Race, Gender, Power, and the US Subprime Mortgage and Foreclosure Crisis: A Meso Analysis

Abstract

This study addresses two largely unanswered questions about the United States subprime crisis: why were minority applicants, who had been excluded from equal access to mortgage credit prior to the spread of subprime loans, superincluded in subprime mortgage lending? And why didn't the flood of mortgage credit in the 2000s housing boom -an oversupply of credit suggesting supercompetition -reduce the proportion of minority and women borrowers burdened with unpayable subprime mortgages? This contribution develops a meso analysis showing how banking strategies were shaped by and reinforced patterns of racial and gender inequality, permitting lenders in evolving financial markets to offer new loan instruments to previously excluded loan applicants, and to exercise social power over -and thus extract rent from -these borrowers.

Shadow Money and the Shadow Workforce: Rethinking Labor and Liquidity

“…Having saturated the market for safe borrowers, mortgage brokers began to aggressively market credit to both subprime (low-income) and Alternative-A, or Alt-A (credit-blemished), borrowers-precisely those borrowers who would have been automatically excluded from the federally guaranteed loans issued by Fannie Mae and Freddie Mac. In short, private-label brokers expanded into the market for the "exotic" or uninsured risk, extending credit to those who were employed in irregular, nonstandard, and undocumented work in the low-wage shadow workforce-African Americans and Latinos in general, African American and Latina women in particular, and a disproportionate number of women of all ethnicities (Dymski, Hernandez, and Mohanty 2013). The subprime market allowed unprecedented numbers of previously marginal borrowers and nonnormative households (single mothers and those living in other nonnormative arrangements) to aspire to home ownership-but often at an exorbitant price.…”

Everyday Leverage, or Leveraging the Everyday

“…What subsequently became known as the 'subprime market', which typically involved high interest rates, high fees and onerous non-payment penalties, then became one of the most common forms of mortgage lending by the late 1990s, particularly among female-headed and minority households, growing by an astonishing 900 percent between 1993 and 1999 (HUD 2000, Dymski et al 2013). Women, and in particular women of colour, were overrepresented in the ranks of 'the wretched and reckless' (The Economist 2007) who were targeted for subprime loans, with the profile of the typical subprime borrower seeking assistance from foreclosure counselling organizations described as 'single, female, with two children, in her first house' (quoted in Baldauf 2010, p. 225).…”

“…Until the early 1970s women and racial minorities had been systematically excluded from mortgage finance and consumer credit, not only due to general prejudice and discrimination but also through specific techniques such as bank redlining and the underwriting guidelines employed by the Federal Housing Administration (FHA) (Dymski 2009, Dymski et al 2013. Like the practices of most banking and financial institutions, the New Deal housing programmes associated with the FHA were structured by racial covenants which discriminated against minority areas and essentially defined suburban home ownership as synonymous with the white middle class.…”

Time Use of Parents in the United States: What Difference Did the Great Recession Make?

“…For instance, Dymski et al (2013) argued that historical gender, racial and ethnic inequalities and discrimination in credit markets, such as redlining practices, played a role in the sub-prime lending and the subsequent financial crises. The gendersegregated employment structure of the US financial sector also played a role in shaping the outcomes of the financial crisis (Walby 2009;Lagarde 2010;Prügl 2012;Arestis et al 2013).…”