An Economic Policy Institute Event
Race, Ethnicity, and the Subprime Mortgage CrisisJune 12, 2008, 2:30 PM - 5:00 PM
Economic Policy Institute
1333 H Street, NW, Suite 300, East Tower
Washington, D.C. 20005
Dr. ALGERNON AUSTIN
Director of the Program on Race, Ethnicity, and the Economy
with presentations by
GRACIELA APONTE, National Council of La Raza
DEBBIE BOCIAN, Center for Responsible Lending
WILHELMINA LEIGH , Joint Center for Political and Economic Studies
DEDRICK MUHAMMAD, Institute for Policy Studies
GREGORY SQUIRES, George Washington University
Fraud has been rampant in the sale of subprime mortgages.--Economist, March 22, 2008.
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half -- 55% -- of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm's analysis found.--Wall Street Journal, December 3, 2007
Even with risk controls, the neighborhood minority share is consistently significant and positively related to subprime share in both years. Furthermore, the neighborhood educational level is consistently significant and negatively related to subprime lending.-- Paul S. Calem and Jonathan E. Hershaff, and Susan M. Wachter, Housing Policy Debate 15(3), 2004.
Only 20 percent of subprime loans in 2005 were made by banks or thrift institutions, two entities that are supervised by federal regulators. More than half (51 percent) were made by unsupervised mortgage companies, and 29 percent were made by the more lightly supervised subsidiaries of supervised lenders. --The Joint Center for Political and Economic Studites
In 2006, more than one-half (52.9 percent) of African Americans and nearly half of Hispanics (47.3 percent) who acquired home-purchase loans had subprime loans. This is in contrast to the fourth (26.1 percent) of counterpart white borrowers who acquired these loans.38 Almost a third (31 percent) of American Indian or Alaska Native homebuyers also purchased homes with subprime loans.----The Joint Center for Political and Economic Studites
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. --Anita F. Hill, Boston Globe, October 22, 2007
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--Algernon Austin, Ph.D.
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