The Cumulative Costs of Predatory Practices

carrying higher rates and other risky features.10 The Center for Community Capital found that the
CAP loan “serious delinquency” rate (capturing borrowers who were more than 90 days late on a
mortgage payment) was one-third that of subprime adjustable-rate loans and one-half that of subprime
fixed-rate loans (Freedman & Ratcliffe, 2012). CAP borrowers also built wealth even during
this tumultuous period: Median home equity across the portfolio was $18,000, with positive returns
on investment of 27% through the third quarter in 2011. And CAP borrowers of all income groups
had a higher net worth than similarly-situated renters, both before and after the recession (Freeman
& Ratcliffe, 2012).
Researchers at Harvard’s Joint Center for Housing Studies documented the opportunity costs by
examining data across a wide range of income and house values and covering a variety of housing
experiences, from continuously renting to continuously owning (Herbert et al., 2013). They found
that between 1999 and 2009, homeowners who sustained homeownership saw an increase in overall
wealth of approximately $90,000, including home equity and other sources of wealth. In all cases
except for when owners became renters (as in the case of foreclosure), homeownership was associated
with wealth accumulation (Herbert et al., 2013).
Figure 5: Sustained homeownership provides households the greatest opportunity to increase
household wealth
$90,000
Change in median net wealth from 1999 to 2009
$70,000
$50,000
$30,000
$10,000
-$10,000
-$30,000
-$50,000
Always
Own
Own with Interruption
Owner to Renter
Always Rent
Rent to Own Not Sustained
Rent to Own Sustained
Source: Herbert et al., 2013
10 The Center for Community Capital studied 46,453 CAP loans, which were made by traditional bank lenders, purchased by the
nonprofit Self-Help Ventures Fund (which is affiliated with CRL), and securitized by Fannie Mae (Quercia et al., 2011). The loans were
30-year, fixed-rate loans without risky features (such as prepayment penalties and negative amortization) to subprime borrowers.
The CAP’s borrowers looked similar to those who received subprime loans elsewhere: Borrowers had lower-than-average credit
scores (with half under 680); two-fifths were non-white; and 72% had a down payment of less than 5%. The CAP borrower’s median
income was approximately $31,000. For more information, see Freeman & Ratcliffe (2012).
Center for Responsible Lending 15