Report: Is California a Ticking Subprime Time Bomb?

A new report suggests that subprime, or higher-cost home lending, is increasing at a rapid rate in California. Sponsored by the California Reinvestment Coalition, a consumer advocacy group, the report analyzes federal Home Mortgage Disclosure Act (HDMA) data and shows that the number of higher cost home loans sold in the state doubled during 2005, making California the largest market for subprime lending in the country. The report primarily looks at the disparities in higher-cost lending to African Americans and Latinos, and in minority neighborhoods and Low and Moderate Income (LMI) neighborhoods in 14 cities across the state. State legislators have pointed to the current report, and other recent reports like it, as evidence of potential predatory lending practices. “This report from the California Reinvestment Coalition provides further evidence that we do not yet have equal access to credit in this country,” said Congresswoman Maxine Waters (D-CA). “We need to ensure that all lenders are responsible members of our communities; engaged in providing low-cost loans to all qualified consumers; meeting their community reinvestment obligations; and willing to step up to fight predatory lending practices that strip wealth from hard-working families.” The CRC report found that in 2005, the average higher-cost borrower in California paid $610.05 more per month on her home loan than most Californians. The report alleges that because minorities are more likely to be in the higher-cost home loan market, people of color in the State may have paid more than $109 million more per month — or more than $1.3 billion more per year on their home loans. “While overpriced home loans flood underserved neighborhoods in the state and squeeze California homeowners, Wall Street firms and investors are reaping huge profits,” said Kevin Stein, Associate Director of the California Reinvestment Coalition and author of the report. “California consumers deserve access to better information, better lending practices and loan products, and better protection from predatory practices.” Not surprisingly, the report also claims that higher-cost lending leads to a greater likelihood of foreclosure. Residential foreclosure activity in California surged to its highest level in more than four years last quarter as a result of higher-cost and non-traditional home loans. Nearly half of the higher-cost loans originated by lenders are not subject to any federal supervision, highlighting what the CRC says is an important role for state policymakers. New York State’s Attorney General recently settled a case with Countrywide Home Loans, the eight largest higher-cost lender in California, after HMDA data suggested Countrywide’s black and Latino customers were more likely than its white customers to receive higher-cost home loans. Countrywide is currently regulated by the Federal Reserve Board, which took no apparent action against the lender. Countrywide is currently seeking to choose a new regulator in the Office of Thrift Supervision (OTS). For more information, visit

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