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Subprime Lending: Better Options Exist

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Subprime Lending: Better Options Exist

For years, conventional wisdom among mortgage companies warned against lending money to lower-income families with blemished credit. Many community development lenders stepped in and proved them wrong. Those community development banks and other community development financial institutions (CDFIs) were pioneers in making constructive “subprime” mortgages—a far cry from the reckless and abusive subprime lending that continues to make bleak headlines today.

Beginning in the late 1990s, the lending industry veered from underserving families with weak credit to providing too many dangerous loans likely to fail. Subprime mortgages can be powerful medicine for financially vulnerable families striving  to build wealth, but not if administered without assessing the risks. The results of the reckless marketing of subprime loans is abundantly clear today: more than 200 lenders out of business, negative economic effects that extend throughout the housing market and even the global economy, and billions of dollars of lost wealth for families that already lagged behind financially.
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The Center for Responsible Lending (CRL) estimates that 2.2 million families have lost or will lose their homes because of abusive subprime loans made in recent years.1 That amounts to one in five subprime loans made in 2005 and 2006, a rate unseen in the modern mortgage market. The effects of these jailed loans will not be distributed evenly. Because African Americans and other minorities receive a disproportionate share of subprime loans,2 they will suffer the greatest losses. In fact, the subprime disaster will cause the greatest drain of accumulated wealth ever experienced by African Americans.

This is an excerpt from The NEXT American Opportunity. The full text can be downloaded as an Adobe PDF Document.