Over the last decade, subprime mortgage lending has become an important component of the overall mortgage market. Subprime mortgage lending increased from $90 billion in 1996 to over $173 billion in 2001 and accounted for 8.3 percent of the overall mortgage market in 2001. (See Figure 1.) Subprime mortgage lending serves a critical role in the nation’s economy by providing loans to borrowers who do not meet the credit standards for borrowers in the prime market. These borrowers may have blemishes in their credit record, insufficient credit history, or non-traditional credit sources. Subprime lending allows such borrowers to access credit that they could not otherwise obtain in the prime credit market.
Metropolitan area analyses of subprime lending, however, have shown that subprime lending is disproportionately concentrated in low-income and minority neighborhoods, particularly black neighborhoods, which may suggest that credit worthy borrowers in these neighborhoods pay more for credit than borrowers in other neighborhoods. Furthermore, because of the concentration of subprime lending in low-income and black neighborhoods, there has been a growing concern that borrowers in these neighborhoods are vulnerable to a subset of subprime lenders, who engage in abusive lending practices, strip borrowers’ home equity, and place them at increased risk of foreclosure.
The concern over the impact of subprime mortgage lending on low-income and black neighborhoods is part of the ongoing debate over whether low-income and minority neighborhoods have adequate access to housing credit. This debate has traditionally focused on home purchase lending but has taken on a new dimension with the increase in home equity in low-income and black neighborhoods and the relatively recent explosion of subprime refinance lending.
In 2000, HUD conducted a number of studies using Home Mortgage Disclosure Act (HMDA) data that examined patterns in subprime lending in an effort to understand the types of neighborhoods with high concentrations of subprime lending. This study updates those earlier HUD studies by reexamining neighborhood patterns in subprime refinance lending using two additional years of HMDA data. The data continue to demonstrate the disproportionate concentration of such lending in the nation’s low income and minority neighborhoods.
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Black and White Disparities in Subprime Mortgage Refinance Lending
