Subprime lending: Helping or hindering America's low income and minority residents

Nichole M. Wittig

For years, subprime lending has helped financially disadvantaged individuals partake in various aspects of the American dream. Chairman of the Federal Reserve Board, Alan Greenspan has even proclaimed that the expansion in the lending market "helps families purchase homes, deal with emergencies and obtain goods and services that have become staples of our daily lives.") More specifically, this form oflending has helped low income families own homes, purchase cars, and even qualifY for credit cards. But recently, subprime lenders have been under the spotlight. This is because lending organizations are taking advantage of individuals, primarily minorities and people with low-incomes, and crossing the line into unethical predatory lending practices. There are a variety of unethical lending practices that plague the financial lending market. They range from placing a borrower into a higher interest rate loan then they qualified for, to "packing" the loan, or adding optional insurance coverage unbeknownst to the borrower. The interest rates, as high as twenty percent, are extremely detrimental to disadvantaged individuals who have no other means oflending options available. Not to mention, credit records are further tarnished by the hard to meet standards. They are stuck with subprime lending as their only source offunds, and when money is detrimental to survival, predatory tendencies are often ignored. Obviously then, it is important for government institutions and consumers to take a deep look into these predatory lending practices and attempt a resolution to save borrowers from unscrupulous activities. To further delve into the particulars of subprime lending, I will discuss the background and history of the market itself, and then explain the growth of the predatory lending market in this decade. Next, the backgroWld oflegislative and regulatory responses to predatory lending practices will be discussed, the theories supporting these practices will be explained, and finally my summary and conclusion on the issue. The main question is whether subprime lending is helping or hindering people who otherwise do not qualify for conventional loans.

Subprime lending: Helping or hindering America's low income and minority residents

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