Abusive Lending Practices: A Threat to Opportunity

Fact Sheet - Subprime Lending: A Threat to Opportunity in America
Posted by: Acumenical on Sat, 03 May 08 22:14:18 +0000

As with other research in this field, the dates of the data presented in this Fact Sheet are vital. When writing about subprime lending, timeliness is even more critical. In 2007 - 2008 the abuses of subprime loans were exposed when the system previously hailed as "the way in" for lower income, self-employed, and/or first time home buyers imploded.

That being the case, while the topic of this paper is timely it has limitations:

-- The report's date of publication (shown on the IssueLab's site as 2006-05-01 is not clearly visible on the paper. A reader should not have to hunt for the publication date of any research report, but clear labeling is particularly crucial when informing on a topic that can change quickly with time and circumstances.

-- In addition, many of the statistics cited are from a single 2004 source (which itself might be drawing upon multiple sources, but we don't know whether that's the case).

-- This fact sheet is not attempting to be neutral. Rather it presents an indictment of a financial industry practice. To be successful, even at the time it was originally published, it would need to supply a broader base for its case.

Setting aside these obvious limitations, for those of us seeking to understand how the subprime debacle grew, this paper supplies valuable background information. For example, "In 2004 the share of middle- and upper-income African Americans with subprime loans was 2.7 times greater than that of middle- and upper-income whites." (p. 1)

Shocking, too, is the extent to which women are targeted for sub-prime lending practices. (Some of us remember when a woman could not get a mortgage at all! The continued questionable status of women in regard to borrowing is a whole other topic.)

The paper also provides value by including an example in dollars of the disparity in cost between comparable prime and sub-prime loans even if the borrower does not default.

The paper ends with a call to action that should have been heeded. We now know, at the expense of the entire economy, that the financial industry's profits from lending cannot forever survive on the backs of the poor, minorities and others who for whatever reasons find themselves out of favor with lending institutions.

While the authors' recommendations for action are still correct in spirit, these ideas -- much as the statistics that proceed them -- would have to be updated to fit into the most current picture. However, the paper still bears reading as historically pertinent background material.