From the subprime mortgage crisis to the subsequent credit crunch, minorities are feeling the heat.
How well a particular industry fares during any given time has an impact on countless other industries and consumers. Case in point — rising gas prices are affecting everything from airfares to the price of getting a pizza delivered. A similar situation is happening with the wave of home foreclosures as the subprime mortgage crisis has fueled an impending calamity on the student loan industry. And minority borrowers, like minority homeowners, stand to emerge as the biggest losers.
There is speculation that the subprime crisis will result in the greatest loss of wealth for people of color in American history, according to United for a Fair Economy’s (UFE) recent study, “Foreclosed: State of the Dream 2008.”
Disproportionately targeted by predatory lenders, minority communities have naturally been affected disproportionately. Despite similar credit scores and income levels, Black and Hispanic borrowers were more than three times as likely to acquire high-interest loans than White borrowers in cities such as Boston, Chicago and Los Angeles just to name a few, even though the majority of subprime borrowers would have qualified for a conventional prime rate loan, according to a report from the Center for Responsible Lending (CRL).
Nearly 55 percent of subprime borrowers had credit scores worthy of a conventional prime mortgage in 2005. Nevertheless, CRL reports that 2005 data show that high-cost loans, which according to the CRL, “are a proxy for subprime loans,” account for more than half of the loans to African- American borrowers, around 40 percent to Hispanics, compared with only 17 percent of such loans to Whites. Therefore, says the CRL report, “This implies that subprime foreclosures will affect 8 percent of recent Latino borrowers and 10 percent of recent African-American borrowers. By comparison, subprime foreclosures will likely occur among only about 4 percent of recent White borrowers.”
