Subprime loans are meant for borrowers with weaker credit. In the early 2000s, the market grew fast, and many loans had low starting rates that reset higher, steep fees and penalties for paying early. Lenders sold the loans to investors, so they profited even when borrowers could not keep up.
Research and lawsuits found that race shaped who got these loans. Black and Latino borrowers were more likely than white borrowers with similar credit to receive subprime mortgages. Some cities, including Baltimore and Memphis, sued Wells Fargo, accusing the bank of targeting Black neighborhoods. The practice is often called reverse redlining: after decades of being denied credit, the same neighborhoods were flooded with bad credit.
When the housing bubble burst, foreclosures swept through those communities. The Black homeownership rate, which peaked at about 49 percent in 2004, fell to about 41 percent by 2019, according to Census data. The losses deepened the racial wealth gap that redlining had created.