Subprime Crisis Hits Women

CU360
February 18, 2008 | COMMENTS

One dimension of the mortgage lending meltdown is that subprime mortgages, which are driving the foreclosure rate, have gone disproportionately to women.

Single women have been among the fastest-growing groups of homeowners in recent years. In Baltimore they accounted for 40% of home sales in 2006, twice the national average, according to figures from the National Association of Realtors, reported in The New York Times. Nearly half of these mortgages were subprime.

Subprime mortgage loans make up just 13% of existing home loans but account for 55% of foreclosure starts, reports the Mortgage Bankers Association.

Though women and men have roughly the same credit scores, the Consumer Federation of America found that women were 32% more likely to receive subprime loans than men. The disparity existed within every income and ethnic group. In another study, the National Community Reinvestment Coalition found that women received 37% of high-cost home loans in 2005, compared with just 28% of prime loans.

The findings support earlier research by Consumers Union, which attributed some of the disparity to instability in women's credit status because of divorce or family medical emergency. Women also have less wealth than men, which increases the likelihood that they will get subprime loans.

Increased homeownership has been the principal means for women to close this wealth gap. But the disproportion of subprime loans, advocates say, makes it harder for women at all income levels to build wealth by paying off their mortgages.

"The striking thing is that the disparity between men and women actually goes up as income rises," said Allen J. Fishbein, director of credit and housing policy for the Consumer Federation of America. Among high earners — defined as people earning twice the median income — black women are as much as five times more likely to receive subprime mortgages than white men.

Though no statistics exist to compare foreclosure rates among men and women, Fishbein said it was logical to conclude that higher rates of subprime mortgages among women translated to higher rates of foreclosure. The Center for Responsible Lending has estimated that one in five recent subprime home loans will end in foreclosure.

Freddie Mac and Fannie Mae, which buy loans from mortgage lenders, have estimated that 15% to 50% of the subprime loans they bought in 2005 went to borrowers whose credit scores indicated they were qualified for prime loans.

Baltimore 's Belair-Edison neighborhood has been held up as a success story in a city trying to recover from the loss of its manufacturing base and a third of its population, according to the New York Times . "If Belair-Edison stays stable, the city is advantaged. If it falls apart, it's a problem," said Mark Sissman, president of Healthy Neighborhoods Inc., a nonprofit group that makes home loans.

Partnerships between neighborhood associations and city agencies have brought millions of dollars for community improvement projects. But the neighborhood's stability is fragile. Instability in the housing market now has outside investors scooping up foreclosed properties and renting them to transients.

"Prime lenders don't advertise in communities like Belair-Edison, and they don't have offices there," said Lisa R. Evans, deputy director of St. Ambrose Housing Aid Center Inc., a nonprofit organization whose services include foreclosure counseling. "So people go to somebody that advertises on the radio or sent them a mailing. Subprime lenders were very good at this. They went after an untapped market."

This month, Baltimore 's mayor and its City Council announced that they were suing Wells Fargo Bank, saying the bank had singled out minority neighborhoods for high-priced subprime loans. The bank has denied the accusation.

Even at high-income levels, mortgage brokers may assume that women are less confident to negotiate or shop around, and so offer them higher rates. A survey in 2006 by Prudential Financial found that two-thirds of women graded themselves at C or lower in their knowledge of financial services or products.