Who Subprime Mortgages Hurt the Most
Black Americans disproportionately held subprime mortgages during the housing boom and are now facing foreclosure in large numbers, The Washington Post reports.
While lenders insist they don’t calculate race into deciding who qualifies for a loan and what terms, researchers continue to examine why there is such a stark difference among the races.
The Federal Reserve is studying how the recession affected credit scores by race. Large gaps exist among the credit scores of black Americans compared to white Americans, which banking groups say helps explain why more blacks were offered subprime mortgages -- which a lower credit score is needed to qualify for -- than white borrowers. The subprime loans helped make home ownership more available to more black Americans with lower credit scores, but the higher interest rates and fees also put them at more risk of default, analysts say.
The disparity among the races with home lending and credit scores is “raising fears among consumer advocates, academics and federal regulators that the credit scores of black Americans have been systematically damaged, haunting their financial futures,” The Washington Post reports.
In a past study conducted by the Federal Reserve on credit scores by race, the Fed found in 2003 that less than a quarter of blacks had prime credit scores compared to about 65 percent of whites.
“It’s one more way that credit scoring . . . sort of sets in stone income and wealth disparities between minorities and whites,” Chi Chi Wu, a lawyer with the National Consumer Law Center, told The Washington Post. “The playing field was never level.”
Low credit scores among blacks, bank groups say, is also why blacks were being denied loans at higher rates than whites.
The wealth of blacks decreased 53 percent during the recession, driven largely by the drop in home prices, according to the Pew Research Center. Home ownership rates among blacks have also dropped, reaching its lowest level in 16 years.
Source: “For Black Americans, Financial Damage From Subprime Implosion is Likely to Last,” The Washington Post (July 8, 2012)
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