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The Subprime Mortgage Crisis

To many Americans, it seemed like the subprime mortgage transformed overnight from an unremarkable lending product to a serious source of heartburn for investors and homeowners. Risky loans and weakening home values have stoked anxiety nationwide and forced the candidates to come up with solutions to the latest economic distress. The Urban Institute is a resource for data and analysis on housing policy and the subprime market.

KEY FACTS

• Subprime lending has made credit available to households with low incomes or credit scores that would not allow them to qualify for prime-rate loans.
• The subprime mortgage market is much less regulated than the prime market. Only 20 percent of subprime loans in 2005 were made by banks and thrifts supervised by federal regulatory entities. Most subprime loans were made by unsupervised mortgage companies.
• Some subprime products have high-risk features, such as excessive loan prepayment penalties and steep increases in mortgage costs once adjustable interest rates rise.
• African-American and Latino homebuyers are more likely to receive subprime loans than white homebuyers with similar mortgage qualifications, raising concerns about predatory lending.
• The use of subprime loans is much higher in certain neighborhoods and cities, endangering those communities if homes go into foreclosure. Besides depressing property values, each foreclosure can cost local governments over $30,000.

Additional analysis is available in UI reports:

• Subprime Mortgages: America's Latest Boom and Bust, Edward Gramlich
• Subprime and High Interest Rate Mortgage Lending in the Washington, D.C., Region, Peter A. Tatian
• The Survey of Consumer Finances and Homeownership, Edward Gramlich

Decision Points '08 is published weekly by the Urban Institute, a nonpartisan social and economic research organization.
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