Tennessee Study Says Minority Share of Subprime Loans Not Disproportionate

The Tennessee Consumer Finance Association (TCFA) recently released a report entitled Subprime Lending in Tennessee: An Empirical Analysis, which showed subprime lending provided the state an estimated $1.3 billion in spending power during 2001. The study, commissioned by TCFA mortgage lending members, suggested that funds derived through subprime lending accounted 0.75% of Tennessee’s 2001 wage and salary income.

Besides reporting that the rate of loan defaults and payment delinquency increased correspondingly to the increase in the higher interest rates and loan fees that come with subprime loans, TCFA said the study revealed that, in Tennessee, subprime mortgage lending is not concentrated in zip codes with high concentrations of African Americans or other minorities; most subprime borrowers fall into the 35 to 55 years of age group; the predominant subprime mortgage users are not low income borrowers, but are residents that have incomes close to or above the median household income; and that subprime borrowers secure their loans with homes that have higher value than Tennessee homeowners overall.

The Tennessee report follows a study recently released by the National Community Reinvestment Coalition, which analyzed white, African-American and elderly groups with similar credit scores, housing factors and incomes, and found the latter two groups were more likely to receive a subprime loan even though they qualified for a conforming loan.

Nine large U.S. metropolitan areas were reviewed in the Coalition’s report, and although no Tennessee cities were analyzed, neighboring state cities Atlanta and St. Louis ranked 5th and 6th, respectively, in regard to the lowest disparity between whites and African-Americans getting a refinance subprime loan, when they qualify for a conforming loan. In Atlanta, the difference was 19 percentage points, meaning that if 10% of Atlanta’s predominantly white neighborhood refinance loans were subprime, then 29% would be subprime in African-American neighborhoods. In St. Louis, the figure was 18. The two cities topped the list as the areas where subprime refinance lending was greater in neighborhoods dominated by residents over 65, than that of neighborhoods with residents under this age.

In The Great Divide, a study of mortgage data from 2002 for 115 U.S. metropolitan areas (including three Tennessee areas) by the Association of Community Organizations for Reform Now, or ACORN, the consumer advocate group said that “subprime loans made up 26.4% of the conventional home purchase loans received by African-Americans and 20% of the conventional purchase loans to Latinos, as compared to 7.5% of the conventional purchase loans to whites.”

ACORNs report, which concentrated on denial rate disparities among applicants of different races, found that even when income levels were the same for all groups, African Americans and Latinos were rejected for a conventional purchase loan (including both A and subprime) more than whites. In Chattanooga, Memphis and Nashville, African-American applicants were 1.69, 2.63 and 2.28 times, respectively, more likely to be denied for a conventional mortgage loan than white applicants. Latinos also had higher denial rates than whites in these areas, although they were lower than those of African Americans. Out of the 115 cities, Chattanooga had the 8th lowest disparity in denial rates for African Americans compared to white borrowers, and the 7th for Latinos.