Residential Foreclosures in the City of Buffalo, 1990-2000 - Federal ...

categories, the great majority are independent mortgage companies. In our study, about
three-fourths of the subprime lenders that originated loans that foreclosed in 2000 were
independent mortgage companies.
We identified lenders as subprime if they were designated as such by the U.S.
Department of Housing and Urban Development (HUD). 9 However, we note that this is
an imperfect method of identifying subprime lending, because HUD designates a lender
as subprime if more than 50 percent of its loans are subprime. Hence, HUD-designated
subprime lenders also make prime loans, and lenders not designated subprime by HUD
also make subprime loans.
Subprime loans accounted for an increasing share of the mortgage market in the
1990s. As noted, these loans are typically offered to higher risk borrowers, so they carry
higher fees and interest rates and foreclose at a higher rate than prime loans. Thus, the
growth in subprime lending could have contributed to the rise in foreclosures from 1990
to 2000.
Type of Lending Institution
Table 12 presents the distribution of foreclosures by originating lender. Independent
mortgage companies, which have been capturing an increasing share of the mortgage
lending market, originated 54 percent of loans foreclosed in 2000. This proportion is
substantially higher than the shares of the other two lender types combined.
9 U.S. Department of Housing and Urban Development, 1993-2000.
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