Economy/Economic Policy

In Subprime Fallout, Women Take Heavy Hit

Thursday, January 14, 2010

Mortgage lending data doesn't track a borrower's gender as well as her credit history. But an extensive research analysis suggests women have been unfairly stuck with subprime "toxic" debt said to be for high-risk borrowers. The first of three parts.

(WOMENSENEWS)--Ruthell Davis doesn't know what rattles her more--being unable to contact a lending representative or recalling her last communication with one, where she was offered to modify the terms of her mortgage if she immediately forks over a $25,000 bulk payment that she cannot afford.

"Why am I in this mess and why did these people prey on me?" said Davis, who asked that her real name not be used to safeguard her privacy and prevent more trouble with her mortgage lender.

The 54-year-old social worker, who is facing bankruptcy and foreclosure on her home in the Oakland, Calif., area, offers her own exasperated answer: "Because people try things with women that they just don't try with men."

An extensive research analysis by Women's eNews, funded by The Nation Institute, indicates that Davis may be on to something.

Women whose loan debt amounted to a smaller-than-average percentage of their income were more likely to get subprime loans in comparison to men in the same situation, according to an analysis of several years of Home Mortgage Disclosure Act data. The analysis was conducted by the National Institute of Computer-Assisted Reporting at the Missouri School of Journalism in Columbia, Mo., at the request of The Nation Institute.

For example, consider the difference between men and women whose debt was a smaller percentage of their income than the average borrower in 2006. Only 29 percent of those men got subprime loans compared with 38 percent of women, according to the analysis, which was completed in January.

These subprime loans are more expensive because they presumably reward lenders for accepting a higher risk of default. But as the data show, many borrowers did not pose that default risk.

Risky Loans Proliferated During Boom

"Risky loans proliferated during the 2005 to 2008 real estate boom," said Kathleen Keest, a senior policy counsel for the Washington, D.C.-based Center for Responsible Lending. "Some of these loans were not technically subprime, but they were still very dangerous--and were still steered toward women in disproportionate numbers."

A period of unemployment led Davis to refinance her original mortgage so she could tap her home for equity. Her mounting debt left her unwittingly holding a "subprime" adjustable rate mortgage with an interest rate three percentage points higher (9.7 percent) than her original fixed-rate loan (set at 6.4 percent).

That was prohibitive for Davis, who was still out of work at the time she refinanced.

And because the new loan had an adjustable rate, which can move with prevailing interest rates or change at the lender's discretion, it quickly became even more costly.

Within two years, Davis' rate rose to 10.25 percent, sending her monthly payment up to $3,800 from $2,750. The total size of her debt soared to $440,000 from $350,000.

Davis is now $50,000 in arrears and facing bankruptcy as well as foreclosure.

Keest cautions that it's hard to quantify the extent, or even whether, women such as Davis were improperly sold subprime mortgages.

"The problem with data currently collected is that it tracks borrowers' race and gender, but doesn't track their credit history, making it hard to explain why one borrower got a rate that was especially high or a type of loan that was especially risky," said Keest. "Unless data collection methods are improved, it will continue to be difficult to prove gender discrimination in court."

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