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Homeowners Are Most Likely To Be Subprime in Southwest

A new analysis of 2004 Home Mortgage Disclosure Act data discovered that borrowers in the Southwest are nearly three times more likely to receive a subprime loan than a borrower on the West Coast.

The HMDA analysis by the Consumer Federation of America shows that the share of refinance lending that is subprime varies from 10.5% in the Pacific states to 27.4% in the Southwestern states.

"The variation in the 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 CFA director Allen Fishbein.

The CFA study shows that borrowers on the West Coast, in New England and the Midwest are less likely to receive subprime refinance loans than in the Southwest, Southeast and Great Plains.

The study also confirmed findings by federal banking regulators and others that African-American and Latino borrowers are more likely to receive subprime loans than whites.

More than one-third (34%) of African-Americans received subprime loans, compared to 12.1% for white borrowers, according to CFA study.

CFA used 2004 HMDA data submitted by 26 lenders for its study and it covers 2.5 million refinance loans in 317 metropolitan statistical areas.

Federal bank regulators are set to release their annual HMDA report early this week, which includes aggregated HMDA data from all lenders along with an analysis of disparities in lending among different racial and ethnic groups.

Since the 2004 HMDA reports include pricing data that identify subprime loans for the first time, the Federal Reserve Board is publishing a separate comprehensive analysis that discusses the strengths and weaknesses of the data as a screening tool for fair lending violations.

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