Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
Comments about New Deal-era housing discrimination made by presidential candidate Michael Bloomberg echo a familiar narrative about minority homeowners.
At a Georgetown University forum in September 2008, then-New York City mayor Michael Bloomberg was asked about the major economic story of the day: the roots of the exploding global financial crisis. This was the month that Lehman Brothers had filed for bankruptcy and the federal government had placed Fannie Mae and Freddie Mac into conservatorship. What was behind the bust?
Bloomberg’s answer: The implosion of the nation’s housing market was the result of the prohibition of redlining, the discriminatory practice by which lenders denied African-American homebuyers access to loans in the same neighborhoods where white homeowners lived.
Bloomberg is now a Democratic candidate for president, and his campaign is working to reframe the former mayor’s comments, which the Associated Press resurfaced on February 12. The story arrived as Bloomberg tried to contain fallout from the revelation of a speech he made in 2015 defending the New York Police Department’s racist stop-and-frisk policy; he released a new statement apologizing for the policy on February 11. Campaign spokesperson Stu Loeser told the AP that, as mayor, Bloomberg fought predatory lending, and that as a candidate he has a plan to expand homeownership opportunities for African American buyers. CityLab reached out to the Bloomberg campaign and will update this story with any new comments.
But civil rights scholars are pointing out that Bloomberg’s past understanding of the roots of the financial crisis matters a great deal now, since the next person to occupy the White House may be responsible for rewriting fair lending rules. And his comments point to enduring myths about race and responsibility—assumptions that both predate the financial crisis and persist today.
(Disclosure: CityLab was recently acquired by Bloomberg LP. Michael Bloomberg is the company's founder and majority owner.)
“I think that Bloomberg’s comments are a kind of cynical way of shifting blame back onto communities that were most victimized by the unchecked practices within the banking and real estate industries in the late 1990s and through the early aughts until the crisis exploded,” says Keeanga-Yamahtta Taylor, professor at Princeton University and author of Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership, in an email.
In Bloomberg’s telling of the financial crisis, “It all started back when there was a lot of pressure on banks to make loans to everyone.”
Bloomberg then offered his own, varying definition of redlining—one that did not mention African Americans. “Redlining, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor, they’re not going to be able to pay off their mortgages, tell your salesmen don’t go into those areas.’”
“And then Congress got involved,” he continued. “Local elected officials, as well—and said, ‘Oh that’s not fair, these people should be able to get credit.’
“And once you started pushing in that direction, banks started making more and more loans where the credit of the person buying the house wasn’t as good as you would like.”
Bloomberg was hardly alone in his conviction that unqualified minority homebuyers triggered the financial crisis by being so susceptible to predatory lenders: That idea took root on Wall Street even as the meltdown was in process, according to historians.
The facts of the financial crisis, however, don’t fit an account that puts the blame on minority buyers or fair-lending reforms. More than half of the subprime mortgages originated between 1998 and 2006 were loans for refinancing, according to the National Community Reinvestment Coalition, a grassroots organization working to end discrimination in lending. Fewer than 10 percent of subprime loan originations went to first-time homebuyers.
“When people were looking for answers for why mortgages seemed to be falling into default at the rate they were, there were corners of the financial community that had a ready narrative about creditworthiness,” says Nathan Connolly, director of the Racism, Immigration, and Citizenship Program at Johns Hopkins University.
The foreclosure crisis dealt tremendous damage to black and Latino neighborhoods. But white investors were disproportionately responsible for foreclosures in minority neighborhoods, according to a 2011 paper from John Gilderbloom at the University of Louisville and Gregory Squires at George Washington University. Their research shows that, in Louisville, there were approximately 2,000 foreclosure sales each year in 2007 and 2008. This figure breaks down to roughly 39 foreclosures in black communities (measured as census tracts) compared to about 20 foreclosures in white communities. Yet on average, 15 of the foreclosures in black communities happened on properties owned by non-occupant white investors, while white communities saw on average just two foreclosures on investor properties.
The bipartisan U.S. Financial Crisis Inquiry Commission also concluded that fair-lending regulations were not to blame for the financial crisis (with one dissenting conservative saying otherwise). Bank of America’s then-chief executive Brian Moynihan defended fair lending law.
Still, commentators at Fox News and The Wall Street Journal’s op-ed page often insisted that lax standards that encouraged uncreditworthy minority borrowers were to blame. Former presidential candidate Steve Forbes and former Republican House Majority Leader Dick Armey propped up an Astroturfed site, AngryRenters.com, that claimed to represent the voice of renters infuriated with mortgage bailout efforts. Fox Business’s Neil Cavuto said that “loaning to minorities and risky borrowers is a disaster.”
“It was a myth that tore around the country like wildfire,” says National Community Reinvestment Coalition CEO Jesse Van Tol. “It was a myth heavily promoted by a group of fringe conservatives who wanted to promote a narrative that something other than market forces caused the financial crisis.”
The Community Reinvestment Act, the 1977 banking reform law that ended redlining, remains a target of ire among conservatives and big lending institutions. The Trump administration has proposed changes to the rule that would streamline and vastly simplify what banks are required to do in order to meet fair lending standards. Civil rights advocates warn that Treasury is designing reforms that would water down the law.
Discriminatory lending practices did not end after the passage of the Fair Housing Act, a cornerstone of civil rights law passed after the assassination of Martin Luther King Jr. in 1968. Lenders in California in the late 1970s would write “COLORED” backward on mortgage applications—“DEROLOC”—in order to flag them for denials, Connolly says. Even today, more than 40 years after the passage of the Community Reinvestment Act, black homeownership rates are dismal. African Americans have rarely had the combination of living wages and non-predatory mortgages to support homeownership.
Another related myth informs Bloomberg’s worldview, or at least as he expressed it during the financial crisis, Connolly says—that credit scores convey an objective truth about renters or owners. Here Bloomberg has an opportunity, even in light of his gaffe, to embrace policies that will undo the “mythology of credit,” he adds. (In January, Bloomberg outlined his plan to boost black homeownership in part by pushing lenders to change their credit-score models.)
In the decades that followed the end of redlining, Taylor notes, lawmakers weakened the regulations meant to protect black communities from speculation and predatory practices. That made historically marginalized communities more vulnerable to predatory practices that emerged specifically to target these renters and owners.
“All of these factors would contribute to the notion that these were places that could be considered ‘risky’ and with risk came the supposed colorblind pretext that Black buyers should be treated differently: higher interest rates, more expensive loan products and all of the other tools of what I refer to as ‘predatory inclusion’ into the conventional real estate market,” Taylor says by email.
More than a decade out from the financial crisis, myths about its cause still endure. As do myths about work, welfare, safe neighborhoods, and credit risks. Wall Street is still susceptible to many of these myths. “The notion of the undeserving poor,” says Connolly, “migrated directly into the notion of the undeserving buyer.”