by Elizabeth Hemmerdinger | bio

So it’s come to this: Real estate agents organizing bus tours for potential home buyers to visit foreclosed properties. The house-hunting-by-bus story is in the Boston Globe, but Massachusetts isn’t the only state where such desperate measures are underway. In fact, the Boston-area realtor got the idea from a "60 Minutes" story on foreclosure tours in California.

It’s time we took a closer look at the subprime mortgage industry, the villain that has tied the stock market to the tracks, causing world-wide markets to suffer from the vapors.

I set myself the task of reading up on the financial crisis. Some of it was over my head; I suffer, as do many, from math vapors. But I persevered, because the stories we see daily about individuals who have lost their homes, their life savings — their chance to create wealth through homeownership, the American Dream, for heaven’s sake — break my heart. How did it happen?

Unchecked and often predatory practices created opportunities for people to buy homes they were not really able to afford. Low interest rates looked awfully good, just like the come-on prices car dealers advertise. I can say that because my father was a car dealer and he was always clear about what he was doing — getting people in the door, getting folks to close "the deal."

However, fine print and little squiggly numbers tied these loans to escalating, even "exploding" rates that doomed the purchasers to obligations they could not possibly meet. Some buyers didn’t understand that the low mortgage payments weren’t going to last; they believed that they were getting a good deal. Some knew what they were getting into, but they were led by the subprime mortgage dealers to believe that the rates wouldn’t go up before they could refinance. Sheenah Hankin, known as "The Shrink of Last Resort," calls that Pathological Optimism.

Among those who didn’t understand the financial packages were buyers who could qualify for prime loans but who were never offered the option. Couple this with the fact that the wobbly mortgages were bundled with good mortgages and sold off for the transaction fee to distant banks or investment organs that couldn’t care less about preserving an individual’s or a community’s integrity, and you’ve got mortgage foreclosures taking place in dreadful numbers.

When borrowers can’t make the much higher mortgage payments, the institutions foreclose and end up holding homes that they cannot sell. The value of the homes drops, and we have the stock market, which one way and another owns a huge chunk of these subprime loans, wallowing in its present illness.

Here’s the kicker. As if all this wasn’t bad enough for all of us, I was horrified to discover that the Consumer Federation of America estimates that women are 32 percent more likely (PDF) to hold subprime loans than men and that those loans carry 10 times the foreclosure risk of lower cost loans.

I brought up this sorry statistic with a banker I know. He implied feminist paranoia at work. 

I showed him statistics and equations and graphs (gasp), which I had come to understand. This fact sheet (PDF) from the National Women’s Law Center says the plight could be larger, because "women are 30 to 40 percent more likely than men to have subprime mortgage loans, even though their credit scores are equal to (or slightly better than) men’s."

The Consumer Federation of America points out (PDF) that African American and Latino women had the highest incidences of subprime lending. This group elaborates on why it is that women, and particularly women of color, fare so badly in the mortgage market. Surprisingly, the gap with white men is even higher at higher incomes. "Upper income African American women are nearly five times more likely to receive subprime purchase mortgages than upper income white men and upper income Latino women are nearly four times more likely to receive subprime loans than upper income white men."

Until the 1970s, when federal laws struck down sex discrimination in lending and home buying, single women couldn’t get a mortgage. In 1981, The New York Times reported on the "rush of single women to own homes," due to the change in laws as well as a "change in social attitudes, the confidence that the feminist movement inspired in women … to pursue careers in many fields customarily dominated by men, and the movement of women into better-paying jobs."

The rush continues. In recent years, single women have been among the fastest growing groups of homeowners, accounting for more than 20 percent of all homebuyers in 2006.

In Baltimore, the number is much higher. Women bought 40 percent of the homes there in 2006; nearly half were purchased with subprime loans, according to the National Community Reinvestment Coalition. The number of women losing their homes is now the talk at salons. The stability of fragile communities that were strengthened by woman homeowners is now threatened.

There is something of a silver lining — for some people. Those who manage to hold onto their homes will build wealth and a secure environment for their families. Others may have an opportunity in the near future to get a chance at realizing their dreams. They have to wait for the housing market to hit bottom. But we still don’t know how bad things will get — and according to some economists and banking industry experts, it could get very bad indeed.

The government and regulators must commit to creating ways for people to finance their transactions with safe mortgages, turning dreams into real property. And with the sad history of sex discrimination documented by these reports, we must work to ensure that women are not misled by lenders and are given access to prime loans at rates equal to men.

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  • Damir Skrgatic September 25, 2008 at 10:05 am

    My question is : If you add up the debt ( as far as can be established at the end of Sep 2008!) of all financial institutions that have collapsed – how much of this ‘lost’ money is due to subprime mortgage defaults(negative equity) and how much has been paid up in manager payouts/bonuses since the potential subprime problem first appeared?

    Reply
  • patti kahn February 28, 2008 at 6:39 pm

    Exponentially scary information. Excellent article … if I hadn’t had my own mother as a financial advisor, I might have been one of the “women statistics” in your article!
    Patti Kahn

    Reply
  • Bettina Zilkha February 26, 2008 at 11:48 pm

    Finally an article that explains the crisis clearly, and gives us a more complete idea of who the victims are. Thank you, Elizabeth.

    Reply
  • Cynthia Blumenthal February 26, 2008 at 11:22 pm

    This is by far the clearest explanation of what has happened that I have heard/seen anywhere. And the photo. Jeez. You sure don’t look like no grandma.
    I am printing the posting for the kids to read. We will have a dinner round table! Thank you.

    Reply
  • Jim McNasby February 25, 2008 at 11:20 pm

    Interesting article with compelling statistics regarding the disproportionate impact on women. I wonder if there are any studies about the impact along racial/ethnic lines?

    Reply