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Women in the Subprime Market
Elderly in the Subprime Market
Study:
Texas women and elderly pay
more for refinance and equity loans
AUSTIN, TX -- Women and the elderly appear to be disproportionately targeted by high-cost subprime lenders since the inception of home equity lending in Texas, according to two Consumers Union studies released today.
The studies, results of an analysis of four years of Texas data, document refinance loan market growth and present convincing evidence that subprime lenders have increasingly focused on demographic areas more susceptible to predatory practices. Predatory practices may result in low-income families and elderly persons accepting mortgage loans they are unable to repay.
Subprime loans -- designed for persons
unable to qualify for prime mortgage loans -- now account for more than one-third
of refinance lending in Texas. Although not all subprime borrowers pay high
rates, most pay higher than prime rates. Using average rates reported by lenders
to their investors, Consumers Union estimates that subprime borrowers pay nearly
$2,000 in additional interest annually over prime borrowers.
"Subprime lenders in Texas are targeting older homeowners, particularly
women, with overpriced loans that drain away their equity," says Luis Wilmot,
AARP/Texas State Director. "It's happening to thousands across the state
and the results are often foreclosure and financial ruin. 'They didn't tell
me I could lose my home,' is their all too frequent cry. Texas needs stronger
laws that will protect homeowners of all ages from the potentially devastating
financial effects of predatory lending."
The studies used data from the Home Mortgage Disclosure Act and cross reference the 2000 census statistics on age. Subprime penetration rates are higher among women, even after factoring in income, and in areas with a high concentration of people over age 65.
Almost 40 percent of single women borrowers got their refinance or home equity loans from high-cost subprime lenders, compared to one-third of men, and, in certain parts of the state, women took subprime loans at a 2-to-1 ratio over men. Even at higher income levels, women were more likely to get loans from subprime lenders than high-income men.
"Women often have to overcome difficult obstacles to be able to provide a safe and stable home for their families, especially when they are the survivors of domestic violence," said Sheryl Cates, Executive Director of the Texas Council on Family Violence. "Having to deal with a high-cost subprime loan makes it that much more difficult to attain independence."
Similar incongruities are evident in the elderly lending study. The study finds that for every one percent increase in a neighborhood's concentration of people over age 65, the likelihood a borrower will get a refinance or equity loan from a subprime lender grows by 1.3 percent. The analysis also showed that borrowers in neighborhoods with a high concentration of elderly people- regardless of the racial makeup of that area - took higher-cost subprime loans.
By using data from every "metropolitan statistical area" (MSA) in Texas, Consumers Union found that discrepancies exist to varying degrees throughout the Lone Star State. In Bryan-College Station, for example, 29.6 percent of women took subprime refinance loans in 2000 compared to 13.6 percent of men.
"The results are more than mere numbers -- they show an effect on peoples lives," says Rob Schneider, a senior staff attorney with Consumers Union. "Subprime refinance borrowers pay more to the lender for their home loan, often in the form of high lender closing fees, leaving them with higher payments and less equity. Texas women and the elderly appear to be more vulnerable to these companies. High closing fees and untenable loan terms often make predatory practices especially effective for lenders, but the unethical techniques are detrimental to borrowers."
The practices not only negatively impact the borrowers, they affect communitites and the state as a whole. "As equity is unnecessarily stripped from individual's homes, it is not available for investment in home improvement, education for children or grandchildren, or to start businesses," Schneider adds.
The two studies have prompted key recommendations to the Texas Legislature. Among these:
· Prohibit the financing of fees, points, closing costs or other lender charges if the fees rise above three percent of the loan amount.
· Require loan counseling for any borrower getting a high-cost loan (for equity loans this can be done during the existing 12-day waiting period before the loan closes.)
· Prohibit lending without due regard to repayment ability.
· Limit "discount points" to legitimate charges that actually provide a substantial benefit to consumers and implement standards of "Bona Fide Discount Points" created by AARP, the Self Help Credit Union and the National Consumer Law center.
· Retain existing waiting periods and right of recission so that buyers can get out of a bad loan after they've seen and digested the final terms and conditions presented at closing.
"In order for women and the
elderly to get a fair shot when refinancing their homes or getting equity loans,
we need to set standards for the companies that lend to them," Schneider
says. "It's particularly problematic that the subprime companies are capitalizing
on the people who most need fair and practical lending to maintain their homes
and lives."
The studies are the first of a four-part series in which Consumers Union examines
subprime lending to women, the elderly and minority borrowers. A final report
will outline weaknesses in Texas consumer protections that leave these groups
vulnerable to predatory practices.
###
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
Women in the Subprime Market
Elderly in the Subprime Market
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