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Local experts testify that the mortgage crisis is a civil rights issue.

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At a federal hearing this week, sociologist Phyllis Betts presented two color-coded maps of Shelby County. One showed — by zip code — the percentage of the population that is African American. The other showed the percentage of home foreclosures in each zip code.

They were so similar that U.S. congressman Steve Cohen asked that one map be faced toward legislators and the other faced toward the assembled audience because "it's the same map."

And in some ways, unfortunately, he was right.

Cohen hosted a U.S. House of Representatives judiciary subcommittee meeting at the U of M's Cecil C. Humphreys law school, a hearing that included Memphis mayor A C Wharton, former Memphis Area Legal Services attorney Webb Brewer, and Betts. Panelists spoke about foreclosure data in Memphis, the city's lawsuit against Wells Fargo, and how the mortgage crisis is "the civil rights issue of this era."

"The foreclosure problem in Memphis is not borrowers pushing the envelope to buy more house or using their home equity as an ATM machine for lifestyle purchases," Betts testified.

An examination of 10 Shelby County zip codes with a high concentration of African-American residents revealed that 56 percent of the loans made in those areas were subprime. In predominantly white areas, only 24 percent of the mortgage loans were subprime.

"The target was clearly low-income African Americans in low-income, majority African-American neighborhoods," Betts said. "The fact that they targeted this particular market makes cities like Memphis particularly vulnerable."

The city of Memphis filed a lawsuit against Wells Fargo in 2009 under the Fair Housing Act, citing discriminatory lending practices.

Webb Brewer, the city's counsel in the lawsuit, was the litigation director at Memphis Area Legal Services for more than 20 years. Early on, he saw companies that went door to door in minority neighborhoods, arranging to do — and finance — overpriced home improvements.

In more recent years, he's seen mortgage brokers paid kickbacks for duping customers into loans with higher interest rates than they qualified for based on their credit score.

"There is abundant evidence that subprime lending is not colorblind but that its very origins were based on exploiting people who had limited prime credit opportunities and, because of that, limited experience and sophistication in the matters of banking and finance," Brewer said.

Cohen asked Brewer about a contention Wells Fargo has made that they didn't originate the loans; they just serviced them. Though the area saw more than 87,000 foreclosure notifications sent out in the past 10 years, the Memphis lawsuit is based on 3,000 loans that were originated by Wells Fargo.

"Wells Fargo's lending practices stood out," Brewer said. "Their death rates [the rate at which their loans went into foreclosure] were eight to one between predominantly black and white communities. ... They did significant lending in both communities and the difference was extreme."

As part of the lawsuit, Memphis will have to prove that Wells Fargo's practices hurt the city financially. That might be difficult given the number of foreclosures cited in the lawsuit versus the overall number, but there's no doubt that the foreclosure crisis has cost the city millions of dollars.

At a summit last week on local foreclosures, the Mid-South Peace & Justice Center presented data that fires in vacant properties cost the city $3.5 million in 2008 alone.

There are 6,000 to 7,000 unsecured vacant properties in Memphis' urban core. The houses, home to squatters and various illegal activities and losing value fast, have a tendency to catch fire.

"Communities in this city are being allowed to burn themselves out," said Brad Watkins with the Mid-South Peace & Justice Center. "It doesn't have to be this way."

The immediate solution for vacant properties is to increase the city's board-up efforts. It costs about $600 to board up a vacant home as opposed to the roughly $17,500 spent for each fire.

In addition to the costs incurred with foreclosures, there is also a corresponding reduction in city revenue.

"We're talking about something that's eating away at the mother's milk of municipal finance: property taxes," Wharton said.

In Frayser, one of the areas hardest hit by the crisis, the average home price was $50,000 in 2005. In early 2010, it was down to just over $20,000 — a 60 percent drop.

Steve Lockwood, executive director of the Frayser Community Development Corporation, estimates that the drop in equity in the neighborhood is around $355 million just for single-family homes.

"That's an incredible hit to the net worth of African Americans in our neighborhoods," Lockwood said. "Families' nest eggs have shrunk radically. Even those who bought at the right price and took out safe, affordable loans are upside down on their mortgages."

Between the vacant properties and the ones sold to investors at cut-rate prices, it's clear that the city — and the nation — needs more strategies in dealing with the problem. Panelists also talked about proposed changes to the federal bankruptcy code that would allow judges to modify mortgages.

"This issue is much bigger than Wells Fargo," Wharton testified at the hearing. "For the crisis to be remedied, we need to look at the whole mortgage industry."

To read more about this and other topics, visit Mary Cashiola's In the Bluff blog at memphisflyer.com/blogs/InTheBluff/.

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