Subprime Times II

by Abigail Knowles Wolfe (BPRW)

Black Digital Network and Black PR Wire have reported briefly on the subprime lending crisis still wavering towards the top of our national agenda. The term predatory lending has been thrown around, the implication being that minorities and those of lower socioeconomic or educational status have been targeted for loans that carry less favorable conditions than regular loans. This may or may not be true, however the fact remains that the subprime loan crisis is in full-effect with people across the nation losing their homes to foreclosure.

A subprime loan is characteristically offered to individuals who don’t quality for loans from traditional lenders because of low credit ratings or other factors that indicate they might default on debt repayments. These loans are offered at a rate above prime or with higher interest rates than those offered on traditional loans, typically translating to thousands of dollars worth of additional interest payments for the loan recipient.

Information provided by the U.S. Department of Housing and Urban Development (HUD) states that even upper-income African American neighborhoods reflect an inequitable amount of subprime loans granted. In fact, an individual is one and a half times more likely to have a subprime loan living in an upper-income black neighborhood than in a more “working class” white neighborhood. These statistics rang true for predominantly Hispanic neighborhoods as well with one and half times the likelihood of discovering an inordinate amount of subprime loans per capita.

The trouble with the subprime loan is that it carries a low interest rate for the first two or three years, yet after this time period of affordability has passed, interest rates can increase every six months, carrying mortgage payments much larger than initially expected. According to the nonpartisan research and policy organization “Center for Responsible Lending,” around 20% of subprime mortgages issued between 2005 and 2006 are expected to end in foreclosure according to a December 2006 study. This is a tragedy considering the distressing implications for homeowners across the nation. Let us hope that there is a way to hold predatory lenders accountable for their actions, providing some advocacy for those individuals facing subprime induced foreclosure.