Page 21 - Impact: Collected Essays on the Threat of Economic Inequality

Income Inequality Hits Home
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Steven W. Bender1
Much has been written about the subprime mortgage crisis of recent years, with considerable attention paid to allocating blame among participants in the home loan and securitization structure stretching from Main Street to Wall Street . Many politicians and pundits have pointed fingers at residential borrowers, particularly blaming borrowers of color, for alleged improvident behavior . Their accusations connect to longstanding stereotypes and derogatory constructions of people of color as unworthy for other financial opportunities such as college admission .2
This essay isolates a less discussed catalyst for the breakdown of the American dream of homeownership in the subprime morass—income inequality . Reaching employers and residents in almost every zip code and shaking the foundations of the American dream, income inequality threatens that iconic goal . Highlighting the role of income inequality in the mortgage meltdown adds fresh urgency to the imperative of reversing the runaway rise in inequality in recent decades, in the interest of preserving equality of opportunity toward the human right to decent housing and what has been regarded as a cornerstone of the American dream—that through hard work U .S . residents can achieve and maintain homeownership .3
Income inequality played a considerable role in the design and eventual implosion of vast numbers of loans during the subprime lending era of the 1990s and early 2000s . Mortgage loans during the subprime era encompassed an array of “exotic” loan programs and relaxed qualifying standards, in many cases offering these new programs to borrowers with subpar credit histories who previously might have been denied mortgage financing . These loans failed at staggering rates, ousting millions of borrowers from stable housing . Apparent in the aftermath of the subprime foreclosure crisis is the reality that many borrowers, particularly borrowers of color, who received high-cost mortgage loans with significant fees or an above-market interest rate, or both, in fact
1 Professor of Law and the Associate Dean for Research and Faculty Development at Seattle University School of Law. The former co-president of SALT (Society of American Law Teachers) and LatCrit (Latina and Latino Critical Legal Theory, Inc), he is the author of several books encompassing legal, social, and historical issues: greasers and gringos: laTinos, law, and The american imaginaTion (2003); one nighT in america: roBerT kennedy, césar chávez, and The dream of digniTy (2007); everyday law for laTino/as (2008); comprende?: The significance of spanish in english-only Times (2008); Tierra y liBerTad: land, liBerTy, and laTino housing (2010); run for The Border: vice and virTue in u.s.- mexico Border crossings (2012); and mea culpa: lessons on law and regreT from u.s. hisTory (2015).
2 See generally andré douglas pond cummings, Racial Coding and the Financial Market Crisis, 2011 uTah l. rev. 141 (2011) (debunking the myth of minority fault as causing the subprime mortgage crisis).
3 This American Dream of homeownership has been racially skewed through much of its history by public and private actors, bolstering the White privilege of homeownership. Among the most destructive racial housing policies and practices were those of the federal Home Owners Loan Corporation and the Federal Housing Administration (FHA), the latter created in 1934 to spark development of residential neighborhoods through government mortgage insurance. The FHA disdained inner-city investment and rehabilitation, and encouraged White flight to the suburbs by promoting new construction in residential subdivisions. As its most blatant policy, the FHA once promoted racially restrictive neighborhood covenants barring nonwhite buyers thought to impair property values. High-risk lending neighborhoods were designated by federal officials as those with Black, Mexican, or Asian residents. Resultantly, most federally-backed loans were made to White buyers in middle-class suburbs. See generally sTeven w. Bender, Tierra y liBerTad: land, liBerTy, and laTino housing 45-47 (2010).
Housing and Community