In November 2012 then Federal Reserve
Board Chairman Ben Bernanke told an audience attending a HOPE Now event in
Atlanta that there were two types of discrimination that continue to have
particular significance to mortgage markets.
"One is redlining, in which mortgage lenders discriminate against
minority neighborhoods, and the other is pricing discrimination, in which
lenders charge minorities higher loan prices than they would to comparable
Redlining refers to the practice of refusing
to grant home mortgages in areas or neighborhoods deemed poor financial risks. The practice, which received a lot of
publicity in the 1960's was not eradicated but driven underground by the Fair
Housing Act of 1968. Still the
government has won major redlining judgments over the years. In
recent years the nature of mortgage discrimination became less a matter of refusing
credit and more Bernanke's second example, targeting minority and low income
areas for risky subprime mortgages. Last
week the City of Providence Rhode Island joined Bernanke in declaring that old
style redlining is back.
On Thursday Providence sued Santander
Bank NA accusing it of discriminating against the city's black and Hispanic
residents in the granting of mortgages while marketing aggressively to white
borrowers. The suit said that the bank
is similarly curtaining lending to minorities in other New England localities
Providence Mayor Angel Taveras said
in a statement that since 2009 (when it bought the former Sovereign Bank),
Santander had deliberately reduced its lending in the city's minority neighborhoods
while actively expanding its business in areas that were predominantly white. The
lawsuit, filed in the United States District Court for the District of Rhode
Island, also alleges that Santander performance stands in stark contrast to
many of its peer banks, who have performed far better in minority neighborhoods.
"Santander's practices violate
fair lending laws and hurt Providence families," Taveras said. "Many
borrowers in minority neighborhoods are qualified for prime loans, but
Santander has written them off. That holds down property values and the broad
economic recovery that a healthy housing market can help generate in every
neighborhood in Providence."
Over the past 18 months the City
Solicitor Jeffrey Padwa has led an investigation comparing lending in
predominant minority and while neighborhoods both before and after Santander acquired
Sovereign. The city maintains that the
bank's average annual mortgage originations have increased substantially over
this period in white neighborhoods but declined precipitously in minority
neighborhoods. Specifically, they say that, while applications for mortgages
have declined across the board due to economic conditions, applications to the Santander
for prime loans from minority neighborhoods declined by 61 percent compared to
a 37 percent decline in applications to other leading banks. Providence found the same pattern when
analyzing data for the combined metropolitan statistical area that includes
Boston, Providence, and much of the remainder of New England. There originations in minority neighborhoods dropped
7 percent for other major banks after 2009 but 34 percent for Santander.
In its suit the City of Providence
alleges that the stark contrast in Santander's mortgage lending activity
between white and minority neighborhoods is the result of a deliberate decision
to engage in redlining and supports its contention with declarations from
officials at three of the city's community development corporations.
Santander Bank spokesman Mary Ellen Higgins said the bank categorically
rejects the city's accusations and intends to defend themselves against the
legal action. "However, we are willing
to work with the City of Providence to allay its concerns," she said.
Santander may be the biggest bank of which no one has ever heard. The U.S. bank, headquartered in Boston, is a subsidiary
of Spanish bank Banco Santander, S.A which claims to be one of the largest
banks in the world with 102 million customers, 14,500 branches and 190,000
employees. The Santander group of banks
was founded in 1857 and has a presence in the United Kingdom, Latin America and
Providence is seeking "millions in damages" and Taveras said he hopes the
suit will encourage the government to step up enforcement against redlining.