Subprime Lending More Likely in Minority and Low-Income Areas

A recently released study by HUD, Unequal Burden: Income and Racial Disparities in Subprime Lending in America, presents a preliminary analysis of mortgages reported under the Home Mortgage Disclosure Act (HMDA) in 1998. The data clearly demonstrate the rapid growth of subprime lending during the 1990s and the disproportionate concentration of such lending in the Nation's minority and low-income neighborhoods. These findings are significant for the Nation's policymakers in light of the growing evidence of widespread predatory practices in the subprime market.

Unequal Burden has four findings:

• The number of subprime refinance loans increased tenfold from 1993 to 1998.

• Subprime loans are three times more likely in low-income neighborhoods than in high-income neighborhoods.

• Subprime loans are five times more likely in black neighborhoods than in white neighborhoods.

• Homeowners in high-income black neighborhoods are twice as likely as homeowners in low-income white neighborhoods to have subprime loans.

The study of almost 1 million mortgages reported to HMDA in 1998 focuses primarily on home refinancing loans, which account for 80 percent of costly subprime loans. Subprime lending involves providing credit to borrowers with past credit problems, often at a higher cost or on less favorable terms than loans available in the conventional prime market. In some cases, subprime lenders engage in the abusive lending practice known as "predatory lending," which hits homebuyers with excessive mortgage fees, interest rates, penalties, and insurance charges that raise the cost of buying a home by thousands of dollars for individual families.

Unequal Burden also presents the first recent look at subprime refinancing by metropolitan area. A look at five cities—Atlanta, Baltimore, Chicago, New York, and Philadelphia—shows strong indications that the trends are consistent at the metropolitan level. Copies of a summary report, Curbing Predatory Home Mortgage Lending, can be downloaded from http://www.hud.gov/news/index.cfm.

Unequal Burden: Income and Racial Disparities in Subprime Lending in America is available from the HUD USER website at www.huduser.gov.