Southerners See Excessive Subprime

Those were some of the highlights in the analysis, Subprime Cities: Patterns of Geographic Disparity in Subprime Lending, which was compiled and announced last week by the Consumer Federation of America.

The study, based on 2004 Federal Home Mortgage Disclosure Act data, says that borrowers on the West Coast, New England and Midwest are less likely to receive subprime mortgages than in the Southwest, Southeast or Great Plains. The share of refinance loans that are subprime varies from 10.5% in the Pacific states to 27.4% in the Southwest states, according to the announcement.

“The variation in prevalence of high cost mortgages by geography raises concerns about whether this type of lending is priced solely on risk factors, or whether some lenders take advantage of the lack of competition in certain localities to price mortgages as high as they can,” said Allen Fishbein, the group’s director of credit and housing policy, in the announcement.

Regional variation was even higher for the most expensive segments of subprime loans, which according to the federation are loans with interest rates generally above 10%. While only 2.3% of Pacific borrowers had such loans, the share for Southwest borrowers was more than four times greater at 10.4%, according to the announcement.

In analyzing the 30 metropolitan statistical areas with the highest share of subprime loans, the Washington, D.C. group said it found that 80% are cities in the Southeast and Southwest regions.

The regional variances also apply to home improvement loans. Borrowers in the Southeast and Midwest are at least twice as likely to receive subprime home improvement loans than Pacific borrowers, according to the study.

The analysis also suggests mortgage pricing disparities exist among borrower groups, according to the federation, which says it is a nonprofit association of 300 consumer advocate organizations dedicated to advancing the consumer interest through research, advocacy and education.

“Just as with disparities between borrower groups, variation in pricing of mortgages by geography levels may be a function of legitimate price determinants,” the federation said in the announcement. “Yet given the size of the variation between localities and regions, banking regulators and other enforcement officials should not assume that these differences can be explained solely as a function of risk-based pricing.”

The research group recommended that regulating officials fully utilize the HMDA data released Monday to monitor the subprime market and to ensure that individual lenders are fully compliant with federal and state consumer protection laws.