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Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis
Table 1 shows that “while subprime ARms represent 6
percent of the loans outstanding, they represent 39 percent
of the foreclosures” started. Subprime fixed rate loans
also represent 6 percent of the loans outstanding and 11
percent of foreclosures started. Together, subprime loans
represent 12 percent of loans outstanding, but 50 percent of
foreclosures started.
Several studies during the years have shown subprime
loans have been disproportionately used by minorities. For
example, a study by the department of Housing and Urban
development (HUd) of the 1998 Home mortgage disclosure
Act (HmdA) data of almost one million mortgages reported
nationwide, concluded that there was a disproportionate
concentration of subprime lending in minority and lowincome
neighborhoods. 15
more recently, an article in the Washington Post on June
30, 2008, entitled “Subprime mortgages and Race: A Bit of
Good News may Be Illusory” by Shankar Vedantam refers
to subprime rate loans “as the original domino that set off
America’s current economic crisis. But the loans – typically
made to people with poor credit – have long been hailed
for one reason: They were thought to be a powerful way to
increase homeownership rates among minorities, and to
provide a mechanism to undo the “redlining” policies of past
decades, in which some banks refused to extend loans in
predominantly minority neighborhoods, even to applicants
with good credit.”
The article also references research conducted by George
Washington University sociologist Gregory d. Squires,
“who, has been looking at rates of subprime loans issued
in about 350 U.S. metropolitan areas”. Squires’ preliminary
findings show that subprime loans were indeed more likely
to be issued to people with poor credit and those with limited
incomes. In the article, Squires’ is credited with saying “we
see these loans heavily concentrated in poor neighborhoods
and targeted to minority neighborhoods,” “There is some
evidence that these neighborhoods were actually targeted
– that lenders have gone after people whom they think are
15 U.S. department of Housing and Urban development, UNEQUAL
BURDEN:INCOME & RACIAL DISPARITIES IN SUBPRIME LENDING IN
AmERICA
less sophisticated borrowers, including single women and
the elderly.”
In addition, the 2007 Annual minority Lending Report
by ComplianceTech also reported that loans to Blacks
and Hispanics were disproportionately subprime. This
concentration of subprime activity leaves these homeowners
with significant costs of subprime loans. The Center for
Responsible Lending (CRL) recently published numerous
research reports that show African Americans and Latinos
receive a disproportionate share of subprime loans, even
when they have similar credit scores to non-Hispanic White
borrowers. In december 2007, CRL issued a report showing
how subprime home loans are resulting in a devastating
epidemic of foreclosures. 16
despite overwhelming evidence that support the above
findings, this report reveals that the majority of subprime rate
loans originated in 2006 were granted to non-Hispanic Whites
and upper income borrowers. The same pattern occurred in
2005. In 2004, more subprime rate loans were originated
for non-Hispanic Whites, but middle-income borrowers
had the highest share. These findings are contrary to the
way subprime rate lending is commonly portrayed. Popular
media myths and erroneous assumptions about subprime
rate loans are continuously presented as if subprime rate
lending was predominately in the domain of minorities and
low-income borrowers.
16 Testimony of Josh Nassar, Center for Responsible Lending Before
the U.S. House Committee on Oversight and Government Reform, pg.
2 “Foreclosure, Predatory mortgage and Payday Lending in America’s
Cities”, march 21, 2007
Page 5 of 27 The Demographic Impact of the
Subprime Mortgage Meltdown