HUD Archives: News Releases

HUD No. 00-84
Further Information: For Release
In the Washington, DC area: 202/708-0685 9:30 a.m. Wednesday
Or contact your local HUD office April 26, 2000

Analysis of Subprime Lending in Atlanta Released at Forum


View Full HUD Report: Unequal Burden in Atlanta: Income and Racial Disparities in Subprime Lending
View Predatory Lending

ATLANTA - Housing and Urban Development Secretary Andrew Cuomo and Treasury Under Secretary Gary Gensler today co-chaired the first of five joint HUD-Treasury regional forums to be held across the country to address predatory lending.

While expanded access to credit from both prime and subprime lenders has contributed to the highest homeownership rates in the nation's history, there is growing evidence that some lenders are engaging in predatory lending practices - excessive front-end fees, single premium credit life insurance, and exorbitant prepayment penalties - that make homeownership much more costly for families that can least afford it.

Secretary Cuomo said: "Homeownership is at a record high, but unfortunately the number of lenders who financially abuse families struggling to buy homes is also on the rise. These HUD-Treasury forums will document the extent of this abuse nationwide and will provide recommendations to the Congress on how best to protect the pocketbooks of borrowers and the reputations of the nation's good lenders from those who have turned the dream of homeownership into a nightmare."

Treasury Secretary Lawrence H. Summers said: "We must not let the abusive practices of some lenders undo the enormous progress that families have made thus far. Abusive practices should have no place in the subprime market, or any other market."

At the forum, Cuomo released a study - Unequal Burden in Atlanta: Income and Racial Disparities in Subprime Lending in America. Reflecting national trends, it found that: 1) From 1993 to 1998, the number of subprime refinancing loans increased by over 500 percent in Atlanta. 2) Subprime loans are three times more likely in low-income neighborhoods than in high-income ones. 3) Subprime loans are almost five times more likely in black neighborhoods than in white ones. 4) Homeowners in moderate-income black areas are almost twice as likely as homeowners in low-income white areas to have subprime loans.

The HUD study focused primarily on home refinancing loans, which account for 80 percent of subprime loans. Subprime lending involves providing credit to borrowers with past credit problems, who cannot qualify for the conventional prime market.

Subprime lending can help to expand access to credit for more Americans. However, some lenders may engage in predatory or abusive lending practices that can hit homebuyers with excessive mortgage fees, interest rates, penalties and pre-paid credit life insurance charges, loan flipping, or home improvement scams that can raise the cost of home ownership for families.

HUD's study also cited a recent Abt Associates analysis of mortgage foreclosures in 12 of 16 counties in the Atlanta area, which found that while overall foreclosure volume fell 7 percent between 1996 and 1999, subprime foreclosures rose 232 percent in the same period during which subprime lending also increased rapidly.

Appearing at today's forum were two Atlanta residents. The first, Lucinda Ewing, is a 70-year old African-American widow who, as a result of four refinancings, has seen the outstanding debt on her home increase from just $30,000 to $97,600 today. She is presently almost $6,000 behind in mortgage payments and has received a foreclosure notice.

The second, Emma Lue Sanders, is a 74-year old African-American widow on a fixed income who with just $1,700 outstanding on her first mortgage, was urged to refinance her home to pay for $23,608 for painting, new windows, new siding, and an enclosed porch. Her new mortgage was calculated on a monthly income almost four times what she actually receives. To date, only a superficial paint job has been completed.

In addition to Atlanta, HUD and Treasury will hold joint hearings on predatory lending in New York City, Los Angeles, Chicago and Baltimore. Later this summer, Secretary Cuomo and Secretary Summers will issue a joint report with recommendations on how to address these problems. Cuomo was joined at today's hearing by some of the 28 members of the HUD-Treasury Task Force on Predatory Lending, comprised of housing experts, lenders, elected officials, bankers and consumer advocates.

HUD and Treasury will:

  • Assess the relationship between the availability of prime loans and the growth of subprime lending in different types of neighborhoods, including low-income and minority neighborhoods.
  • Review existing state and local initiative to curb subprime lending and assess the merits of alternative strategies, including federal initiatives, to end predatory lending.

The Task Force On Predatory Lending includes Detroit Mayor Dennis Archer; Eric Belsky of Harvard University's Joint Center for Housing; Diane Casey of America's Community Bankers; Gale Cincotta of the National Training Institute-Chicago; Boise Mayor Brent Coles; Chicago Mayor Richard Daley; Tom Downs of the National Association of Home Builders; Martin Eakes of the Self-Help Credit Union; Debby Goldberg of the Center for Community Change; Roy Green of the American Association of Retired People; Los Angeles City Attorney James Hahn; Wade Henderson of the Leadership Conference of Civil Rights; Steve Kest of ACORN; Robert Lottstein of the National Association of Mortgage Brokers; Fe Morales Marks of Fannie Mae Corporation; Kwesi Mfume of the NAACP; Craig Nickerson of Freddie Mac Corporation; Baltimore Mayor Martin O'Malley; Joseph Piggs of American Bankers Association; Vincent Quayle of the St. Ambrose Housing Aid Center; Paul Reid of the Mortgage Bankers Association; Margo Saunders of the National Consumer Law Center; Peter Skillern of the Community Reinvestment Coalition of North Carolina; Ken Strong of the South East Community Development Corporation; Patricia Sturdevant of National Association of Consumer Advocates; John Taylor of the National Community Reinvestment Coalition; Karen Thomas of Independent Community Bankers of America; Denver Mayor Wellington Webb; Raul Yzaguirre of National Council of La Raza; and Jeffrey Zeltzer of National Home Equity Mortgage Association.


The study, based on a review of 1998 data submitted under the Home Mortgage Disclosure Act, found that from 1993 to 1998:

  • The number of subprime home refinancing loans in the Atlanta area increased five-fold from 1,864 in 1993 to 11,408 in 1998.
  • Subprime loans accounted for 33 percent of home loan refinancings in predominantly African American neighborhoods in the Atlanta area 1998 - but only 7 percent in white neighborhoods. Comparable 1993 figures were 8 percent in black neighborhoods and 2 percent in white neighborhoods.
  • 27 percent of families in moderate-income black neighborhoods in the Atlanta area received subprime home loans in 1998, while only 14 percent of families in low-income white neighborhoods received subprime loans.
  • In the Atlanta area, 11 percent of all refinance mortgages in 1998 were subprime, but in low-income neighborhoods 21 percent of refinance mortgages were subprime, up from just 4 percent five years earlier. In communities where families make 50 percent or less of the area's median income, subprime refinancings comprised 43 percent of all refinance loans. Only 6 percent of families in Atlanta's upper-income neighborhoods used subprime loans in 1998.

The analysis points out that by providing loans to borrowers who do not meet the credit standards for borrowers in the prime market, subprime lending serves a critical role in the nation's economy. These borrowers may have blemishes in their credit record, insufficient credit history or non-traditional credit sources. Through the subprime loan market, they can buy a new home, improve their existing home, or refinance their mortgage to increase their cash on hand.

The study adds that prime lenders have made significant efforts and progress in reaching historically underserved markets and communities. However, based on the explosive growth of subprime lending in these neighborhoods, much remains to be done, in both the primary and secondary markets.

The HUD analysis is the first look at the most recent nationwide and Atlanta metropolitan area data on subprime lending broken down by the income and racial characteristics of neighborhoods nationwide. The national data is based on a study of nearly 1 million home loans.


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