Homeowners across the southern U.S. are more likely to refinance with higher interest rate subprime loans than who live in the Pacific or New England regions, according to the Consumer Federation of America.
In fact, says the CFA in a new study called "Subprime Cities: Patterns of Geographic Disparity inSubprime Lending," many of the cities in the Gulf Coast affected by Hurricane Katrina have among the highest levels of subprime lending.
"The variation in prevalence of high- cost mortgages by geography raises concerns about whether this type of lending is priced solely on risk factors, or whether some lenders take advantage of the lack of competition in certain localities to price mortgages as high as they can" said Allen Fishbein, the CFA's Director of Credit and Housing Policy at Consumer Federation of America.
The analysis is based on data filed as part of the Federal Home Mortgage Disclosure Act (HMDA). Among the CFA's findings:
* The share of refinance lending that is subprime varies from 10.5% in the Pacific states to 27.4% in the Southwest. In 2004, these loans generally carried an APR of 8% or higher.
* Regional variation was even higher for the most expensive segments of subprime loans (loans with interest rates generally above 10%). Homeowners in the Southwest were more than four times more likely to receive these highest cost subprime loans than homeowners in the Pacific states (2.3% vs. 10.3%).
* The highest subprime MSAs are concentrated in the Southeast and Southwest regions with 80% in MSAs in the Carolinas through Mississippi, Kentucky, Louisiana, Arkansas, Texas and New Mexico.
To reach its conclusions, the CFA said it examined more than 2.5 million conventional refinance mortgages reported by over 26 lenders and their 160 affiliates in 317 Metropolitan Statistical Areas, including at least one MSA in each state.
"Just as with disparities between borrower groups, variation in pricing of mortgages by geography levels may be a function of legitimate price determinants," the CFA said. "Yet given the size of the variation between localities and regions, banking regulators and other enforcement officials should not assume that these differences can be explained solely as a function of risk-based pricing."
