For black Americans, financial damage from subprime implosion is likely to last

Baltimore resident Kevin Matthews has worked hard to stabilize his finances after fighting off a wrongful foreclosure that drained his savings. He is paying his bills and studying to become a medical lab tech or researcher, but in the eyes of banks and lenders he is largely a three-digit number: 560.

That is Matthews’s credit score. It is 160 points lower than it was five years ago. That means it will cost him more to get credit cards, pay for his education or eventually move into another house — assuming he can qualify for a loan. It means Matthews faces years of struggling to hold on to the middle-class life he once thought was guaranteed.

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Blacks more likely to have high-rate mortgages.

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According to FICO, a foreclosure can remain on a consumer’s credit report for seven years. It can lower a score by 85 to 160 points, a hit second only to bankruptcy.

The company says that its scores are a snapshot of risk at a moment in time — one that will change as consumers rebuild their finances. FICO said borrowers can rebuild their scores in as little as two years if they remain current on their other bills.

But for many, foreclosure is only the beginning of their financial woes. “Everybody’s worried about their credit score,” Matthews said. “But, unfortunately, I can only worry about one thing at a time right now.”

The black middle class

Civil rights groups say those personal anecdotes underscore a more fundamental fear: that the country is headed toward a kind of financial segregation.

During the recession, credit scores shifted downward for many consumers, regardless of race. According to a FICO analysis , nearly 50 million people saw their scores fall by more than 20 points during the height of the financial crisis. Lenders also tightened the spigot of credit, with the total volume of loans to consumers falling 9 percent over 2009, according to government data, though lending has rebounded somewhat.

Research by VantageScore found that the two biggest contributors to consumers’ deteriorating credit were the fall of home prices and unemployment. Activists say the demographic that has borne the brunt of those head winds are black Americans.

Groups such as the NAACP and the National Urban League say the black middle class is shrinking as a result. Lisa Rice, vice president of the National Fair Housing Alliance, says the country suffers from what she has dubbed the “dual credit market.” Longtime civil rights attorney John Relman, who has won millions of dollars from companies such as Avis and Denny’s in discrimination lawsuits, has set his sights on the banks.

“Race and economic injustice always go together in this country,” Relman said.

A month ago, the Justice Department reached a $21 million settlement with SunTrust over what it called a “racial surtax” on home loans. For instance, it said black borrowers in Atlanta were charged $745 more in fees than white borrowers with similar credit histories and qualifications.

“SunTrust’s African American and Latino borrowers had no idea they could have gotten a better deal, no idea that white borrowers with similar credit would pay less,” Assistant Attorney General Thomas Perez said. “That is discrimination with a smile.”