The Demographic Impact of the Subprime Mortgage Meltdown

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					The Demographic Impact of the
Subprime Mortgage Meltdown

By Maurice Jourdain-Earl
Table of Contents



Purpose ....................................................................................................1

      About HmdA data ...............................................................................1

      Limitations Of HmdA data ..................................................................2

Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis ...................................................................................3

Methodology ............................................................................................6

Summary Of Findings .............................................................................7

Highlights Of 2004-2006 Subprime Rate Lending By Race
And Ethnicity ...........................................................................................8

Distribution Analysis Of 2006 Subprime Rate Loans .........................12

      Subprime Rate Loans By Loan Purpose...........................................14

      Subprime Rate Loans By Borrower Income ......................................16

      Gender distribution Of Subprime Rate Loans ..................................19

      Subprime Rate Loans By Census Tract Income ...............................22

      Subprime Rate Loans By Race And Census Tract
      Percent minority ................................................................................24

Conclusion .............................................................................................26

      About The Author ..............................................................................27

      About ComplianceTech .....................................................................27

      About Lending Patterns™ ..................................................................27




                                                                                      Page i                    The Demographic Impact of the
                                                                                                                Subprime Mortgage Meltdown
Index of Tables



Table 1: Loan Type and Percent of Foreclosures started ..........................4

Table 2: 2006 “Loans” with a HmdA Spread by Race .............................12

Table 3: Percent of Loans by Race and Percent of Loans with
a Spread by Race ....................................................................................13

Table 4: Loan Purpose by HmdA Spread ................................................14

Table 5: 2006 Loans with a Spread by Borrower Income ........................16

Table 6: Gender and 2006 Loans with a Spread .....................................19

Table 7: 2006 Subprime Rate Loans by CENSUS Tract Income.............22

Table 8: Tract Percent minority and Loans with a Spread .......................24




                                                                                 Page ii                  The Demographic Impact of the
                                                                                                          Subprime Mortgage Meltdown
Index of Figures



Figure 1: 2004-2006 Percent of Subprime Rate Loans by Race ...............8

Figure 2: 2004-2006 Average Spread on Subprime Rate Loans
by Race .....................................................................................................9

Figure 3: 2004-2006 Count of Subprime Rate Loans by Race ...............10

Figure 4: 2004-2006 Percent of Subprime Rate Loans by
Tract Percent minority .............................................................................11

Figure 5: 2006 Frequency and magnitude of Loans with a
HmdA Spread by Race ...........................................................................12

Figure 6: 2006 Subprime Rate loans by Loan Purpose ..........................15

Figure 7: Loans with Spread by Borrower Income ..................................16

Figure 8: 2006 Subprime Rate Loans by Race and Income ...................17

Figure 9: Percent distribution of Subprime Rate Loans by
Race and Income ....................................................................................17

Figure 10: Percent of Subprime Rate Loans by Race and Gender .........20

Figure 11: Subprime Rate Loans by Race and Gender...........................21

Figure 12: 2006 Subprime Rate Loans by Census Tract Income ............23

Figure 13: 2006 Count of Subprime Rate Loans by Race and
Tract Percent minority .............................................................................25

Figure 14: 2006 Percent of Subprime Rate Loans by Race and
Census Tract Percent minority ................................................................25




                                                                                      Page iii                   The Demographic Impact of the
                                                                                                                 Subprime Mortgage Meltdown
Purpose


The purpose of this study is to develop an understanding of the             geographically by census tract percent minority.
potential impact of the current mortgage crisis on minorities               A lot is at stake. The impact of the subprime market and
and to dispel erroneous assumptions about subprime lending                  subprime foreclosures matter because homeownership is by
that could make emerging housing policies less effective.                   far the most important wealth-building tool in this country.
A common assumption is that subprime rate lending1 is                       For millions of families, it ultimately makes the difference
more prevalent with minorities and low-income borrowers.                    between merely surviving between paychecks, or building
The problem with portraying subprime rate lending and                       savings for a better future. Nearly 60 percent of the total
the foreclosure crisis, as a minority and low-income issue                  wealth held by middle-class families resides in their home
is its effects on how solutions will be approached. If, it is               equity—the value of their home minus the amount they owe
believed that subprime rate loans were predominately made                   on it. For African-American and Hispanic families, the share
to marginal segments of society (Black, Hispanic or low-                    is much higher, topping 88 percent for both groups.3
income) housing policymakers may approach solutions with
bias assumptions about minorities and minority qualifications
(low education, bad credit, and low-paying jobs, etc.). Thus,               About HmdA data
there may a tendency to write-off the subprime lending
debacle as a type of affirmative action gone bad.
                                                                            Congress enacted HmdA in 1975 to: “provide the public
This study will show that subprime rate lending occurred                    with information to judge whether lenders are serving their
more with non-Hispanic Whites and upper income borrowers.                   communities; to enhance enforcement of laws prohibiting
Therefore, the current housing crisis is a broader problem                  discrimination in lending; and to provide private investors
than just with minority and low-income borrowers. This is                   and public agencies with information to guide investments
accomplished by using 2006 Home mortgage disclosure Act                     in housing.”4 HmdA requires mortgage lenders located
data (HmdA)2 to analyze the demographic distribution of                     in metropolitan areas to collect data on their mortgage
subprime rate loans in order to understand the impact of the                application transactions, report the data annually to the
“Subprime mortgage meltdown” on different income, racial                    government, and make the data publicly available.
and ethnic groups. It is hoped that this information will be
used strategically by congress, lenders, servicers, federal                 HmdA requires reporting of the geographic location of
and state bank regulators, state attorney generals, state and               originated and purchased home loans. HmdA data also
local housing organizations, home loan counseling groups,                   includes information about denied home loan applications
researchers, community organizations and other interested                   and the race, sex and income of the applicant or borrower.
parties to improve the formulation of housing policy, fair                  Subsequent to the 1990 amendment to HmdA that required
lending enforcement, consumer protection initiatives, and                   race and sex information to be reported, some lenders were
the implementation of loss mitigation activities to help keep               accused and sued for discrimination, alleging that minorities
families in their homes.                                                    were disproportionately denied access to home mortgage
                                                                            credit compared to non-Hispanic Whites.
The premise of this report is that beliefs about the demographic
distribution of subprime rate loans influence ideas about the               Since the 2004 reporting year, HmdA requires lenders to
housing crisis. Therefore the focus of this study is to analyze             report loan price information in the form of a “rate spread.”
the demographic distribution of subprime rate loans as a                    Lenders must report the spread between the annual
means to influence housing policy. In addition, the study                   percentage rate (APR)5 on a loan and the rate on a Treasury
seeks to use the distribution of subprime rate loans as an                  security of comparable maturity. Lenders are only required
indicator of the expected future pattern of mortgage default
and foreclosure activity. With these goals in mind, this study              3 Testimony of Josh Nassar, Center for Responsible Lending Before
                                                                            the U.S. House Committee on Oversight and Government Reform, pg.
is an analysis of the distribution and cost of higher-priced                2 “Foreclosure, Predatory mortgage and Payday Lending in America’s
2006 loans by ethnicity, race, gender and income, as well as                Cities”, march 21, 2007
                                                                            4 http://www.ffiec.gov/HMDA/pdf/regulationc2004.pdf, pg.1
1 In this study subprime rate loans are limited to transactions with a
                                                                            5 The APR represents the cost of credit to the consumer. It captures not
HmdA reportable spread that are “conventional, 1st lien, 1-4 family unit,
                                                                            just the contract-based interest rate on a loan, but also the points and fees
owner occupied, home purchase and refinance loans. Government, home
                                                                            a consumer pays and other finance charges such as premiums for private
improvement, and multifamily loans are excluded.
                                                                            mortgage insurance. Lenders must calculate and disclose the APR to
2 http://www.ffiec.gov/HMDA/pdf/regulationc2004.pdf, pg.1                   consumers under a separate law, the Truth in Lending Act.




                                                                    Page 1 of 27                     The Demographic Impact of the
                                                                                                     Subprime Mortgage Meltdown
Purpose


to report spreads on loans above designated thresholds.               Limitations Of HmdA data
Therefore, rate spreads are not reported for lower cost
loans.
                                                                      HmdA data are the most complete dataset used to analyze
The threshold set by the Board in Regulation C for first-lien         home mortgage lending in America by race, ethnicity and
loans is three percentage points above the Treasury security          gender. The most significant limitation of HMDA data is
of comparable maturity. For second-lien loans, which tend to          borrower credit qualification information is not available.
have higher prices, the threshold is five percentage points           Credit criteria, such as credit score, loan-to-value, debt-
above the Treasury security of comparable maturity. The               to income ratios, and housing payment ratios used by
Board chose these thresholds in the belief that they would            lenders to underwrite and price home mortgage loans, is not
exclude the vast majority of prime-rate loans and include             available.
the vast majority of subprime rate loans. From year-to-year,
                                                                      HmdA data also do not include information on loan terms
however, the proportion of subprime-rate loans that have
                                                                      and features needed to ascertain how loans are structured.
prices reported might vary because of changes in the interest
                                                                      For example, HmdA data do not include whether loans
rate environment.6
                                                                      have features such as prepayment penalties, interest-only,
The growth of the higher-priced mortgage market has raised            negative amortization, or balloon payments. HmdA data also
concerns that consumers lack the information needed to                do not include whether loans are fixed rate or adjustable rate
negotiate the best terms and therefore might be vulnerable            mortgages (ARms). It is suspected that many ARm loans
to unfair or deceptive practices. In addition, the wider range        originated in recent years have discounted initial teaser
of prices in this market has raised concerns that price               rates that will reset in two or three years. Finally, HmdA
differences might reflect unlawful discrimination rather than         data do not reveal how loans are sourced by lenders, i.e.
legitimate risk- and cost-related factors. Lastly, the growth         by retail loan officers who work as employees of a lender
of the higher-priced mortgage market is believed to be                or by independent mortgage brokers. Loans with many of
contributing greatly to an increase in mortgage defaults and          the aforementioned features and attributes are known to
foreclosures.                                                         be major contributors to the current increase in mortgage
In short, the requirement to report the HmdA spread is                defaults and foreclosures.
designed to distinguish subprime rate loans from prime rate           These HmdA data limitations limit the ability to know
loans. Subprime lenders in contrast to prime lenders, attract         important details about loan transactions. For example, how
applicants who either have impaired credit or perceive                loans are underwritten and priced, whether Yield Spread
themselves to have bad credit. Theoretically, subprime                Premiums (YSP) or overages7 contribute to the origination
lenders charge higher interest rates to compensate for the            of higher-priced loans, or whether higher-priced loans are
additional credit risk. However, subprime borrowers may               based on borrowers’ legitimate credit criteria or whether the
often be exposed to non-risk related discretionary charges.           overcharges were purely discretionary. Given these HmdA
In recent years, an increased use of risk-based pricing has           data limitations, this study has a single focus – to report on
blurred the line between prime and subprime lenders. The              the demographic disparities in the 2006 distribution of higher
HmdA rate spread information was created to illuminate the            priced subprime rate loans.
distinction and bring more clarity to prime and subprime rate
lending. The HmdA rate spread is focused on higher cost
loans as opposed to lenders who may be classified as high-
cost lenders. This enables users of HmdA data to identify
higher cost subprime rate loans, whether prime or subprime
lenders originate them.




                                                                      7 YSP or overages are extra compensation paid by a lender to loan
6 Frequently Asked Questions About The New HmdA data, Federal         officers or brokers for delivering an interest rate on a loan higher than the
Reserve Board, April 3, 2006                                          risk-based price.




                                                                Page 2 of 27                    The Demographic Impact of the
                                                                                                Subprime Mortgage Meltdown
Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis

The subprime market is intended to provide home loans to                      an increase in risk-based pricing facilitated by technological
people with impaired or limited credit histories. However,                    advances, and the deregulation of the banking industry.”10
there is evidence that many families who receive subprime                     Banking deregulation enabled lenders to offer more
mortgages could qualify for prime loans, but are instead                      varied loan products, which were attractive to more varied
“steered” into accepting higher-cost subprime loans. The                      consumers, and further gave incentives for more lenders to
belief that some subprime loan recipients’ could qualify                      enter the market. Numerous laws opened the door for the
for prime rate loans suggests that some borrowers are                         development of the subprime market. Following is a synopsis
overcharged for mortgage credit, above what their risk-                       of various laws and party Administrations that contributed to
based price may warrant. If this is true, the overcharges                     the growth of the subprime mortgage market:
drain money from homeowners and communities.
To what degree prime eligible borrowers misplaced into                        depository Institutions deregulation and monetary Control
subprime has contributed to the foreclosure crisis is unknown.                Act (“dIdmCA”). dIdmCA, 1980 (Carter Administration)
Also unknown is the extent of illegal steering occurring on a                 • Helped the Savings and Loan (“S&L”) industry stay
prohibited basis, i.e. whether borrowers are steered to higher                  competitive with non-federally chartered banks where
cost subprime rate loans on a prohibited basis, such as race                    consumers received higher rates of return.
or ethnicity.8 The subprime misplacement question, steering
issues as well as fraud concerns highlights the need for                      • Enabled the S&Ls to recoup the higher interest rates they
effective regulatory enforcement by the lending regulatory                      were paying by allowing them to preempt state usury laws for
community.9                                                                     loans to consumers secured by first liens on their homes.
The Federal Reserve and other federal bank regulators                         Alternative mortgage Transaction Parity Act, 1982 (Reagan
have been criticized by lawmakers for lax regulation of the                   Administration)
mortgage market. On July 18, 2007 the New York Times                          • Extended federal mortgage-lending regulations to most
reported that “Representative Barney Frank, chairman of                         residential loans, including the permitted use of variable
the House Financial Services Committee, threatened to strip                     interest and balloon payments. At the time this law helped
the Federal Reserve of its authority to write rules against                     to standardize a wide variety of variable rate mortgages.
mortgage abuses if the central bank did not act quickly.” The                   Nevertheless, it left room for lenders to create variable rate
article further reported that Christopher dodd, who leads                       loans that would be more risky in a Subprime context.
the Senate Banking Committee, said that “a chronology of
                                                                              Tax Reform Act of 1986 (“TRA”) (Reagan Administration)
regulatory neglect allowed the problems in the subprime
market to go unchecked.”                                                      • Increased the demand for mortgage debt because it
                                                                                prohibited the deduction of interest on consumer loans,
many factors contributed to the growth of subprime lending,
                                                                                yet allowed interest deductions on mortgages for a primary
such as increases in capital made possible by securitization,
                                                                                residence as well as one additional home. This fueled the
8 mike Hudson and E. Scott Reckard, more Homeowners with Good                   growth in home equity lending, a major component of the
Credit Getting Stuck in Higher-Rate Loans, L.A. Times, p. A-1 (October          subprime lending industry.
24, 2005). For most types of subprime loans, African-Americans and
Latino borrowers are more likely to be given a higher-cost loan even after    Financial Institutions Reform Act of 1989 (“FIRREA”) (Bush,
controlling for legitimate risk factors. debbie Gruenstein Bocian, Keith S.   George H.W.)
Ernst and Wei Li, Unfair Lending: The Effect of Race and Ethnicity on the
Price of Subprime mortgages, Center for Responsible Lending, (may 31,         • Addressed the costly S&L failures of the 1980’s and created
2006) at http://www.responsiblelending.org/issues/mortgage/reports/page.        incentives for S&Ls to operate as thinly capitalized mortgage
jsp?itemId=2937 1010;                                                           brokers relying on the secondary market for loans.
9 The terms “bank regulator” or “lending regulator” is used
interchangeably to refer to the enforcement arms of: the Board of
                                                                              Gramm-Leach-Bliley Act, 1999 (Clinton)
Governors of the Federal Reserve (FRS or Fed) regulating lending affiliate    • Permitted financial service providers to merge with
of bank holding companies and state chartered member banks; the
Federal deposit Insurance Corporation (FdIC) regulating state-chartered
                                                                                insurers.
non-member banks; the Office of the Comptroller of the Currency
(OCC) regulating national banks; the Office of Thrift Supervision (OTS)
overseeing federal savings and loans and federal savings banks; the
National Credit Union Administration (NCUA) regulating federally charted      10Howell, Benjamin, Exploiting Race and Space: Concentrated Subprime
credit unions and department of Housing and Urban development (HUd).          Lending as Housing discrimination, California Law Review, January, 2006.




                                                                     Page 3 of 27                     The Demographic Impact of the
                                                                                                      Subprime Mortgage Meltdown
Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis

“Some 80 percent of outstanding U.S. mortgages are prime,                  On June 5, 2008, the mortgage Bankers Association of
while 14 percent are subprime and 6 percent fall into the                  America released its latest delinquency Survey. The survey
near-prime category. These numbers, however, mask the                      reported that “the seasonally adjusted total delinquency
explosive growth of nonprime/subprime mortgages. The                       rate is the highest reported in the mBA survey since 1979”
subprime market sector grew from $150 billion in 2000 to                   and that “the rate of foreclosure starts and the percent of
$650 billion in 2007, or roughly 25 percent of the overall                 loans in the process of foreclosure are at the highest levels
mortgage market. Subprime and near-prime loans increased                   ever.”13 According to the mBA’s National delinquency
dramatically, from 9 percent of newly originated securitized               Survey, “the delinquency rate for mortgage loans on one-
mortgages in 2001 to 40 percent in 2006.”11                                to-four-unit residential properties stood at 6.35 percent of all
The relationship between subprime rate loans and defaults                  loans outstanding at the end of the first quarter of 2008 on
and foreclosures is undeniable. Numerous surveys and                       a seasonally adjusted (SA) basis, up 53 basis points from
reports point to a strong relationship between subprime rate               the fourth quarter of 2007 and up 151 basis points from one
loans and the foreclosure crisis. The delinquency Survey of                year ago. The survey also reported that “the percentage
the mortgage Bankers Association, and two recent reports,                  of loans in the foreclosure process was 2.47 percent of all
one entitled “Analysis of Subprime mortgage Servicing                      loans outstanding at the end of the first quarter, an increase
Performance” (data Report 1 and 2) by The State Foreclosure                of 43 basis points from the fourth quarter of 2007 and 119
Prevention Working Group (State Working Group)12 and                       basis points from one year ago.”14 Finally, and of most
another entitled “OCC mortgage metrics Report – Analysis                   significance to this study, the survey included a table that
and disclosure of National Bank mortgage Loan data” by the                 shows prime and subprime rate loans as a percent of loans
Office of the Comptroller of the Currency all point to subprime            outstanding relative to the percent of foreclosures started:
rate loans as a major reason for the foreclosure crisis.

                                   TABLE 1: LOAN TYPE AND PERCENT OF FORECLOSURES STARTED




11 The Rise and Fall of Subprime mortgages by danielle dimartino and
John V. duca ,Vol. 2, No. 11, November 2007, Economic Letter—Insights
from the Federal Reserve Bank of dallas
12The State Foreclosure Prevention Working Group, formed in the
                                                                           13delinquencies and Foreclosures Increase in Latest mBA National
summer of 2007, consists of the Attorneys General of 11 states (Arizona,
                                                                           delinquency Survey, mortgage Bankers Association of America, pg.
California, Colorado, Iowa, Illinois, massachusetts, michigan, New York,
                                                                           1,June 5, 2008
North Carolina, Ohio, and Texas), two state bank regulators (New York
and North Carolina), and the Conference of State Bank Supervisors.         14Ibid




                                                                    Page 4 of 27                  The Demographic Impact of the
                                                                                                  Subprime Mortgage Meltdown
Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis
 Table 1 shows that “while subprime ARms represent 6              less sophisticated borrowers, including single women and
 percent of the loans outstanding, they represent 39 percent      the elderly.”
 of the foreclosures” started. Subprime fixed rate loans          In addition, the 2007 Annual minority Lending Report
 also represent 6 percent of the loans outstanding and 11         by ComplianceTech also reported that loans to Blacks
 percent of foreclosures started. Together, subprime loans        and Hispanics were disproportionately subprime. This
 represent 12 percent of loans outstanding, but 50 percent of     concentration of subprime activity leaves these homeowners
 foreclosures started.                                            with significant costs of subprime loans. The Center for
 Several studies during the years have shown subprime             Responsible Lending (CRL) recently published numerous
 loans have been disproportionately used by minorities. For       research reports that show African Americans and Latinos
 example, a study by the department of Housing and Urban          receive a disproportionate share of subprime loans, even
 development (HUd) of the 1998 Home mortgage disclosure           when they have similar credit scores to non-Hispanic White
 Act (HmdA) data of almost one million mortgages reported         borrowers. In december 2007, CRL issued a report showing
 nationwide, concluded that there was a disproportionate          how subprime home loans are resulting in a devastating
 concentration of subprime lending in minority and low-           epidemic of foreclosures.16
 income neighborhoods.15                                          despite overwhelming evidence that support the above
 more recently, an article in the Washington Post on June         findings, this report reveals that the majority of subprime rate
 30, 2008, entitled “Subprime mortgages and Race: A Bit of        loans originated in 2006 were granted to non-Hispanic Whites
 Good News may Be Illusory” by Shankar Vedantam refers            and upper income borrowers. The same pattern occurred in
 to subprime rate loans “as the original domino that set off      2005. In 2004, more subprime rate loans were originated
 America’s current economic crisis. But the loans – typically     for non-Hispanic Whites, but middle-income borrowers
 made to people with poor credit – have long been hailed          had the highest share. These findings are contrary to the
 for one reason: They were thought to be a powerful way to        way subprime rate lending is commonly portrayed. Popular
 increase homeownership rates among minorities, and to            media myths and erroneous assumptions about subprime
 provide a mechanism to undo the “redlining” policies of past     rate loans are continuously presented as if subprime rate
 decades, in which some banks refused to extend loans in          lending was predominately in the domain of minorities and
 predominantly minority neighborhoods, even to applicants         low-income borrowers.
 with good credit.”
 The article also references research conducted by George
 Washington University sociologist Gregory d. Squires,
 “who, has been looking at rates of subprime loans issued
 in about 350 U.S. metropolitan areas”. Squires’ preliminary
 findings show that subprime loans were indeed more likely
 to be issued to people with poor credit and those with limited
 incomes. In the article, Squires’ is credited with saying “we
 see these loans heavily concentrated in poor neighborhoods
 and targeted to minority neighborhoods,” “There is some
 evidence that these neighborhoods were actually targeted
 – that lenders have gone after people whom they think are
                                                                  16Testimony of Josh Nassar, Center for Responsible Lending Before
 15U.S. department of Housing and Urban development, UNEQUAL      the U.S. House Committee on Oversight and Government Reform, pg.
 BURDEN:INCOME & RACIAL DISPARITIES IN SUBPRIME LENDING IN        2 “Foreclosure, Predatory mortgage and Payday Lending in America’s
 AmERICA                                                          Cities”, march 21, 2007




                                                      Page 5 of 27                   The Demographic Impact of the
                                                                                     Subprime Mortgage Meltdown
Methodology


LendingPatterns™, an online HmdA analysis tool developed                      The loan amount categories are conforming and jumbo.
by ComplianceTech, was used extensively to mine the HmdA                      Conforming loans are those that conform to the loan
data to analyze the lending patterns of all HmdA reporting                    purchase limits of Fannie mae and Freddie mac (less than
lenders in the United States by race, income, gender and                      or equal to $417,000 in 2006). Jumbo loans are those with
geography. The online system produces reports by the                          a loan amount exceeding $417,000. Although jumbo loans
entire United States, metropolitan Statistical Areas (mSA),                   demand a higher price, they are not analyzed separately
states, counties, census tracts and for the 2006 HmdA data,                   because the focus of this study is on the 1st lien loans that
by Congressional districts of the 110th Congress. Using                       exceed the three percentage point threshold for HmdA
LendingPatterns™ conventional, 1st lien, 1 to 4 family, owner-                spread reporting.
occupied, home purchase and refinance loans with a HMDA                       Finally, the census tract percent minority analysis uses 2000
reported spread were isolated.                                                Census data to stratify census tracts by their percent of
The study describes the overall distribution of the frequency                 minority inhabitants. All subprime rate loans are distributed
and magnitude of subprime rate loans for the years 2004                       cross census tracts in 10 percent increments, i.e. a range
to 2006. Looking back at prior years, the study provides a                    from 0% to 100% minority.
recent historical perspective on the distribution of subprime
rate loans. The remainder of the study focuses only on loans
originated in 2006. The 2006 loans are analyzed by race and
ethnicity, income of borrowers, gender, census tract income,
and census tract percent minority.
Race and ethnicity is limited to White, Black, Hispanic,
Asian, Native American and Hawaiian. multi-race, unknown
and Not Available (NA) race categories are excluded.
Income of borrowers and census tracts are characterized
by the Community Reinvestment Act (CRA)17 classifications
of low, moderate, middle and upper income. These income
classifications are calculated using borrower and census
tract income relative to the median income of metropolitan
Statistical Areas (mSA).
Gender distribution is based on whether the primary
applicant’s gender is male or female or, male or female
without a co-applicant. It is not known whether borrowers
without co-applicants are in fact single. HmdA data only
show that no co-applicant was on the loan application.
Same gender, unknown and NA are included in the gender
analysis.

17The Community Reinvestment Act is intended to encourage depository
institutions to help meet the credit needs of the communities in which they
operate, including low- and moderate-income neighborhoods, consistent
with safe and sound banking operations. It was enacted by the Congress
in 1977 (12 U.S.C. 2901) and is implemented by Regulations 12 CFR
parts 25, 228, 345 and 563e




                                                                     Page 6 of 27                 The Demographic Impact of the
                                                                                                  Subprime Mortgage Meltdown
Summary Of Findings


• The overall rate of subprime rate lending in 2006 was        • Middle-income borrowers from all racial groups had the
  27.42% with an average spread of 5.18%.                        second highest use of subprime rate loans, followed by
• During the period of 2004-2006, Whites had more subprime       moderate-income borrowers.
  rate loans than all minorities combined. However, in each    • The 2006 gender distribution shows a pattern where
  year, the White percent of subprime rate loans was lower       males and females without co-applicants had the highest
  than all minorities, except Asians. Whites and Asians had      use of subprime rate loans in 2006 at 32.60% and
  average spreads less than the overall average at 5.09%         32.21%, respectively. Combined, these presumably single
  and 4.95%, respectively.                                       borrowers accounted for 64.81% of the 2006 subprime
• Whites had 70.82% of the 2006 loans and 56.23% of              rate loans.
  the subprime rate loans with a spread. Asians share of       • Middle-income census tracts had the largest number and
  overall loans at 4.48% was higher than their 2.85% share       share of subprime rate loans at 1,049,232, or 53.2%.
  of subprime rate loans. By contrast, Blacks and Hispanics,     moderate and upper-income census tracts were almost
  and Native Americans and Hawaiians, albeit at much             even at 21.87% and 21.40%, respectively. Low-income
  lower volumes, had a higher share of subprime rate loans       census tracts had the second highest proportion of
  than their share of loans overall. For example, Blacks and     subprime rate loans (47.51%), the highest average spread
  Hispanics had 9.97% and 13.92% of the overall pool of          (5.43%), but the smallest share of all select 2006 subprime
  loans, but had 19.18% and 20.76% of the subprime rate          rate loans at 3.15%.
  loans, respectively. The Native American share of overall    • Non-Hispanic White subprime rate loans were concentrated
  loans was 0.32% and 0.40% of subprime rate loans.              in predominately White areas. Of the 1,108,679 non-
  Finally, the Hawaiian share of overall loans was 0.51%         Hispanic White subprime rate loans originated in 2006,
  and 0.58% of the subprime rate loans.                          868,806 or 78.36% were located in census tracts less than
• In 2006, the White and Asian percent of subprime rate          30 percent minority. The largest block of non-Hispanic
  loans was below the national average at 21.78% and             White subprime rate loans (473,397 or 42.70%) were
  17.43% respectively. Conversely, Blacks, Hispanics,            located in census tracts less than 10% minority.
  Native Americans, and Hawaiians all had subprime rate        • Black subprime borrowers were located both in
  loans above the national average at 52.76%, 40.91%,            predominately White census tracts as well as highly
  33.98%, and 31.46%, respectively.                              concentrated in predominately minority census tracts. In
• From 2004 to 2006, compared to all other racial groups,        fact, the Black volume of subprime rate loans in census
  Blacks had the highest jump in subprime rate lending.          tracts less than 30% minority totaled 97,693, slightly more
  during this period the Black incidence of subprime rate        than the 91,906 subprime rate loans in census tracts
  loans increased by 71% from 30.84% in 2004, to 50.96%          90-100% minority. Interestingly, the Black low (20,307)
  in 2005, and to 52.76% in 2006. Similarly, from 2004 to        and high (39,092) was in census tracts <10% minority
  2006 the average cost of this high cost lending to Blacks      and 10 to 20% minority. The next highest Black subprime
  increased by 29%. The Black average spread was 4.28%           rate loan count was 38,294 in census tracts 20 to 30%
  in 2004, 4.97% in 2005, and 5.50% in 2006.                     minority.
• Of the 1,917,809 subprime rate loans in 2006, upper-         • The largest block of Hispanic subprime rate loans were
  income borrowers had the highest share at 39.37%,              in census tracts 90 to 100% minority (62,284). Hispanics
  followed by 27.55% for middle-income borrowers and             also had large subprime rate loan volumes in census tracts
  20.99% for moderate-income borrowers. Contrary to              80 to 90% minority, 20 to 30% minority, and 70 to 80%
  popular belief, low-income borrowers had only 149,173, or      minority. In fact, Hispanics had more than 37,000 subprime
  7.57%, of 2006 subprime rate loans.                            rate loans in all 10% census tract segments, except <10%,
• Upper-income borrowers from all racial groups had the          where they had 20,794 subprime rate loans.
  largest number of subprime rate loans, followed by middle,
  moderate and low-income borrowers.




                                                       Page 7 of 27                The Demographic Impact of the
                                                                                   Subprime Mortgage Meltdown
Highlights Of 2004-2006 Subprime Rate Lending By
Race And Ethnicity

during the period of 2004-2006, Black Americans, compared
to other racial groups, experienced the largest percentage
build-up of subprime rate loans. (Figure 1)


                             FIGURE 1: 2004-2006 PERCENT OF SUBPRIME RATE LOANS BY RACE




The vast build-up of higher cost subprime rate loans with
Blacks is likely to translate into a disproportionately larger
percent of loans that will experience mortgage defaults and
foreclosures. In 2004, the first year HMDA pricing information
was reported by lenders, more than 30 percent of the Black
conventional first lien 1 to 4 family home purchase and
refinance loans were comprised of higher-cost subprime rate
loans. This was followed by a frequency greater than 50% in
2005 and 2006. during the same period, Blacks also had the
highest average spread on subprime rate loans. (Figure 2)




                                                         Page 8 of 27      The Demographic Impact of the
                                                                           Subprime Mortgage Meltdown
Highlights Of 2004-2006 Subprime Rate Lending By
Race And Ethnicity

                        FIGURE 2: 2004-2006 AVERAGE SPREAD ON SUBPRIME RATE LOANS BY RACE




The trend with Hispanics, Native Americans and Hawaiians,
while similar to Blacks, was not as high. Each of the above
groups however, had a higher frequency and higher average
spread on subprime rate loans than Whites or Asians. In
fact, Asians had the lowest frequency and magnitude of
loans with a HmdA reported spread. Thus, percentage-wise,
Hispanics, Native Americans and Hawaiians are also more
likely to experience a higher proportion of mortgage defaults
and foreclosures.
With respect to the number of subprime rate loans during
the three-year period, there is a large difference by race.
In each year, Whites had more subprime rate loans than
all minority groups combined. (Figure 3) Among minorities,
Hispanics had the largest volume of subprime rate loans,
followed by Blacks, with much smaller numbers for Asians,
Native Americans and Hawaiians.




                                                        Page 9 of 27      The Demographic Impact of the
                                                                          Subprime Mortgage Meltdown
Highlights Of 2004-2006 Subprime Rate Lending By
Race And Ethnicity

                                 FIGURE 3: 2004-2006 COUNT OF SUBPRIME RATE LOANS BY RACE




White homeowners are not going to be insulated from the                37,693.”19 These findings are evidence that recent gains in
subprime mortgage meltdown. The massive numbers of                     Black and Hispanic homeownership rates are likely to be lost.
White subprime rate loans indicate that it is highly probable          CRL studies show that “foreclosures can have a significant
that Whites will also experience an increase in mortgage               impact in a community where the foreclosed property is
defaults and foreclosures. Percentage-wise, however,                   located. This is particularly true when the factors that led to
the incidence of foreclosures in Black and Hispanic                    one foreclosure drive a concentration of foreclosures in the
neighborhoods is predicted to be more concentrated than in             same neighborhood, for example in a spatial concentration
White communities. Blacks and Hispanics had a significant              of subprime lending. A concentration of home foreclosures
number of higher-cost subprime loans and they had a much               in a neighborhood hurts property values in several ways. A
higher proportion of such loans. Thus, the high concentration          glut of foreclosed homes for sale depresses home market
of subprime rate loans in Black and Hispanic communities               values for the other owners. Neighboring businesses often
is likely to translate into a higher number and percent of             experience a direct monetary loss from reduced sales and
mortgage defaults and foreclosures.                                    neighborhood landlords experience a loss or reduction in
Foreclosures in the subprime market have eroded and                    rental income. moreover, house price declines can also
are projected to continue to erode some of the gains in                affect economic activity through their effect on household
homeownership rates for minority households. For example,              wealth. Econometric work has established that household
CRL estimates “that the 2005 vintage of subprime loans will            wealth, along with income, helps to determine the level of
lead to 98,025 foreclosures by Black homeowners relative               aggregate consumption. Higher levels of wealth lead to
to only 50,925 new Black homeowners, or a net reduction                higher consumption, all things being equal. Since declines
in 47,101 Black homeowners.”18 Similarly, CRL estimates “a             in home prices reduce wealth, they reduce consumption and
net decline in homeownership among Hispanic families of                thus output and employment.”20
18Center for Responsible Lending, “Subprime Lending: A Net drain on
                                                                       19Ibid
Homeownership,” CRL Issue Paper No. 14, march 27, 2007, available at
http://www.responsiblelending.org/page.jsp?itemId=3203203 1.




                                                               Page 10 of 27               The Demographic Impact of the
                                                                                           Subprime Mortgage Meltdown
Highlights Of 2004-2006 Subprime Rate Lending By
Race And Ethnicity

In conclusion, the pattern and trend of subprime rate lending
during 2004-2006 indicate that Whites are likely to have
a higher volume of loans that might experience mortgage
defaults and foreclosures, but Blacks and Hispanics are
more likely to be disproportionately impacted, and these
events are more likely to be heavily concentrated in high
minority neighborhoods. (Figure 4) The HmdA data show
a consistent pattern where the percent of subprime rate
loans increase as census tracts become increasingly more
minority.



                    FIGURE 4: 2004-2006 PERCENT OF SUBPRIME RATE LOANS BY TRACT PERCENT MINORITY




20The Subprime Lending Crisis, The Economic Impact on Wealth,
Property Values and Tax Revenues, and How We Got Here, Report and
Recommendations by the majority Staff of the Joint Economic Committee,
Senator Charles E. Schumer, Chairman, Rep. Carolyn B. maloney, Vice
Chair, October, 2007, pg. 13-14, http://jec.senate.gov/documents/Reports/
10.25.07OctoberSubprimeReport.pdf




                                                                  Page 11 of 27   The Demographic Impact of the
                                                                                  Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


In 2006, the HmdA data reported 7,191,015 conventional,
1st lien, 1 to 4 family, owner occupied, home purchase and
refinance loans where the race of the borrower was known.
Of these, a HmdA spread was reported on 1,971,809 or
27.42%. The overall average spread on the loans was 5.18%
or 218 basis points above the 3 percent 1st lien threshold
for reporting. The frequency and magnitude of higher cost
subprime rate loans varied widely by race as shown in Table
2 and graphically in Figure 5 below:

                                 TABLE 2: 2006 “LOANS” WITH A HMDA SPREAD BY RACE




               FIGURE 5: 2006 FREQUENCY AND MAGNITUDE OF LOANS WITH A HMDA SPREAD BY RACE




                                                     Page 12 of 27        The Demographic Impact of the
                                                                          Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


The White frequency (percent) of subprime rate loans was        This is expected since Whites comprise a large majority of
21.78% with a magnitude (average spread) of 5.09%. Using        the U.S. population. Whites had 70.80% of the loans and
the White frequency and magnitude of subprime rate loans        56.23% of the loans with a spread as shown in Table 3
as a benchmark, Blacks had the highest difference among all     below:


                TABLE 3: PERCENT OF LOANS BY RACE AND PERCENT OF LOANS WITH A SPREAD BY RACE




minorities with a 52.76% frequency and an average spread        The large number of White subprime rate loans suggests
of 5.50%. Blacks, therefore, received higher cost subprime      that the problem with increased defaults and foreclosures is
rate loans 2.42 times the frequency in which Whites received    not likely to be isolated to minority communities. many White
such loans. The difference between the White and Black          Americans will be adversely affected as well.
average spread was 41 basis points.
Hispanics had the second highest disparity in the frequency
and magnitude of subprime rate loans compared to Whites.
Hispanics had a subprime rate loan frequency of 40.91% or
1.88 times the 21.78% frequency for Whites. The Hispanic
average spread was 5.18% or 9 basis points higher than
Whites.
Asians were the only minority group whose frequency and
magnitude of receiving higher cost subprime rate loans was
less than Whites. Asians received higher cost loans 17.43%
of the time or 20% less often than Whites. Asians had an
average spread of 4.95% or 14 basis points lower than the
White average spread. Native Americans and Hawaiians
received higher cost loans 33.82% and 31.46% of the time,
with an average spread of 5.21% and 5.18%, respectively.
despite the racial disparities in the frequency and magnitude
of 2006 subprime rate loans, Whites had more loans overall
and more subprime rate loans than all minorities combined.




                                                       Page 13 of 27                The Demographic Impact of the
                                                                                    Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Subprime Rate Loans By Loan Purpose

In 2006, more subprime rate loans were used to refinance
an existing mortgage than to purchase a new home. Of the
1,971,809 subprime rate loans in 2006, refinance loans
accounted for 55.82% and home purchase loans 44.18%.
Refinance loans had a higher frequency of being higher-cost
subprime rate loans at 29.85%, but a lower average spread
of 5.11%. The subprime rate frequency for home purchase
loans was 24.86% with a higher average spread of 5.27%.
(Table 4)
                                       TABLE 4: LOAN PURPOSE BY HMDA SPREAD




                                                Page 14 of 27            The Demographic Impact of the
                                                                         Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


By race and ethnicity, Hispanics and Asians had a higher
percent of subprime rate loans for home purchase at 56.15%
and 55.19%, respectively. Other racial groups had a higher
percent of subprime rate lending for refinance transactions.
The distribution of 2006 subprime rate loans by loan purpose
is shown in Figure 6:
                                FIGURE 6: 2006 SUBPRIME RATE LOANS BY LOAN PURPOSE




                                                      Page 15 of 27       The Demographic Impact of the
                                                                          Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Subprime Rate Loans By Borrower Income

Overall, the number of loans and the number of loans with      the same for average spread. moderate and middle-income
a HmdA spread, decrease as borrower income decreases.          borrowers had a higher average spread than low-income
For example, low-income borrowers had fewer loans than         borrowers. Upper-income borrowers had the highest share
moderate, middle and upper-income borrowers, but of the        (39.37%), but the lowest frequency and lowest average
loans obtained by low-income borrowers, a higher percent       spread of subprime rate loans by borrower income. Table 5
were subprime rate loans. Surprisingly, this pattern was not   and Figure 7:


                              TABLE 5: 2006 LOANS WITH A SPREAD BY BORROWER INCOME




                                 FIGURE 7: LOANS WITH SPREAD BY BORROWER INCOME




                                                      Page 16 of 27              The Demographic Impact of the
                                                                                 Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


The income distribution pattern for each racial group mirrors
the overall pattern; the highest number of subprime rate loans
was with upper-income borrowers. As income decreases,
the number of subprime rate loans decreased. (Figure 8)


                               FIGURE 8: 2006 SUBPRIME RATE LOANS BY RACE AND INCOME




                                                        Page 17 of 27     The Demographic Impact of the
                                                                          Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Percentage-wise, however, the pattern was most pronounced      Unlike other racial groups, Blacks received subprime rate
with Asians and Hawaiians, where 62.21% and 57.81% of          loans fairly evenly across all income brackets. Upper-
the respective upper-income borrowers from the two racial      income Blacks had 30.29% of subprime rate loans while
groups obtained subprime rate loans. Almost half of upper-     the difference between moderate, middle and upper-income
income Hispanics had subprime rate loans (49.59%) with         was no more than 2.17%. Low- income Blacks were the only
differences of 10 to 15% between the other income brackets.    racial group with a double-digit percent of subprime rate
Subprime rate loans for upper-income Whites were 37.35%        loans (11.29%). (Figure 9)
with differences of 6-to-14 percent between the other income
brackets.


                  FIGURE 9: PERCENT DISTRIBUTION OF SUBPRIME RATE LOANS BY RACE AND INCOME




                                                      Page 18 of 27              The Demographic Impact of the
                                                                                 Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Gender distribution Of Subprime Rate Loans

All racial groups had a high number and percent of men               thing, but if a large portion of the subprime rate borrowers
and women without co-applicants that made up a significant           are single men or women head of households with children,
portion of the subprime rate loan population in 2006. Rising         the implications of mortgage foreclosures become much
real estate costs and home property values apparently                more bleak. Families with children could become homeless.
prompted many single persons to enter the real estate                The 2006 gender distribution of subprime rate loans
market. Some entered for the sake of homeownership while             show a pattern whereby males without co-applicants and
others might have made speculative investments, suspecting           females without co-applicants (presumably single) had a
that home prices would continue to rise. Either way, with a          higher frequency and higher average spread than males
single income, many single borrowers might have sought               or females listed as primary borrowers. There is however,
more creative ways to obtain home loan financing.                    very little disparity between single men and single women
The mortgage market accommodated this market segment                 in the percent and average spread on subprime rate loans.
with loan features that made it easier to qualify. Loans, such       The frequency of subprime rate loans for males without co-
as 2/28 and 3/27 adjustable rate mortgages (ARms) started            applicants and females without co-applicants was almost
with low teaser rates for the first two or three years of the loan   even at 32.60% and 32.21%, respectively. The same is true
with a rate reset in later years. In all instances the rate resets   for the average spread on loans made to males without co-
will produce significant mortgage payment increases. Other           applicants and females without co-applicants at 5.23% and
non-traditional loan features, such as, pay option ARms,             5.24%, respectively.
interest only and underwriting features like “no income” and         However, a much wider disparity exists when females were
“no asset” verification enabled borrowers to “buy now, but           listed as the primary borrower compared to when men were
borrow trouble later. “                                              listed as primary. The frequency of subprime rate loans with
The gender distribution of subprime rate loans and as a              females as the primary borrower was 29.55% with an average
pattern indicator of mortgage defaults and foreclosures might        spread of 5.20%. By contrast, when men were listed as the
have a significant impact on policy discussions at the federal,      primary borrower, the percent of subprime rate loans was
state and local level. Single men or women without children          only 18.62% with an average spread of 5.03%. (Table 6)
who might have difficulty making mortgage payments is one


                                       TABLE 6: GENDER AND 2006 LOANS WITH A SPREAD




                                                            Page 19 of 27               The Demographic Impact of the
                                                                                        Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


The distribution pattern by race and gender is varied. For all
minority groups, except Blacks, males without co-applicants
followed by females without co-applicants had the highest
percent of subprime rate loans. This is especially true with
Hispanics where 75.86% of 2006 subprime rate borrowers
were either single men without co-applicants (46.69%) or
single females without co-applicants (29.17%). (Figure 10)


                          FIGURE 10: PERCENT OF SUBPRIME RATE LOANS BY RACE AND GENDER




                                                        Page 20 of 27    The Demographic Impact of the
                                                                         Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


A male as the primary borrower was ranked third with all
minorities with respect to subprime rate loans by gender.
For blacks however, the highest proportion of subprime
rate loans was with females without co-applicants (42.10%)
followed by males without co-applicants (33.08%) and then
by male as the primary borrower (15.33%).
For Whites, the pattern of subprime rate loans was male
dominated. White males without co-applicants accounted
for 35.67% of the White subprime rate loans followed by
White men as primary borrower at 28.62%. The number of
subprime rate loans to White men (395,441) was more than
half the number of subprime rate loans to all minority males
without co-applicants combined. White females without co-
applicants had 25.32% of the White subprime rate loans, and
that proportion accounts for more than 48% of all subprime
rate loans received by females without co-applicants in 2006.
(Figure 11) Females as the primary borrower had the lowest
percent of subprime rate loans for all racial groups ranging
from a low of 5.48% for Hispanics to a high of 10.56% for
Hawaiians.

                                FIGURE 11: SUBPRIME RATE LOANS BY RACE AND GENDER




                                                       Page 21 of 27     The Demographic Impact of the
                                                                         Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Subprime Rate Loans By Census Tract Income

In 2006 there was an inverse relationship between census     highest magnitude of subprime rate loans at 47.51% and
tract income and the percent of subprime rate loans. As      5.43%, respectively. By contrast, upper-income census
census tract income increased, the frequency and magnitude   tracts had a frequency of 18.25% with an average spread of
of subprime rate loans by census tract income decreased.     5.03%. Table 7 and Figure 12 shows the overall distribution
Low-income census tracts had the highest frequency and       of the 2006 subprime rate loans by census tract income:



                           TABLE 7: 2006 SUBPRIME RATE LOANS BY CENSUS TRACT INCOME




                                                    Page 22 of 27               The Demographic Impact of the
                                                                                Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


despite the inverse relationship of census tract income and     rate loans in all other census tract income categories
spread frequency and magnitude, the volume of subprime          combined. moderate and upper census income tracts had
rate loans is skewed dramatically towards middle-income         an almost even percentage of higher priced loans at 21.87%
census tracts. middle-income census tracts had 53.21% of        and 21.40%, respectively. Low-income census tracts had the
the higher cost loans, more than twice the volume of subprime   smallest number and percent of 2006 subprime rate loans.




                           FIGURE 12: 2006 SUBPRIME RATE LOANS BY CENSUS TRACT INCOME




                                                       Page 23 of 27               The Demographic Impact of the
                                                                                   Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


Subprime Rate Loans By Race And Census Tract
Percent minority

The incidence of higher-cost subprime rate loans is more          The overall volume of loans and the volume of subprime rate
prevalent in census tracts with a higher percentage of            loans however, are clearly skewed towards largely White
minorities. The frequency and magnitude of higher-cost            areas. Census tracts that are less than 30% minority account
subprime rate loans increase as the proportion of minorities      for 55.61 % of higher price subprime rate loans. Census
in a community increase.                                          tracts < 10% minority had the largest share of subprime
The frequency/average spread range from a low of                  rate loans at 26.47%. By contrast, despite the fact that high
22.25%/5.10% in census tracts < 10% minority to a high            minority census tracts had a higher incidence and higher
of 47.51%/5.36% in census tracts 90 to100% minority.              average spread, census tracts >70% minority accounted
Throughout the range of census tract strata, the pattern of the   for only 18.87% of the 2006 subprime rate loans. (Table 8,
incidence and magnitude of subprime rate loans is linear.         Figure 13, and Figure 14).

                                                                  If the incidence of higher-priced lending is a predictor of
                                                                  future delinquencies, then the subprime rate loan distribution
                                                                  by census tract percent minority is an indication that the
                                                                  mortgage meltdown might be a hurricane in predominately
                                                                  White census tracts, but it will be a tsunami in predominately
                                                                  minority census tracts, especially for Blacks and Hispanics.



                             TABLE 8: TRACT PERCENT MINORITY AND LOANS WITH A SPREAD




                                                         Page 24 of 27                The Demographic Impact of the
                                                                                      Subprime Mortgage Meltdown
Distribution Analysis Of 2006 Subprime Rate Loans


                FIGURE 13: 2006 COUNT OF SUBPRIME RATE LOANS BY RACE AND
                                  TRACT PERCENT MINORITY




        FIGURE 14: 2006 PERCENT OF SUBPRIME RATE LOANS BY RACE AND CENSUS TRACT
                                     PERCENT MINORITY




                                     Page 25 of 27           The Demographic Impact of the
                                                             Subprime Mortgage Meltdown
Conclusion


 The demographic impact of the Subprime mortgage meltdown               politically responsible approach is likely, thereby changing
 has been under-analyzed. A common theme expressed in                   the tone, climate and context of how solutions are crafted.
 newspaper articles and periodicals on the subject suggest that         Besides race and ethnicity, understanding the gender
 the foreclosure crisis is a minority and low-income borrower           distribution is also relevant in formulating policy solutions
 problem. For example, an article in the Washington Post on             to the subprime rate lending and foreclosure crisis. The
 June 17, 2008 credits former Federal Reserve Chairman                  2006 HmdA data show a pattern where males and females
 Edward Gramlich with saying “the subprime market, for all              without co-applicants had the highest use of subprime rate
 its warts, is a promising development, permitting low-income           loans at 32.60% and 32.21%, respectively. Combined,
 and minority borrowers to participant in credit markets”21             these presumably single borrowers accounted for 64.81%
 But he added, “a majority of loans are made with very little           of the 2006 subprime rate loans. These presumably single
 supervision.”22 The same theme is presented in many other              borrowers do not have two income sources to support the
 articles, reports and publications.                                    mortgage. If the single borrowers, in trouble of making their
 Although it is true that disproportionate shares of minority           mortgage payments, are single-head of households, what
 loans are subprime, it is also true that more subprime rate            about the children?
 loans are made to non-Hispanic Whites. To suggest that the             Not enough research and media attention has been devoted
 subprime mortgage meltdown and the foreclosure crisis is               to other causes of the subprime crisis that may have race
 a minority and low-income problem is tremendously flawed.              and gender effects. Issues of steering, weak underwriting,
 Indeed, in 2006, non-Hispanic Whites and upper income                  fraud, and discrimination have not been aggressively
 borrowers had the highest share of (conventional, 1st lien,            investigated. despite the presence of federal regulation
 1-4 family, owner-occupied, home purchase/refinance)                   and periodic examinations for safety and soundness,
 subprime rate loans. moreover, the majority of subprime                Community Reinvestment Act compliance and fair lending
 rate loans originated in 2006 were clearly skewed towards              compliance, efforts to uncover whether subprime rate loans
 predominately-White areas (census tracts less than 30                  can be explained by legitimate business justifications will
 percent minority).                                                     be impaired based on erroneous assumptions about the
 The problem with portraying the foreclosure crisis as a                demographic distribution of subprime rate loans.
 minority and low-income problem is that it affects how                 Last, if it is believed that subprime rate lending is
 solutions will be approached. If, on one hand, it is believed that     predominately an urban minority problem, officials will fail
 subprime rate loans were predominately made to marginal                to see that in 2006 non-Hispanic Whites had 1,108,676
 segments of society (Black, Hispanic or low-income) housing            subprime rate loans of which 868,806 or 78.36% were in
 policymakers may approach solutions with bias assumptions              census tracts <30% minority. The subprime lending meltdown
 about minorities and minority qualifications (low education,           is better described as a mainstream white suburbia problem
 bad credit, and low-paying jobs, etc.). Thus, there may a              with aspects that affect minorities and urban communities.
 tendency to write-off the subprime lending debacle as a type           Erroneous assumptions about the demographics of subprime
 of affirmative action gone bad. On the other hand, if it is            rate lending will only lead to poor decisions that result in
 believed that the foreclosure crisis affects broader and more          ineffective solutions.
 demographically diverse segments of society then a more
 21Washington Post, June 17, 2008 “The Bubble –How homeowners
 missed mortgage payments set off widespread problems and woke up the
 Fed”, pg.A9
 22Ibid.




                                                           Page 26 of 27                The Demographic Impact of the
                                                                                        Subprime Mortgage Meltdown
Conclusion


 About The Author

 maurice Jourdain-Earl has over 35 years of experience in          moderate income homebuyers. ComplianceTech is also
 the financial services business. He began his career in 1973      the organizer of Lending Industry diversity Conference,
 as a Registered Representative for IdS Financial Services         Inc. which sponsors the Annual mortgage Lending Industry
 and obtained licenses to offer insurance and investment           Strategic markets and diversity Conference.
 services to individuals and small businesses. After 3 years       mr. Jourdain-Earl is a noted speaker on lending and banking
 he joined Continental Illinois National Bank as a Bond            issues, particularly on HmdA and fair lending practices. He
 Investment Banking Associate where he offered municipal           has spoken at many events, included some sponsored by
 and Government Bonds to commercial banks and regional             the Federal Reserve Bank, The Federal Home Loan Bank,
 investment banks. In 1979 he joined PmI Securities Co. (a         America’s Community Bankers, Practicing Law Institute, and
 subsidiary of PmI mortgage Insurance Co.) as a director of        the mortgage Bankers Association of America. A native of
 Sales marketing. At PmI, he was responsible for packaging         Chicago, Illinois, he holds a B.A. degree in Social Science
 and selling private placement mortgage-backed securities to       from dePaul University.
 institutional investors.
 From 1982 to 1985 he owned and operated a boutique
 Investment Brokerage Company facilitating the packaging           About ComplianceTech
 and selling of private placement mortgage-backed securities,
 direct from Banks and Savings and Loan Associations to            Since 1991, ComplianceTech has provided specialized lending
 Pension Funds. After doing business with Citicorp, he joined      intelligence services to financial institutions nationwide. With
 the company as a Vice-President to help form a newly              its multi-disciplined expertise in lending, research, statistical
 developed Treasury marketing Unit responsible for packaging       analysis, law and economics, ComplianceTech is uniquely
 and selling loans in portfolio as mortgage-backed securities.     equipped to identify market patterns; unveil opportunities;
 The Treasury marketing Unit later became Citimortgage’s           formulate lending benchmarks; and implement best practices
 Correspondent business.                                           for all aspects of consumer lending. The company’s passion
                                                                   and expertise in data analysis is renowned, and press,
 In 1991 mr. Jourdain-Earl formed CLC Compliance
                                                                   academia, government and private organizations frequently
 Technologies, Inc. (ComplianceTech). ComplianceTech
                                                                   call on ComplianceTech to share its insights and expertise in
 began as a due diligence portfolio analysis company
                                                                   consumer lending intelligence.
 analyzing the asset value of loans for secondary market
 disposition. After becoming an established contractor for the
 RTC, FdIC and private sector companies, ComplianceTech            About LendingPatterns™
 was asked by a lender to analyze their HmdA data. That
 project led to ComplianceTech’s development into a premier        LendingPatterns™ is a web-based data mining and exploration
 provider of lending intelligence services, specializing in        tool developed by ComplianceTech that analyzes millions
 strategic fair lending and emerging markets consulting.           of records for thousands of lenders to produce executive
 For the last 17 years mr. Jourdain-Earl has provided thought      level reports on numerous aspects of mortgage lending in
 leadership in developing consultative and technological           America. It is a powerful analytical tool and is the only fully
 solutions to help clients navigate the regulatory and             accessible national HmdA database on the internet.
 operational complexities of strategic markets, diversity and      To request additional print copies of this report; or for more
 fair lending issues. He has been actively involved in client      information about ComplianceTech or LendingPatterns; visit
 projects to detect and minimize discrimination in underwriting,   www.compliancetech.com, www.lendingpatterns.com, or
 pricing and marketing mortgage, auto and consumer loans           call 1-800-499- 4632.
 and to assess opportunities to lend to minority and low-to-




                                                      Page 27 of 27                 The Demographic Impact of the
                                                                                    Subprime Mortgage Meltdown