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National Mortgage Professional
Jul 30, 2008

ComplianceTech report: Sub-prime lending dominant among non-Hispanic Whites MortgagePress.comComplainceTech, HMDA, LendingPatterns, sub-prime loans ComplianceTech, a provider of technology and business intelligence for consumer lending institutions and government agencies, has released a report indicating that the majority of sub-prime-rate loans originated in 2006 were made to non-Hispanic Whites and upper-income borrowers (conventional, 1st lien, one- to four-family, owner-occupied, home purchase and refinance). The findings are contrary to the way subprime-rate lending has been portrayed. Frequent media portrayals and congressional dialogue refer to subprime-rate lending as a minority and low-income issue. Findings in the report are based on data submitted by lenders under the Home Mortgage Disclosure Act (HMDA) analyzed with the data-mining tool LendingPatterns. The report concluded that a disproportionate share of loans made to minorities and low-income borrowers were subprime-rate loans, but the majority of subprime-rate loans were made to non-Hispanic Whites and upper-income borrowers. Of the 1,917,809 subprime-rate loans originated in 2006, non-Hispanic Whites had 70.82 percent of the loans, and 56.23 percent of the subprime-rate loans. Upper-income borrowers had the highest share of the subprime-rate loans at 39.37 percent, followed by 27.55 percent for middle-income borrowers and 20.99 percent for moderate-income borrowers. Contrary to popular belief, low-income borrowers had only 149,173, or 7.57 percent, of 2006 subprime-rate loans. The report also concluded that the majority of subprime-rate loans were originated in predominately-White geographic regions (areas representing census tracts less than 30 percent minority). Compared to joint applicants, the report also found that single men and single women received the highest share of 2006 subprime-rate loans. The frequency of subprime-rate loans for males without co-applicants and females without co-applicants was almost even at 32.60 percent and 32.21 percent, respectively. Together single borrowers received 64.81 percent of the subprime-rate loans originated in 2006. For all racial and ethnic groups except Black, single men had the highest share of subprime-rate loans; White, 35.67 percent, Hispanic, 46.69 percent, Asian, 38.82 percent, Native American, 34.03 percent and Hawaiian, 32.44 percent, respectively. For Blacks however, single women had the highest share of 2006 subprime-rate loans at 42.10 percent followed by single Black men at 33.08 percent. According to Maurice Jourdain-Earl, co-founder and managing director of ComplianceTech, this data could imply more serious ramifications than previously considered, "These presumably single borrowers do not have two income sources to support the mortgage & and if these borrowers are single-head of households experiencing trouble making their mortgage payments, what about the children? Jourdain-Earl expresses that the problem with portraying the foreclosure crisis as a minority and low-income issue is that it affects how solutions will be approached. "If it is believed that subprime-rate loans were predominately made to Black, Hispanic or low-income households, housing policy-makers might approach solutions with biases about qualifications of those groups, such as low education, bad credit and low-paying jobs, etc. There could be a tendency to write-off the subprime lending debacle as a type of affirmative action gone bad. We must acknowledge that the foreclosure crisis affects broader and more demographically diverse segments of society. This politically responsible approach will likely change the tone, climate and context of how solutions are crafted. Jourdain-Earl also notes that "Not enough research and media attention has been devoted to other causes of the subprime crisis that might have race and ethnicity effects. Issues of steering, weak underwriting, fraud and discrimination have not been aggressively investigated. Despite the presence of federal regulation and periodic examinations for Safety and Soundness, Community Reinvestment Act and Fair Lending compliance, efforts to uncover whether subprime-rate loans can be explained by legitimate risk factors will be impaired if they are based on erroneous assumptions about the demographic distribution of subprime-rate loans. He concludes, "To resolve the true issues, the subprime lending meltdown must be addressed as a nationwide problem with aspects that affect Whites as well as minorities, in suburban, rural and urban communities. For more information, visit www.compliancetech.com or www.lendingpatterns.com.
Published
Jul 30, 2008
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