The document discusses the interconnected issues of fair housing and fair credit. It notes that unequal dual housing and credit markets developed together due to discriminatory policies like redlining. Moving forward, the document argues that reforming the financial system requires addressing its racial inequities and ensuring all communities have access to fair and affordable credit. Local context matters, so solutions require input from communities most affected by lending abuses and lack of access to financial services and homeownership opportunities.

1. john a. powell
Executive Director, Kirwan Institute for the Study of
Race and Ethnicity
Williams Chair in Civil Rights & Civil
Liberties, Moritz College of Law
November 13, 2010
Consumer Rights Litigation Conference
Boston , MA

2.  What is ‘Home’? What is opportunity?
 Creation of Dual Housing and Credit Markets
 What’s on the horizon?
 Unfair (and fair) housing and credit are entwined
 What is a fair and just economic & financial system?
 Principles for Reform

4. Health
Employment
Childcare
Housing
Effective Education
Participation
Transportation

5.  Opportunity structures are
critical to opening pathways to
success:
 High-quality education
 Healthy and safe environment
 Stable housing
 Sustainable employment
 Political empowerment
 Outlets for wealth-building
 Positive social networks

6.  Neighborhoods don’t determine lives, but they
shape and affect lives
 Living in a disadvantaged neighborhood as a
child is the equivalent of losing a year of school
Source: Sampson, R. J., P. Sharkey, et al. (2008). "Durable effects of concentrated disadvantage on verbal ability among
African-American children." Proceedings of the National Academy of Sciences (PNAS) 105(3): 845-852.

7. 7
… correlates with
… generates children having levels
unhealthy levels of of lead in their blood
stress hormones in 9 times above
children, which average; linked to
impairs their neural ADD and irreversible
development loss of cognitive
functioning
… links to higher … is highly correlated
levels of violent with childhood
offending among aggression and social
juveniles maladjustment

8. • In 1960, African-
American families in School
poverty were 3.8 times Segregation &
Lower
Educational
more likely to be Concentrated
Poverty
Outcomes
concentrated in high-
poverty neighborhoods
than poor whites.
• In 2000, they were 7.3 Increased
Neighborhood Flight
times more likely. Segregation of Affluent
Families

9.  Lack of low-cost credit options
 Few preventative care doctors
 High-cost grocery stores that lack fresh
produce
 Concentrated poverty schools
Policies need to both
bring more sustainable
choices to
neighborhoods and
allow people more
choices on where they
and their families live

10. …BUT NOT FOR EVERYONE: THE STORY OF UNFAIR
HOUSING AND CREDIT MARKETS

11.  For every $1 in assets held by African Americans, Whites hold $9
 This disparity is primarily due to differences in home equity
Source: “Net Worth and Asset Ownership 1998-2000”. Household Economic Studies. U.S. Census Bureau
(2003)

12. The Creation
of Dual
Housing and
Credit
Systems
Separate and
unequal

14. “If a neighborhood is to retain stability, it is necessary that
properties shall continue to be occupied by the same
social and racial classes. A change in social or racial
occupancy generally contributes to instability and a
decline in values.”
–Excerpt from the 1947 FHA underwriting manual
14

15. J. Hernandez shows how
areas in Sacramento with
racially restrictive
covenants in the past had
the fewest loan denials
today…shows where prime
credit was steered.

16. Pre-Depression:
The Two Party Housing Post New Deal:
Market The Three Party Mortgage
Market
Party Party
Party 2
Party 2 1
1 Lending
Seller
(and/or)
Homebuyer Institution
Homebuyer Lending
Institution
Party
3
Government
Sponsored
This becomes very big business, Enterprise
purchases ,
i.e. F/F $800 Billion EACH sells/holds
portfolio in 2009 or insures
mortgages

17.  1970s: Fundamentally new way of getting funding
for mortgage loans – securities
 GSE’s start issuing “mortgage backed securities”
 Provided ‘guaranteed’ income to investors
 1977 Private label mortgage backed securities issued
 By 1990s, GSE’s losing market share to private MBS
 After 1997, Fannie and Freddie buy more private label
MBS (1998: purchased $25 B…2007: $267 B)
 2003 …purchase more private subprime & Alt-A
 Collapse hits private market and Fannie & Freddie
 Though private MBS small % of holdings, big risk
 Note: GSE-issued prime securities performing fine

18. Source: Chris
Peterson, U. of
Utah Law School

21. “Wall Street has gotten a lot of mileage out of the accusation
that the political system simply doesn't understand how
Wall Street works…The problem is that Wall Street also
doesn't understand how Wall Street works… Bankers didn't
understand the tail risk of collateralized debt obligations.
Ratings agencies didn't understand the subprime mortgage
market. Alan Greenspan didn't understand the risks posed
by derivatives. Robert Rubin, the former co-chair of
Goldman Sachs and one of Citigroup's directors, told the
Financial Crisis Inquiry Commission that "all of us in the
industry failed to see the potential for this serious crisis."
Ezra Klein, “Wall Street says Washington doesn't understand finance. Well, neither does Wall Street.” The Washington Post, April
19, 2010.

23.  CRL estimates that from 1998 – 2006, only 9%
of all subprime loans went to first time
homebuyers
 Majority were refinance loans
 Refinance loans disproportionately marketed to
African American neighborhoods
Photo and story
credit:
Baltimore Finds
Subprime Crisis
Snags Women
--New York Times
1/15/08

24.  Estimated cost of subprime lending to all
homeowners: $2.7 trillion
 Loss of accumulated wealth in home equity
over generations…????
WHAT WILL THE EFFECTS
BE ON ALREADY LOW
OPPORTUNITY
NEIGHBORHOODS?

25.  Financial
Reform
 Consumer
Protection
Bureau

26. “the whole financial
system has been
rigged
against lower income
communities in
general
and communities of
color in particular”
Source: Pastor et. al, Program for Environmental and Regional Equity

27. “if we are going to turn the
financial industry back into
something that benefits the
“our financial consumer … WE HAVE TO
system has a SHIFT THE UNDERLYING
distinctly racial BALANCE OF POWER”
character, one that
requires a response
rooted in racial and
social justice”
Source: Pastor et. al, Program for Environmental and Regional Equity

28. “… the focus should not
be simply on
Need for foreclosure relief, but
social on a new financial
movements frame that has at its
for heart the restoration of
financial opportunity for all”
equity

29.  Federal housing finance policy must align with
and support longstanding federal housing goals
to protect against discrimination.
 The federal government has a responsibility to
ensure that the secondary market serves all
borrowers in a fair and equitable manner and to
foster the equalization of homeownership rates.
 A reformed housing finance system must
eliminate the dual credit market.
 Regulatory oversight of the housing finance
system must be rigorous and comprehensive and
must include effective fair lending enforcement.

30.  Secondary market transactions must be
transparent and accountable to the public.
 The system must have an affirmative obligation
to offer capital and credit in communities
devastated by the foreclosure crisis and offer
access to families who were targeted for
inappropriate and unsustainable mortgages.
 The housing finance system must provide capital
for sustainable rental and ownership
development in all communities.
 The housing finance system must support
product flexibility and sustainable innovation
and offer access to institutions of all sizes and in
all geographic areas.

31. www.KirwanInstitute.org
www.race-talk.org
KirwanInstitute
on:

32. Kirwan’s Fair Housing and Fair Credit work

34.  Unequal credit markets and segregated housing
happened together.
 Fair credit and fair housing will only happen together.
 Global finance has evolved against – and plays out
in – racially and economically segregated
neighborhoods.
 Advocates need to know more about banking and finance
 Fair housing and fair credit is an issue for all of us,
but attention needs to be targeted to marginalized
communities.
 Otherwise, policies miss key opportunities and challenges
and miss those most affected by the crisis.

35. AFTER THE SUBPRIME LENDING CRISIS…WHAT DO
WE DO FROM HERE?

36.  Summary Findings
 Fair housing and fair credit are about local places,
people, relationships, and histories
 Federal policy must support (and not undercut) both
anti-discrimination efforts and affirmative
commitments to fair housing and fair credit
 What is a fair and just 21st Century economic system,
and what kind of financial system is needed to
support it?

38.  Recognize that the paths to fair credit and fair housing will
differ according to regional context and local history. Take
local impediments to fair housing and fair credit – racially
discriminatory history, proliferation of predatory credit,
resistance to mainstream institutions – seriously.
 Assist local and regional fair housing and community
reinvestment activists in their efforts to organize, mobilize,
and lobby.
 Promote local, multi-partner pilot projects that are mission
driven to affirmatively promote fair credit (like the National
League of Cities’ “Bank On Cities” initiative).
 Connect fair housing, fair lending, community reinvestment,
civil rights and other advocacy groups (financial reform,
faith-based, labor, etc.)

39.  Support the creation of a Consumer Protection
Financial Agency and give it adequate resources and
enforcement power.
 Promote regulatory reform of the product, rather than
the institution.
 Recognize and enforce the duty to affirmatively further
fair housing in relevant federal agencies and programs.
 Press for better and more comprehensive data for all
federal spending programs, including stimulus
funding. Expand HMDA data reporting requirements
to include loan term information.
 Enact a comprehensive, nationwide plan to protect
renters from foreclosure.

40.  Contribute to a national communications effort
around the danger of excluding a majority of
American workers from a solid financial future.
 Explore the potential for fundamental changes to
regulation and financial incentives. Current
incentives are perverse – they promote credit
products inherently more likely to fail or result in
punitive fees to those least able to manage them.
 Support the national networks of fair housing,
community reinvestment, fair lending and
financial reform movements.