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Subprime Lending, Foreclosure and Race

Subprime Lending, Foreclosure and Race
2008Fair Credit/Fair Housing

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In recent years, Wall Street financiers opened up a new frontier of home mortgage lending to Americans of relatively modest means with minimal down payments and through exotic, untested financial products. Capital markets largely funded this new breed of aggressive subprime mortgage finance through “securitization”—the process of bundling assets, such as mortgage loans, into large pools and then reselling those assets as securities to investors. Financiers justified this new private “subprime” home mortgage market to leaders and to the American people with a promise of new opportunities for home ownership.

Today, the course of events has proven this promise to be, at least for the time being, empty. Millions of Americans borrowed money against their homes and now cannot afford to repay. Current estimates suggest that over six million mortgages—nearly 13% of all American residential loans—will end in foreclosure by 2012. After years of frenzied investment in risky home mortgages sold to investors outside the traditional public secondary market channels, the American financial markets are now facing financial upheaval and the prospect of structural change of a magnitude not seen since the Great Depression.