CRL Finds Subprime Lending Leads to Drop in Homeownership.

WASHINGTON -- As foreclosures mount in the ailing market for subprime home loans, some lenders argue that reining in subprime lending will put a damper on homeownership. As it turns out, the subprime market hasn't contributed any net gain to ownership, but in fact has been a net drain.

According to a new analysis by the Center for Responsible Lending, subprime loans made during 1998 through 2006 have led or will lead to a net loss of homeownership rather than a gain in every one of those years.

Updating our December projection of the number of subprime home loans that will foreclose from 2.2 million to 2.4 million after fourth quarter 2006 numbers, we find that many more families--almost one million--will lose their homes than will become new homeowners.

"Homeownership has been thwarted rather than supported," said Mike Calhoun, CRL president. "There's a difference between increasing access to home loans and expanding home ownership."

This point will be a key part of testimony presented by Calhoun today as he testifies before the US House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit. Calhoun also will commend federal regulators for tighter requirements they proposed in the March 8 Proposed Statement on Subprime Mortgage Lending, and offer policy recommendations for helping homeowners harmed by subprime loans now and in the future.

CRL issued its "Losing Ground" report showing that subprime mortgages are resulting in massive foreclosures, presenting the worst disaster in the mortgage market since the Great Depression. Since that time more than three dozen subprime mortgage companies have failed, investor concern is high, federal regulators are deciding next steps, and many families are facing the loss of their homes.

The lending industry opposes stronger consumer protections, claiming such protections would reduce access to mortgage credit. However, according to a new CRL Issue Paper, "Subprime Lending is a Net Drain on Homeownership," nearly one million American families wind up with "home losership" in their quest to own the roof over their heads, not knowing their loan was destined to fail.

The reasons for the net loss are simple: First, the majority of subprime loans aren't used to buy a home, but to refinance. CRL estimates that since 1998, only nine percent of subprime loans have gone to first-time homebuyers. Second, a high percentage of all subprime loans end in foreclosure. CRL estimates that 15.6 percent of all subprime loans originated since 1998 either have ended or will end in foreclosure.

Lax underwriting practices, dangerous loan products, and disregard for whether or not a borrower can afford the loan sets up many subprime customers to lose. The fallout from these high-cost and high-risk loans is even more disturbing, as homeowners often need a decade to recover from foreclosure, and even longer for minorities. The adverse effects of reckless subprime lending will hit African American and Latino families particularly hard, since a disproportionate share of subprime mortgages are made in communities of color.

In the testimony delivered this morning, Calhoun will present details on the "Losership" analysis, and he will urge policymakers to take action, including these recommendations:

* Restore safety to the subprime market by finalizing the Statement with an "ability to repay" standard for all subprime loans;

* Require the Federal Reserve Board to use its authority to strengthen protections, or otherwise address abuses through the Federal Trade Commission;

* Strengthen existing bankruptcy law to help homeowners that have already been harmed by abusive subprime loans;

* Hold all industry players accountable for their actions.

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.