With foreclosures on homes showing record increases throughout this year, politicians and financial organizations alike have been searching high and low for strategies to identify and correct many of the problems facing homeowners.
As many experts indicate, subprime mortgages are an integral part of the financial troubles facing many homeowners, and have been found to lead to a higher risk of foreclosure because of higher penalties and fees for late payments, as well as adjustable rate mortgages that can cause devastating changes in monthly mortgage payments.
Many housing organizations have been reporting on factors that have had an impact on foreclosure rates across the country. A recent report showed that geographical location has a great impact on foreclosures, with many areas that experienced major growth during the housing boom, such as California and Florida, experiencing high rates of foreclosures as well as major drops in the median price of houses.
Now, a new study conducted by the Furman Center for Real Estate and Urban Policy at New York University looks at the housing crisis through another major social factor that affects economics: race. It's a sensitive issue, and very few studies have been done to discover links between race and mortgage loans, foreclosures and bankruptcy.
By comparing neighborhoods with similar median income levels in New York City, researchers discovered that homeowners in predominantly black or Hispanic neighborhoods were more likely than those in predominantly white neighborhoods to receive their mortgages from a subprime mortgage lender.
As many homeowners know, subprime mortgages are more difficult to maintain because of adjustable interest rates, and higher fees and penalties. Thus, they are more likely to lead to foreclosure. Additionally, credit card companies often target subprime borrowers because they often have poor credit histories that prevent them from qualifying for more desirable credit lines and interest rates.
Some may object that a neighborhood in a culturally diverse city such as New York is difficult to narrow down to one particular race, such as black, Hispanic, white or other racial groups. Others may object that the "typical" borrower profiled from one neighborhood can't be rightly compared to one from another neighborhood.
But having said that, some of the numbers from the Furman Center study are astonishingly clear-cut. In Jamaica, Queens, for example, a predominantly black neighborhood with a median income of $45,000 in 2005, researchers found that 46 percent of mortgage loans were provided by subprime lenders, the second highest rate in New York City.
On the other hand, Bay Ridge, Brooklyn, a mostly white neighborhood with a similar median income of $50,000, featured one of the lowest percentages of subprime mortgages in the city, a mere 3.6 percent!
It should be noted that the study by the Furman Center contains only one side of the situation, and that the information collected is only the first step in proving that subprime lenders are actively pursuing policies that are racially discriminatory. Other explanations could exist for the disparity on an individual level, such as a poor credit history attracting a subprime lender since the borrower could not qualify for a fixed-rate loan. Of course, racial factors may affect credit history as well; the effect of race on social and economic status certainly runs deep.
According to the New York Times, the New York State Division of Human Rights is currently staging an investigation to follow up the study with more evidence of whether minority communities are being targeted by subprime lenders.
Of course, racial minorities aren't the first group to be found targeted by subprime and predator lenders. A ConsumerAffairs.com report found that elderly individuals were the target of many subprime loans and consequently more foreclosures.
Conversely, young people who are fresh out of college and accruing student loans are also the target of predator lenders with enticing credit card offers. Because of their inexperience with credit report monitoring and lending practices, many young people end up filing bankruptcy.
Regardless of their findings, these foreclosure stories will certainly come up more often during discussions of how to deal with the subprime mortgage and housing crisis, since any approach on housing reform will have to take into account the often sordid practices of subprime lenders across the board.