A new study from The Center for Responsible Lending confirms what the Center for American Progress has been saying: predatory lending adversely affects lower income Americans, many of whom are unable to meet the financial demands that accompany subprime mortgages.
According to the Center for Responsible Lending, about 2.2 million homeowners with high-interest mortgages have either lost their homes or are projected to lose them in the coming years.
Center for American Progress Senior Economist Christian Weller describes recent disturbing trends in the housing market in a report released earlier this month entitled “The End of the Great American Housing Boom.” Weller observes that middle class whites, Hispanics, and African Americans have all lost equity in their homes; many of these families have been affected by predatory lending practices.
Problems with these predatory mortgages are further exacerbated by the trifecta of economic pressures already burdening Americans: the labor market is slowing, household debt burdens are reaching new record highs, and interest rates have been creeping higher for most of this year.
The Center for Responsible Lending’s nationwide study reviewed millions of subprime mortgages issued from 1998 to the third quarter of 2006, noting that adjustable rate mortgages with steep built-in rate and payment increases, prepayment penalties, limited income documentation, and a lack of escrow for taxes and insurance are all responsible for the recent rise in foreclosures:
The report shows that these factors lead to a higher risk of default regardless of the borrower’s credit score. African American and Hispanic homeowners, who often take out subprime loans because of limited access to other loan products, poor credit histories, and a number of other factors, are particularly affected. When families are unable to pay, foreclosure looms. In addition to the 2.2 million American households that will lose their homes, as much as $164 billion will be lost in home equity.
Efforts to restrict these practices at the national level have been slow. Earlier this month Democratic and Republican Senate leaders sent a letter to federal banking regulators asking them to regulate these lending practices, but the letter is still being reviewed.
We must act quickly to regulate lenders whose practices leave many Americans poorer, without homes, and ever farther away from attaining the American Dream.
Read more by the Center for American Progress on Housing and Economic Mobility in America: