In the Midst of Mortgage Crisis, Government Bails Out Homeowners

President Bush announced Thursday a two-year hold on mortgage interest rates to help people in danger of losing their homes.

Many of the people who would be helped by the President’s plan used subprime loans to buy homes. Subprime borrowers are typically people with poor credit who otherwise couldn’t afford a home. Those same people may now lose their homes because the rates for subprime loans fluctuate, making mortgage payments substantially increase every month.

However, the plan would only include borrowers who are not late on their current mortgage payments. These people would continue to pay the original interest rate on their loan and not be subject to increased payments when that rate expires.

The current mortgage crisis disproportionately affects minorities, particularly African-Americans. The Federal Reserve released a study in September that showed how the the crisis is affecting this group. According to the study, nearly 53 percent of blacks got a high-rate loan when they refinanced their homes. In comparison, 38 percent of Latinos and about 26 percent of whites received these loans.

The reason blacks get more subprime loans than other groups may be purely economic. Many of them are concentrated in the lower income brackets, which makes it more difficult to get a loan with a cheaper interest rate.

A 2005 study of 331  U.S. metropolitan areas found that 98.5 percent of blacks in these areas took out subprime loans.

Wright Andrews, an attorney who represents the Coalition for Fair and Affordable Lending, a group of subprime lenders, told U.S Today reporters it isn’t startling that minorities take out subprime loans.   

“It’s not at all surprising that, at least in many metropolitan areas, you would have high concentrations of African-Americans and Hispanics getting subprime loans. … African-Americans and Hispanics as a group are more economically disadvantaged.”