Subprime Lending and Foreclosure in Hennepin and Ramsey Counties: An Empirical Analysis.
Policies intended to open up mortgage markets to underserved populations have helped to increase homeownership in neighborhoods that previously had little access to financial resources. However, the high rate of subprime lending in low-income and minority neighborhoods threatens to undo hard-won gains. The high cost of subprime loans may put many families in financial jeopardy and increase the risk of foreclosure. Foreclosures in turn threaten the viability of entire neighborhoods, as the increase in vacant homes lowers property values, encourages crime, and discourages business development. This article reports on a study to determine the prevalence of subprime lending in Hennepin and Ramsey Counties, and the potential links between subprime lending and foreclosure.
The findings of the study indicate that African Americans, in comparison to other racial groups, are more likely to have a subprime loan. Latinos also have a relatively high level of subprime mortgages. Because race and neighborhood are highly correlated in Hennepin and Ramsey Counties, high proportions of subprime loans are found in Latino and African American neighborhoods. The author concludes that predatory abuses associated with subprime lending may ultimately threaten the policy goal of increasing homeownership, and offers two potential solutions to the challenges associated with subprime lending: educating consumers about the risks associated with subprime lending, and consumer protection legislation designed to curb predatory lending practices.
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