When we fret over the struggles Philadelphia faces — high poverty, a challenged education system, vacant properties, lack of affordable housing, and the other ills of our city — we typically turn to the usual suspects for a cause. Those suspects include high tax rates, a workforce lacking the skills needed for the 21st century, gun violence, and other systemic problems. Very rarely do we acknowledge our corporate citizens for the part they can play in our lack of progress. But a recent $10 million settlement by Wells Fargo with the city is an instructive example and a signal that we should be paying more attention.
The suit, filed by the city against the financial institution, centered on discriminatory mortgage lending practices that targeted minority borrowers, including giving nonwhite applicants pricier and riskier loans than their white counterparts with the same creditworthiness, and more aggressively moving minority borrowers into foreclosure.
The practice of “redlining” — a term identified in the 1960s referring to the lines banks would draw on maps of areas deemed too risky for loans — has been illegal since 1977 when the Community Reinvestment Act was passed, but the practice remains pervasive. Just as damaging is “Reverse redlining,” exploitative loan products targeting minority communities. Such practices are lucrative and aren’t limited to a single bank. In Wells Fargo’s case, they most certainly contributed to the $22 billion in income the bank made in 2018 alone.
The city’s lawsuit points out that due to predatory banking practice, high-risk loans in minority neighborhoods are almost five times more likely to result in foreclosure than in white neighborhoods.
Philadelphia has been an epicenter of foreclosures. It sees over 4,000 filings a year, down from a high of 8,330 in 2009 following the housing market crisis. The city has an aggressive and innovative diversion program that helps homeowners save their homes, but the problem remains serious.
Part of the settlement will help fund a program that helps people with mortgage down payments. The lawsuit centers on the damage done to the city by the bank’s practices. (Wells Fargo has not admitted liability in this settlement or others like it, including a $175 million settlement with the U.S. Justice Department for discriminatory and predatory practices.)
The damage wrought to the city by lost homes is severe, and includes blight, lowered property values, lost wealth, and heavier burdens on city services. Foreclosures are also traumatic to individuals, families and communities, and certainly part of a vicious cycle of trauma that contributes and exacerbates crime, gun violence, and other ills.
The stability of neighborhoods and of property values impacts us all. And typically, these discriminatory practices are allowed to thrive in the dark. The federal government’s role in banking regulation and oversight to protect the consumer is a practice of the past. Now, it’s up to other arms of government, like City Hall or the Attorney General’s office, which has fought against redlining, to step up. For the rest of us, it’s time to stop scratching our heads and wondering how to fix our ills and be more clear eyed about who may be causing them.