Typically, subprime
loans are for persons with blemished or limited credit histories. The loans carry
a higher rate of interest than prime loans to compensate for increased credit
risk.
Many
have questioned why minorities appear to be over-represented in the subprime lending
market. Studies reveal that even in upper-income African-American neighborhoods
one is one-and-a-half times as likely to have a subprime loan than persons in
low-income white neighborhoods. In neighborhoods where Hispanics comprise at least
80 percent of the population, they were 1.5 times as likely than the nation as
a whole to have a subprime mortgage loan.
Some
allege this disparity to be attributed to subprime lenders purposefully marketing
to African-American communities-what some have called reverse redlining. They
allege lenders will provide loans to these communities, but at a higher cost and
with less favorable conditions.
Some
facts about subprime lenders
- Home refinance loans account for higher shares of subprime lenders' total
origination than prime lenders' originations
- Subprime lenders originate
a larger percentage of their total originations in predominately black census
tracts than prime lenders
- Subprime lenders are more likely to have terms
like "consumer," "finance," and "acceptance" in
their lender names
Want
to read more about subprime lending and related studies?
Unequal
Burden: Income and Racial Disparities in Subprime Lending in America 2002
HUD has released a study showing that the number of sub-prime home loans is skyrocketing
in predominantly black neighborhoods and low-income neighborhoods
Subprime
Markets, the Role of GSEs, and Risk-Based Pricing 2002
This report will
help to expand what is known about subprime borrowers by looking at lending practices
in the sub-prime mortgage market and the current and potential role of Fannie
Mae and Freddie Mac