Sen. Warren: Subprime mortgage crisis targeted minority families

Could the outspoken lawmaker could be right? According to studies from HUD and The Urban Institute, she may be.

During a meeting with her Boston donors over the weekend, U.S. Sen. Elizabeth Warren (D-Mass.) heavily lambasted the federal government’s approach to the subprime mortgage crisis in 2008.

Warren told donors that Hispanic and African-American families were “targeted” during the mortgage crisis, according to Politico. Attendees told the media outlet she also criticized President Barack Obama’s Treasury Department pick Antonio Weiss and the growing race relations problem in the United States.

African-American borrowers increased from 6% in 2001 to 8% in 2005 during the housing bubble; by 2013, their share dropped to 4.8%. Hispanic borrowers followed similar pattern: increasing from 9% in 2001 to 13% in 2005, before dropping to 7.3% in 2013.

The Urban Institute reported that the current tight credit environment has constrained mortgage lending and is disproportionately affecting African-American and Hispanic households, who tend to have less savings and lower credit scores than whites. 

 African-Americans experienced a denial rate of 29% for conventional home purchase lending compared to a denial rate of 11% for whites. Meanwhile, upper-income African-Americans and Hispanics were 2.3 times and 1.8 times more likely than whites to be denied conventional mortgage loans, respectively, according to the National Community Reinvestment Coalition.

The results of the Department of Housing and Urban Development (HUD) investigation during the mortgage crisis in the Atlanta area gave some support to the notion of lower-income minority families being “targeted.”

“In general, the analysis shows that subprime lending is more prevalent in lower-income and minority neighborhoods than in higher-income and white neighborhoods,” the HUD study reported.  “This likely indicates that because of their lower incomes, lenders may consider these borrowers to be a higher credit risk, and these borrowers may therefore be less likely to qualify for prime loans.”
“However, a lack of competition from prime lenders in these markets to find creditworthy borrowers may increase the chances that borrowers are exposed to the predatory practices of a subset of subprime lenders,” the report continued. “There is also evidence suggesting that after controlling for income, predominantly black neighborhoods may be comparatively underserved by prime lenders.”

The alleged “targeting” of minority applicants who received low-interest loans in order to increase access to housing was by no mistake, according to Rather, it was a part of the 1977 Community Reinvestment Act (CRA).

“In the 1990′s under the administration of Franklin Raines, a Clinton Administration appointee, Fannie Mae began to demand that the lending institutions that it dealt with prove that they were not redlining,” according to an analysis from San Jose University economics professor Thayer Watkins. “This meant that the lending institutions would have to fulfill a quota of minority mortgage lending.”