Texas home loan problems
Homeownership in Texas and in the United States is divided
along economic and racial lines.
Fannie Mae acknowledges that there is a local homeownership
gap between Whites, Hispanics and African-Americans. In
Dallas, the overall homeownership rate is 43.2 percent, but
only 32.2 percent for Hispanics and 36.3 percent for
African Americans. In Fort Worth, the overall homeownership
rate is 63.6 percent though that number drops to 49 percent
for Hispanics, and 44.5 percent for African Americans.
The second area of disparity lies in the heavy reliance of
minority and low- and moderate-income borrowers on subprime
loans as opposed to prime loans purchased by Fannie Mae.
Subprime lenders justify higher interest rates, claiming
they have to offset the lender’s greater risk in
lending to a “less credit-worthy”
However, there is evidence that many subprime home loan
borrowers could have met the credit criteria to obtain a
prime loan at a significantly lower interest rate. The best
evidence for this comes from the GSEs themselves.
A Fannie Mae Foundation study estimates that as many as
half of all borrowers of subprime loans could have
qualified for a lower cost mortgage. Freddie Mac
offers a somewhat different figure, claiming that as many
as 35 percent of subprime borrowers could have qualified
for a prime loan.
Yet, in practice, many borrowers who could qualify for a
prime loan end up with a subprime loan because they do not
know the difference between the two loan products, they
fail to compare the interest rates offered by different
lenders, or they are unable to find a prime loan.
According to a report by the Fannie Mae Foundation,
subprime loans generally cost the borrower a three to four
percentage point premium in the interest rate. The study
shows that the borrower who takes a 12 percent interest
rate subprime loan instead of an 8 percent prime loan on an
$85,000 home will pay an extra $85,712 in interest over the
life of the loan.