Subprime Mortgage Lending in the District of Columbia

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Abstract

This report, commissioned by the D.C. Department of Insurance, Securities, and Banking, examines the extent of subprime lending in the District of Columbia and the resulting impacts on residents and neighborhoods. The study found that subprime lending was concentrated in predominantly African-American, moderate-income neighborhoods, areas that are now experiencing a sharp rise in home foreclosures. The report recommends a number of actions to protect the city's homeowners and neighborhoods, including stronger monitoring of mortgage lenders, better outreach and education for home owners and home buyers, and creation of a loan fund to help persons refinance out of bad loans.

Introduction

Homeownership can provide families with financial security and a tangible asset that can be leveraged and passed on to future generations. Over the past few decades, innovations in the mortgage market have opened homeownership opportunities up to lower-income and minority households. Unfortunately, many recent innovations in the subprime mortgage sector have led not to increased wealth building opportunities, but instead to lost equity and foreclosures which have affected entire communities.

The subprime mortgage market is designed to offer homeownership opportunities to borrowers with impaired or limited credit histories who do not qualify for financing under conventional terms. While once a small niche, the subprime sector has now grown to encompass over a quarter of all loan originations. While the number of loans originated has increased greatly, subprime mortgages are still concentrated in lower-income communities and/or communities of color. In the District, subprime loans are disproportionately made to borrowers who are African American and lower-income.

(End of excerpt. The entire report is available in PDF format.)

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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