Subprime Mortgages in Minority Neighborhoods

http://cityroom.blogs.nytimes.com/2007/10/15/subprime-mortgages-concentrated-in-citys-minority-neighborhoods/

October 15, 2007
Subprime Mortgages Concentrated in City’s Minority Neighborhoods
By Ford Fessenden

High-cost “subprime” home mortgages became widely popular in New York City, as they have across the region and the country in the last few years. New data from the federal government show that subprime loans made up 32 percent of mortgages on 1- to 4-family residences in the city in 2006, up from 28 percent in 2005. Most of these loans went to minority borrowers.

An interactive graphic by The New York Times allows users to compare neighborhoods according to the rate of subprime mortgages. In the city, subprime loans have been particularly prevalent in predominantly black and Hispanic neighborhoods, including eastern Brooklyn, southeastern Queens and the south-central Bronx.

Throughout the region, the surge in subprime lending across the region in recent years is helping to fuel a boom in foreclosures.

And now a new study by New York University’s Furman Center for Real Estate and Urban Policy, as Manny Fernandez reports in today’s Times, shows that some buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels.
In general, even middle-class and wealthy minority home buyers have been more likely than their white counterparts to get high-cost, subprime loans, a pattern that housing activists have decried for years as evidence that prime lenders aren’t living up to their responsibilities under the Community Reinvestment Act, which requires banks to lend in areas all areas in which they do business.

The interactive map of mortgage loans by Census tract shows clearly that subprime lending was especially common in the areas of the city where minorities live. The majority of loans in places like Bushwick, East New York, Locust Manor, St. Albans, and much of the Bronx, was subprime, a fact that could have implications for redevelopment in those areas if foreclosures on subprime loans continue to climb.

Most of the lending in Manhattan, northeast Queens, and the Brooklyn neighborhoods of Park Slope and Bay Ridge was by prime lenders, at low, prime interest rates. But even in those areas, some mortgages were subprimes.

Any loan that carried an interest rate more than three percentage points above the prevailing rate for longterm treasury bonds was considered a subprime mortgage. During 2006, treasury rates ranged from 4.5 to 5.3 percent. Prime mortgage interest rates averaged between 6.1 and 6.8 percent percent, according to Freddie Mac, the Federal Home Loan Mortgage Corporation.