A New Form of an Old Pattern
By the 1990s, the most overt forms of redlining were illegal under the Fair Housing Act of 1968 and the Community Reinvestment Act of 1977. Black Americans finally had legal access to mainstream mortgage lending.
What happened next was not equality. It was what historian Keeanga-Yamahtta Taylor calls "predatory inclusion" — the admission of Black borrowers into a financial system on terms specifically designed to extract wealth from them.
The result was the single largest destruction of Black wealth in American history: the subprime mortgage crisis of 2008.
How Predatory Lending Worked
Subprime mortgages were loans made to borrowers who did not qualify for conventional loans — typically because of low credit scores, insufficient income documentation, or high debt-to-income ratios. They carried higher interest rates, adjustable rates that could increase dramatically after an initial period, and fees and penalties that conventional mortgages did not.
In the 1990s and 2000s, subprime lending became a massive industry. And it was disproportionately targeted at Black and Latino communities — not because Black and Latino borrowers were inherently less creditworthy, but because:
- Decades of redlining had prevented wealth accumulation, leaving Black borrowers with smaller down payments and less home equity, making them appear riskier on paper
- Historically Black communities had limited access to mainstream banks, making them targets for predatory lenders who operated in financial deserts
- Discriminatory targeting was documented: Wells Fargo internal documents, produced in legal proceedings, showed that employees referred to subprime loans as "ghetto loans" and called Black borrowers "mud people." The company paid $175 million to settle federal discrimination charges in 2012.
- Qualified Black borrowers were steered to subprime loans they did not need: Studies by the Center for Responsible Lending found that Black borrowers with credit scores that qualified them for conventional loans were significantly more likely than white borrowers with identical scores to be placed in subprime loans.
The Collapse and Its Racial Impact
When the housing market collapsed in 2007–2008 and subprime mortgages began to default in massive numbers, the racial impact was devastating.
The Federal Reserve found that between 2007 and 2010:
- Black household wealth fell by 53%
- Latino household wealth fell by 66%
- White household wealth fell by 16%
The wealth gap between white and Black families, which had been narrowing slowly for decades, widened dramatically and has not recovered to pre-2008 levels.
The United for a Fair Economy organization estimated that the subprime crisis caused a loss of between $71 billion and $93 billion in wealth from Black communities — the largest single destruction of Black wealth since the era of redlining.
The Pattern, Again
The subprime crisis is the most recent iteration of a pattern that runs through this entire unit:
- Black economic progress begins — homeownership rates rise, the Black middle class expands
- A mechanism is created that allows Black wealth to be extracted: first redlining, then predatory lending
- A crisis hits and Black wealth is disproportionately destroyed
- The recovery benefits those with intact wealth — white households — more than those whose wealth was destroyed
The Federal Reserve's survey of consumer finances has tracked this pattern through multiple cycles. After every economic crisis — the Great Depression, the 1970s recession, the 2001 dot-com crash, the 2008 financial crisis — the racial wealth gap widens. In the expansions between crises, it narrows slightly. The net trend over the postwar period is persistent, large, and widening.
Mainstream Finance Confronts Its History
In 2020, following the George Floyd protests, several major financial institutions made public commitments to address the racial wealth gap:
- JPMorgan Chase committed $30 billion to advancing racial equity in housing and small business lending
- Bank of America committed $1 billion to community investment in communities of color
- Goldman Sachs launched a $10 billion One Million Black Women initiative
These commitments are significant in scale. They are also, as scholars of Black economic history note, small relative to the documented losses from decades of discriminatory practice — and they are commitments from the same institutions whose predecessors created the practices being addressed.
The gap between the commitments made after 2020 and the reparations argument made in the next lesson is the gap between corporate social responsibility and structural historical accountability.
