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Subprime Crunch Hurts Poor: Experts
Written by Monisha Bansal, CNSNews.com Staff Writer In light of concerns over subprime lending, some economic experts say minorities and low-income Americans will face more obstacles to getting credit, and the government must take steps to further regulate the industry. Generally, subprime loans are mortgages given to borrowers with low credit scores from a history of paying debts late or not paying debts at all. Because subprime borrowers are seen as high risk, their loans carry interest rates that are at least two percentage points higher than those offered to borrowers with better credit. "Debt can be a tool and is an important ingredient for families' upward mobility since it allows them to take opportunities that they otherwise wouldn't have, such as starting a business, buying a home or getting a college education," said Christian Weller, a senior fellow at the liberal Center for American Progress, during a conference call briefing on Wednesday. "The question is not whether debt is good or bad, but whether it is affordable and stable."
Story Continues Below But Weller noted that "substantial differences in credit access remain by race, ethnicity and income." "Loan denials are more likely for low-income and minority families," he said. "African- Americans, for instance, have a loan denial rate that is about twice as large as that of whites. That difference remains even after you control for income levels, education and for family size, and a number of other factors." "While families at this point -- of all types -- will have a harder time than in the past to secure credit, the problems will likely become most pronounced among lower income and minority families in the coming months," he said. "It is our view that policymakers need to step in to continue to pay attention to the differential credit access to make sure that minority families and low-income families have access -- and get access where they don't have it -- to affordable and stable credit so they can take advantage of the opportunities that exist in our economy," Weller added. But Dan Mitchell, a senior fellow at the libertarian Cato Institute, said Weller is "anti-market." "When credit conditions in the country are good, companies get attacked for 'luring' low-income people into taking out loans that they can't afford -- as if profit-seeking companies would deliberately seek to make bad loans," he told Cybercast News Service. But "when credit conditions in the country are tight, companies get attacked for 'discriminating' against low-income people by not giving them loans," Mitchell said. "Some economists would argue that if you deregulate the market and increase competition in the market, you would ultimately erase those differences, and that just hasn't happened," countered Weller. "Because that hasn't happened, I would argue there is still the need for continued government intervention." Hilary O. Shelton, director of the liberal NAACP Washington Bureau, warned in a recent statement: "If lenders, servicers, Wall Street and policymakers allow the flood of subprime foreclosures to continue rising unchecked, years of economic progress in communities of color will be wiped out, and the racial wealth and equity gap will widen even further. "Without intervention, subprime foreclosures will impose the greatest drain on African-American and Latino wealth ever experienced in this country," Shelton said. "Since this country was founded, property ownership has been systematically denied to African-Americans and other minority communities through discriminatory laws, abuses of good laws and even government policy," added Shanna Smith, president and CEO of the National Fair Housing Alliance, a liberal group that works to end "housing discrimination." "Now, the subprime market has invented a new barrier: dangerous loans disguised as opportunities," said Smith. "Wall Street must also take responsibility for securitizing these dangerous loans especially after scholarly reports, consumer advocates and civil rights groups warned about the lack of suitability and the harm of these exotic loans." But John Berlau, director of the Center for Entrepreneurship at the conservative Competitive Enterprise Institute, said: "Advocates like Weller go from bashing lenders for not giving loans to poor families to giving loans too easily, and now they're back to bashing them for not giving credits." "Lenders can never win with Weller, no matter what they do," he told Cybercast News Service. "They're damned if they do, and damned if they don't." Berlau said more regulation would actually hurt low-income families and minorities. "Statistically, most minorities have a lower average income and so, in general, there is less credit available for poor people." He said "intrusive and burdensome" regulation "would be an incentive for banks to be overcautious, and more people would be denied access to credit for homes and other things to improve their lives." Berlau also disputed that there is a subprime "crisis." "The foreclosure rate has gone up, but it's within historical norms," he said. © CNS News.com. All rights reserved. Editor's note:
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