Smart Borrower Blog

Racially Predatory Loans Had Impact On The Foreclosure Crisis


Oct 4th, 2010 @ 1:43 PM by Debbie Dragon


A new study published in the American Sociological Reviews shows race played a factor in factor in the wave of foreclosures that hit after the subprime mortgage market went into free fall. The study conducted by Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and Jacob Rugh, analyzed data from 100 large metropolitan areas in the US. The study found that that highly segregated residential areas of African American and some Hispanic neighborhoods went into foreclosure at a higher rate that those with similar credit profiles and other common factors.

Subprime loans are rendered to consumers who are considered high risk and have low credit scores. Lenders who make these loans charge high fees, very high interest rates and the loans often carry terms and payment requirements that are nearly impossible to meet. Starting in the 90’s it became common practice for lenders to aggressively market subprime loans to minority areas. Lenders then pooled these loans with low risk ones and sold them as “safe” mortgage-backed securities.

“While policy makers understand that the housing crisis affected minorities much more than others, they are quick to attribute this outcome to the personal failures of those losing their homes – poor credit and weaker economic position,” noted Massey. “In fact, something more profound was taking place; institutional racism played a big part in this crisis.”

About Debbie Dragon
Debbie Dragon is a full time freelance writer and the co-owner of ReliableWriters.com.

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