Why Subprime Lending is a Race and Gender Issue

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In general terms, subprime loans are “non-conforming” loans made at higher-than-market-interest rates to borrowers with credit problems.   Predatory loans are loans that are inappropriate for the buyer, either because the buyer is not qualified financially or the loan is at an unnecessarily high rate.   Predatory loans typically are subprime loans.   Subprime loans may or may not be predatory.   Subprime loans are not necessarily “bad” for consumers; they enable people with poor credit records to own homes, when they otherwise would not be able to do so.  

That sounds nice and neutral, right?   Consider this.   African-Americans and Latinos are more likely than whites to receive subprime loans, according to  this study by the National Community Reinvestment Coaltion and this study by the Association of Community Organizations for Reform Now.  

Professor Anita F. Hill’s adds this perspective:

Women have become a key component in the real estate market. Last year in Massachusetts, over one-third of first-time home buyers were single women and nearly one-quarter of all home buyers were single women.

Women borrowers are overrepresented in the subprime lending market according to studies done by both the Consumer Federation of America and the National Community Reinvestment Coalition. Across the economic spectrum, women receive less favorable terms than similarly situated men on home purchase, refinance, and home improvement loans. The studies also show that the gap between women and men receiving subprime loans actually increases as women’s income increases.

Elderly women are prime targets of refinance and home improvement subprime lenders. Women on average live longer than men and have a greater chance of living alone. Rising property taxes and medical expenses make older women on fixed incomes particularly susceptible to lenders who promise money for necessary repairs, but instead exact huge fees and charge inflated interest rates.

African-American women, who represent half of African-American home purchase borrowers, are particularly vulnerable. In fact, there is evidence that subprime lenders charge black women and Latinas higher rates and fees than same-race men and white men, again, regardless of income and across all loan types.

For women, the impact of problems in the lending industry crosses age, class, and racial lines as well as neighborhoods.

Because of subprime lending, they are in danger of losing ground in their effort to reach economic self-sufficiency for themselves and in many cases for their children. Older women, who have seen the equity in their homes depleted, are in greater jeopardy of becoming dependent on family or social services. Single women, who are likely to earn less, have more dependents, and to spend a higher percentage of their income on housing, are thus less able to absorb the cost of an escalating, inflated subprime loan payment. Along with foreclosure, loss of savings, impaired credit and even bankruptcy are predictable consequences. Greater Boston service providers are already seeing an increase in family homelessness and it appears that a larger number of the newly homeless families are headed by women. * * * Blaming the victims is both unwarranted and unhelpful. It will not solve the economic or social problems caused by the tide of foreclosures that officials are struggling to forestall.

Professor Hill’s full news article, “Women and the Subprime Crunch,” from the October 22, 2007 edition of the Boston Globe is available here.

-Bridget Crawford

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0 Responses to Why Subprime Lending is a Race and Gender Issue

  1. ssladler says:

    Both links were to ACORN, but it wasn’t a study. Is this the NCRC study you were aiming at? http://www.ncrc.org/policy/analysis/policy/2006/2006-05-23_2005HMDAreport.pdf

    What’s not real clear from this study is whether there is a direct effect of race/gender, or whether it is simply due to correlation with income. Obviously, the policy implications would be quite different. Let’s say, for the sake of argument, that there is a direct effect of gender, such that women receive more subprime loans. The real question is why. Is it because they should be receiving mainline loans, but are rejected by sexist loan officers? Is it because, rather, they are considered better credit risks than men with similar credit histories, who are not even eligible for subprime loans? Or both men and women are equally offered these loans, but men turn them down?

    Lots of interesting questions here, but I don’t think simple sample means are going to answer any of them.

  2. Bridget Crawford says:

    I corrected the link. Many thanks.