The Problem With Subprime Mortgages And Minorities

It’s a risk that these investors took where in the end, they were financially hurt by it due to the part of the subprime lenders acting unethically. Not only the subprime lenders, but also the investors because they started to loose their standards once the subprime mortgages were booming and becoming more profitable. The investors were blinded by the profit and not paying attention to the qualities of business and the loans. Once the investors started to loose their standards, that’s when the subprime mortgages were being overlooked in which they were hurt by it.

Therefore, it should be talked about and understood, so that the people are not kept in the dark, especially when they have not experienced it for themselves. I believe that understanding and admitting that the issues are accurate becomes a first step to solve the problems. It is disheartening that many minority groups and protected groups fall trap to these practices. What’s worse is that there are evidences that realtors and lenders restrict housing options based on the families’ race or background. These families are facing overt limited choices for housing in a nation that boasts liberty and opportunities. Clearly, there is something that needs to be fixed in the institution or society itself. Despite there being evidences and mandates to suppress discrimination, these actions still continue for businesses and corporations are granted certain leeway. Not saying that they should be limited in their business endeavors, but certain (stricter) regulations can be put in place to check these realtors and lenders that are supposed to serve the people and aid them in attaining the basic necessity of having a shelter. However, greed and supposition take the front seat when it comes to providing a home. Moreover, people’s perceptions also have a strong role in the encouragement of unfair activities in the housing market. To me, this poses a conundrum that is harder to

Subprime mortgage lending is the origination of residential mortgage loans to customers with impaired credit histories. Typically, these borrowers have lower credit scores and/or other credit deficiencies that prevent them from qualifying for prime mortgages. Subprime borrowers pay premium above the prime market rate in order to compensate the lender for bearing greater default risk. In addition, subprime borrowers pay higher origination and continuous costs, such as applications fees, appraisal fees, mortgage insurance payments, late fees and fines for delinquent payments.

Ruetschlin stated, “Homeownership is the central vehicle Americans use to store wealth, so homeownership and access to homeownership are at the heat of that widening wealth gap”. The median house worth for blacks and Latinos is $48-$50,000; while the median house worth for whites is a whopping $85,800. Much of this disparity derives from the increasing gap in housing values located in neighborhoods where people of color live versus white neighborhoods. The roots of this issue go back to the National Housing Act of 1934, which marked entire black neighborhoods as bad credit risks. Being so, the act discouraged lending in these areas, even as black homebuyers continued to be excluded from white neighborhoods. (forbes.com) Although it was outlawed over thirty years later, its impact is still felt today as the continuation of residential segregation patterns persists. For example, just three years ago, Wells Fargo admitted to leering those of color into subprime mortgages all the while offering whites with similar credit profiles prime

     What is happening is that there are some unethical lending practices that are threatening the housing industry as a whole. The concern involves the practices of some sub-prime lenders. These practices are considered to be “predatory” on consumers. Sub-prime lenders offer home loans (Equity Loans & 1st Time Home Purchase Loans) to moderate to lower income families. These clients are considered to be high credit risk borrowers, also know as B-C-D credit clients. Interest rates and other loan terms generally cost more than those paid by clients served by prime lenders with better credit records (A credit clients). Sub-prime borrowers end up paying more simply because the risk of loan repayment is fundamentally higher than that of a prime market borrower.

The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.

building in minority communities and helped trigger the foreclosure crisis that is wiping out the

One of the American Dreams, home ownership, still inspiriting people to work hard and pursue their dream. In order to achieve a “color blind” society, the government set many policies to ensure everyone received the equal opportunities when they try to buy a house in the U.S. For example, the Fair Housing Act as a tool to prohibit the discrimination from color, race, gender, religion or family status (Wolf, Heath). However, there are many invisible rules or requirements that cause African American unable to access to home ownership base on the housing policy system. Because of the system, it makes the housing discrimination on African American even bigger. Of course,

This inequality in the political system that claims to be the fairest and most democratic in the world is unsettling in itself. However, the other inequalities still seen in US society are even more staggering. In 1968, when the Fair Housing Act put in place federal law to prevent racial discrimination in the buying and selling of houses, it was a stepping stone to a more integrated society. However, in 2005, the Federal Reserve Board conducted a survey that researched 5.3million mortgage applications, in 19 cities, from 9,300 financial institutions. Their conclusion was that African-Americans were 2:1 more likely to be turned down for a mortgage than whites, which is an overwhelming statistic.

The Biggest opportunities and challenges that lenders and real estate faced through the three ethnicities surveyed, African American, English Hispanic and Spanish Hispanic, is the feeling of ownership among these segments that is between the 79 and 82% (Table A) of the population surveyed (Hawkins & Mothersbaugh, 2010), the lack of knowledge when buying a home, and lack of confidence in the process.

There is no doubt that subprime lending was a major cause of the Recession. It was a tactic used by investment banks in order to get more money from unsuspecting homeowners. However, lenders found out that most of the people who were qualified to have a mortgage already had one. In turn, the lenders had to lower their credit criteria for people to take out a loan on a house. This is how the term subprime lending came to be in the financial world. As a result of subprime lending, the investors were able to make millions off of these mortgages. People who qualified for a subprime mortgage usually had a credit score below that of 620. To make the subprime mortgage deal more customer friendly, the lending banks decided to have the people who qualified for these mortgages didn’t have to have a down payment. Normally, the down payment would be as much as 20%, but this made it easier for people to get mortgages without having to worry about how much money they needed at the beginning of their purchase. “ Many American homeowners bought houses they could not afford,

A Utilitarian would look at this situation and weigh the hedons and dolors to decide if sub-prime lending is considered an ethical practice. They would see that, initially, the lender is trying to help a person who normally would not be able to afford a home, have the opportunity to purchase one. In doing so, they were also doing themselves good because it helped them increase their sales, and businesses became more profitable. This also helped real estate companies and people selling their homes because it allowed more people

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

Subprime lenders are lenders who, for a price, are willing to assume a higher risk than conventional lenders to purchase or refinance homes (Setzer, 2004).

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage