Women and the Subprime Crunch
Gender Discrimination in Lending Practices
Professor Anita F. Hill explores the reasons why women receive subprime loans at a higher rate than their male counterparts. Hill argues that this unequal practice is based on widespread misconceptions about women's ability to handle money, and defends the victims of these loans for their inability to deal with the unfair consequences. She is a professor of law, social policy, and women's studies at Brandeis University, as well as a visiting scholar at Wellesley College, the Newhouse Center for the Humanities, and Wellesley Center for Women.
Women have become a key component in the real estate market. Last year in Massachusetts, over one-third of first-time home buyers were single women and nearly one-quarter of all home buyers were single women.
Women borrowers are overrepresented in the subprime lending market according to studies done by both the Consumer Federation of America and the National Community Reinvestment Coalition. Across the economic spectrum, women receive less favorable terms than similarly situated men on home purchase, refinance, and home improvement loans. The studies also show that the gap between women and men receiving subprime loans actually increases as women's income increases.
Elderly women are prime targets of refinance and home improvement subprime lenders. Women on average live longer than men and have a greater chance of living alone. Rising property taxes and medical expenses make older women on fixed incomes particularly susceptible to lenders who promise money for necessary repairs, but instead exact huge fees and charge inflated interest rates.
African-American women, who represent half of African-American home purchase borrowers, are particularly vulnerable. In fact, there is evidence that subprime lenders charge black women and Latinas higher rates and fees than same-race men and white men, again, regardless of income and across all loan types.
For women, the impact of problems in the lending industry crosses age, class, and racial lines as well as neighborhoods.
Because of subprime lending, they are in danger of losing ground in their effort to reach economic self-sufficiency for themselves and in many cases for their children. Older women, who have seen the equity in their homes depleted, are in greater jeopardy of becoming dependent on family or social services. Single women, who are likely to earn less, have more dependents, and to spend a higher percentage of their income on housing, are thus less able to absorb the cost of an escalating, inflated subprime loan payment. Along with foreclosure, loss of savings, impaired credit and even bankruptcy are predictable consequences. Greater Boston service providers are already seeing an increase in family homelessness and it appears that a larger number of the newly homeless families are headed by women.
Why would a woman commit herself to the uncertainty of a subprime loan? The most obvious answers are that they want to create stable home environments, build financial equity, and enjoy the tax advantage of home ownership. Too often, as single women and especially as single parents, credit may seem hard to obtain, notwithstanding the fact that, on average, women have higher credit scores than men. Subprime lenders may even counsel them that conventional loans are unavailable to them and that subprime loans are their only recourse. In some cases, brokers who promised borrowers "the lowest possible rates" gave borrowers higher priced loans and extravagant fees. The current crisis is a result of a slowing home sale market, declining prices, and monthly mortgage payments that, in many cases, have spiked so precipitously that borrowers' income could not possibly cover them.
Blaming the victims is both unwarranted and unhelpful. It will not solve the economic or social problems caused by the tide of foreclosures that officials are struggling to forestall.
Not until 2004 did the Federal Reserve require subprime lenders to provide any specific data on their loans. Even today, they resist any effort to provide information of the risk profiles of borrowers. What we do know is that many women who qualified for conventional loans did not get them and that they and others were being fleeced.
A former loan officer testified about how she marketed subprime mortgages: "If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the [additional costs] CitiFinancial offered."
According to Attorney General Martha Coakley, weak or subprime credit has led to 25,000 foreclosure actions in Massachusetts in the past 12 months. If the trend continues, many more women will join those who have already lost their homes. These women represent all ages, all races, and all socioeconomic classes. Some are single mothers and their children range from infants to baby boomers. As a threat to women, this crisis is a threat to us all.