Top Metro Areas Hit by Subprime Loans

by Amy Lillard

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

Chicago leads the nation in subprime loans, followed closely by Los Angeles and Riverside County metro area, according to data released last week by the Federal Financial Institutions Examination Council.

The Chicago-Naperville-Joliet metro area ranked highest in the country in total high-cost loans in 2006 for the third year in a row. Two California metro areas ranked second and third: the Los Angeles-Long Beach-Glendale area and the Riverside-San Bernardino-Ontario metro. In order, the rest of the top 10 were Phoenix, Washington D.C., Atlanta, Houston, New York, Miami, and Tampa metro areas.

In this federal mortgage lending data sample, "high-cost" loans referred to first-lien loans with interest rates at least three percentage points above the U.S. Treasury standard. The data included conventional home purchases along with home improvement and refinance loans on owner-occupied, one-to-four family properties.

The Chicago Reporter, a bimonthly print and online newsmagazine, took the data released last week and further expanded on how the high-cost/subprime loan market is affecting the country in a feature series. The distribution of high-cost loans in Chicago may shed light, they announced, on how the country is being impacted, as well as which communities are being hit hardest by the loans.

The Reporter found in the Chicago area, three out of every five loans to African Americans in 2006 were high-cost loans, and two out of every five mortgages to Latinos were high-cost loans. In 2005 data showed there was at least one trend: lower-income, primarily minority communities were more likely to have a much higher percentage of high-cost loans than wealthier communities.

Further numbers are powerful:

> In 27 of Chicago's 77 community areas and in five Chicago suburbs, more than half of all loans made in 2005 were high-cost loans.

> Many community areas and suburbs were hit especially hard, including those on the south and west sides that are poorer and primarily African-American or Latino.

> In some suburban communities, those known as wealthier enclaves, the percentage of high-cost loans was comparatively small, including Glenview (14%), Northbrook (10%) and Wilmette (8%).

> In the south side community of West Englewood, 75% of loans were high-cost loans. On the north side, in the more affluent Lincoln Park community, only 7% of all home loans were high-cost.


Research conducted by The Reporter also shows the disproportionate impact of high-cost loans on African-American and Latino communities in the area:

> Black homeowners were nearly three times as likely to get high-cost loans as their white counterparts.

> Latino homeowners were twice as likely as white homeowners to get high-cost loans.

> Even when black applicants went through prime lenders, they got high-cost loans 37 percent of the time. From prime lenders, Latinos got high-cost loans 19 percent of the time compared with just 9 percent of the time for whites.

> Data also show that African-American homeowners earning more than $100,000 a year were more than twice as likely to get high-cost loans as white homeowners earning less than $35,000 a year.

In 2005, nearly 51 percent of all loans from subprime lenders went to African-American or Latino homeowners compared with nearly 23 percent of all loans from prime-rate lenders. This fact, as well as the other data analysis, meant a swift pledge from the Illinois Attorney General to investigate possible predatory lending and/or violations of civil rights laws.