had been hauled out to the curb: “broken desks and rusty metal filing cabinets and rickety bookcases,” “an upright piano,” some “volumes of the Encyclopedia Britannica, 1961.”
The broker resold the property to another African American church for $450,000. The Little Ark was not alone. As Benjamin Howell calculated for the California Law Review, Capital City made reverse redlining their company policy. The mortgage dealer aimed its shady exploits at black neighborhoods, businesses and institutions like Hargraves’s church all across the capitol: “94% of its loans in the District were tied to properties in majority black” communities. And then, of those properties Capital City foreclosed, 97% were in the same such areas.
Encouraged by the Washington Lawyers’ Committee for Civil Rights and Urban Affairs, a group of plaintiffs led by Hargraves decided to sue Capital City Mortgage. According to a 1998 brief submitted to the District Court of DC by the Acting Assistant Attorney General on behalf of the plaintiffs, the bank demonstrated a clear “pattern…of predatory lending targeting African American communities.” The bank specialized in subprime lending and reverse redlining. It was the first time the government had taken a side on the matter of predatory mortgages targeted at minorities. As the plaintiffs contended, Capital City’s “loans were designed to fail.” The bank had “intentionally stripped equity from African American neighborhoods.”
It was a landmark case. “No court, to date,” explains the fair-housing advocate John P. Relman, “had been asked to decide whether predatory lending could also be a violation of fair housing laws,” if reverse redlining breached the Fair Housing Act. The case set a powerful series of precedents. Hargraves and his co-plaintiffs won a “ringing victory.” The court found that “predatory lenders could be held liable” for reverse redlining. “As a catalyst for reform,” inspiring “profound” tightening of government regulations in the industry, Obama’s former HUD Secretary Shaun Donovan concluded that Hargraves’s case laid the groundwork for “important new laws and in the process empowered minority communities.” Capital City became the symbol of bad-banking behavior across the country.
And yet because of the intransigence of segregation and the insidiousness of redlining, the 2008 crash hit disproportionately minority neighborhoods. These segregated communities, crammed with subprime mortgages and the type of reverse-redlined deals signed by Hargraves, fell like dominos. As each home or apartment foreclosed, each other home declined “one percent in…value…within an eighth of a mile.” It was not a colorblind toll. Secretary Donovan estimates that “between 2005 and 2009, fully two-thirds of median household wealth in Hispanic families was wiped out. From Jamaica, Queens, New York, to Oakland, California, strong, middle class African American neighborhoods saw nearly two decades of gains reversed in a matter of not years—but months.”
And even after a crash built significantly on the kind of racially-targeted subprime and predatory lending still rampant despite the Capital City ruling, almost two decades later, redlining, reverse-redlining, high closing costs, seductive but exploding “teaser” rates that begin with artificially low interest payments but soon balloon to unaffordable monthly costs, these toxic real-estate practices continue to beset disproportionately African American and Hispanic borrowers. These schemes have brought forth pandemics of foreclosures in minority communities. As a result, these practices have led to a renaissance in segregation. As the EPI’s Rothstein argues, minority families, displaced by deviously constructed mortgages they could not afford, are caught in the web of predatory lenders. In turn such reverse redlining exacerbates the division of the races. For unable to pay their ballooning costs, minority borrowers go underwater. And, Rothstein explains, they are forced to move to even “more racially isolated neighborhoods or suffer homelessness.”
As an advocacy group for fair lending, they aim to analyze the banking practices of the largest institutions in California, CRC’s Stein explained his organization’s mission. And relative to its size, CRC found, Mnuchin’s OneWest fell disastrously short. Even when measured against the government-approved “plan [OneWest, itself,] proposed to invest in communities going forward,” CRC found that the bank’s development and preservation of affordable housing placed them “toward the very bottom of institutions.” For the coalition of watchdogs headed by CRC concluded that Mnuchin’s bank was just “doing a poor job of the things most people think of when they think of banks.”
House Minority leader Nancy Pelosi has slammed Mnuchin for his dealings during the 2008 financial crisis. Pelosi protests that in his cabinet nominees, Trump has “hand[ed] over the keys to the same players who drove our economy into a ditch.” Likewise, Senators Bernie Sanders and Warren sent out a joint press release for Trump’s reneging on his campaign promise to “drain the swamp” by nominating the likes of Mnuchin, another “Wall Street insider,” who “pocketed billions in taxpayer dollars from the bailout” while “mak[ing] a fortune…[by] aggressively foreclos[ing] on families still reeling from the crisis.”
Congressmen have pointed to the foreclosure practices of Mnuchin’s bank and not yet spoken out on the redlining accusations. Eighteen Senators (from both sides of the aisle) who were contacted for this article chose not to comment on the nominee nor the allegations of banking discrimination. The Democrats failed to make the accusations of racism stick to Trump during the 2016 presidential election campaign. His racist language, threats and practices have been seemingly excused even though, from his heading of the “birther movement” to his proposal of a Muslim ban, Trump has exhibited consistent bigotry. Indeed in 1973 Trump had lodged against him a housing discrimination suit all his own. The Justice Department alleged that, as Hillary Clinton put it during the presidential campaign, Trump “would not rent apartments in one of his developments to African-Americans, and he made sure that the people who worked for him understood that was the policy.” Trump settled the matter.
Now we have Mnuchin on the docket. In their complaints over Mnuchin, lawmakers have overlooked the significant criminal allegation lodged against the nominee for Treasury Secretary, his leading a company that committed racist violations of the Fair Housing Act. Mnuchin and OneWest’s home loans to borrowers in minority neighborhoods lagged far behind their local competitors. The bank refused to build branches in majority minority communities. Exacerbating the issue, OneWest aggressively foreclosed homes in struggling minority communities even as the bank maintained a practice of keeping those minority homeowners out of thriving white neighborhoods.
Given the clarity of the evidence of racially discriminatory practices during the Treasury Secretary nominee’s time heading OneWest bank, we can come to only a few conclusions. Either Mnuchin is racist and sees it as part of his lending mission to keep the races separate. Or Mnuchin and his staff’s racist proclivities are, in general, unconscious, and they cannot help but be drawn to lend on racial lines, set up branches in and maintain only white communities. Or, so concerned about the bottom line, Mnuchin is callous to the suffering caused directly by on-going segregation. Or, derelict of duty and unaware that redlining was going on in his bank, Mnuchin was a poor manager of those in his chain-of-command. Or perhaps, so institutionalized was redlining in the OneWest culture, it would have taken more political capital to end the practice than Mnuchin was willing to spend.
In a twist, it will most likely be Trump’s nominee as HUD Secretary, Dr. Ben Carson, who will head the very department that will judge the redlining complaint against Mnuchin and OneWest put forth by CRC et al. EPI’s Rothstein finds the prospects most frightening. Carson has described as “social-engineering” the Obama administration’s new HUD policy that mandates cities to assess and work to desegregate or incur federal fines. Obama’s reforms would mean an emphasis on the largely neglected second mandate of the Fair Housing Act of 1968, that is to “affirmatively further” the goal of integration. Some legal scholars have declared Obama’s policies the first meaningful ones since those reforms of 1968. Carson wants to reverse the president’s regulations that he views as reminiscent of a “communist” state.
In turn, Rothstein laments what he sees as Carson’s basic misunderstanding of urban history. Rothstein argues that it was “social engineering” through deliberate government action that produced segregation in the first place. It was FDR’s HOLC that laid the groundwork for redlining. It was the FHA that doled out the home loans to create whites-only suburbs. Obama’s efforts, so loathed by Carson, are meant to undo these historical and contemporary wrongs. And to confront banks like Mnuchin’s OneWest who still make it harder on average for a black family earning $157,000 to secure a prime loan than for a white family who brings in $47,000.