Subprime crisis and poverty hand-in-hand: study
February 28, 2008
"Where there is a pocket of poverty, you can be sure there is a high rate of subprime lending," said David Beckmann, president of the institute. "Our country's poorest areas are the epicenter of the subprime mortgage crisis."
Written by , Reuters
WASHINGTON (Reuters) -The impact of the housing crisis is landing hardest among the nation's poorest home owners, a study by a public interest advocacy group has found.
Initial estimates by the government and private researchers showed that subprime-related loans were clustered heavily in a handful of states.
The new report from the Bread for the World Institute released late on Wednesday finds that poorer areas within those states are being hit hardest.
"Where there is a pocket of poverty, you can be sure there is a high rate of subprime lending," said David Beckmann, president of the institute. "Our country's poorest areas are the epicenter of the subprime mortgage crisis."
The impoverished areas are showing a disproportionate number of failing U.S. subprime mortgages compared with affluent sections in the same states, according to the study.
The report finds that poor counties in Mississippi, Texas, Kentucky and Louisiana, for instance, have higher than average rates of subprime loans than other counties in their respective states.
During the recent housing boom, many marginal borrowers turned to the easy terms of subprime mortgages that often started with low interest rates that spiked later in the life of the loan. Through the end of 2008, approximately one in 10 borrowers who hold such loans is scheduled to experience a rate reset, according to the Federal Reserve
Subprime loans are mortgages that charge higher interest rates and were typically given higher-risk customers with lower credit ratings. The borrowers are often lower income earners who have trouble qualifying for premium loans and lower rates.
Pointing out the concentration of subprime loans in poor counties, the report says that 16.7 percent of Texas mortgages are subprime while 30 high-poverty counties in the state have subprime borrowing rates greater than 50 percent.
Bread for the World Institute researchers examined subprime mortgage rates in counties with poverty rates of 20 percent or higher and those with subprime mortgage rates exceeding 13 percent on average. A total of 1,940 counties were analyzed out of the United States' 3,141 counties.
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