The role group membership theories play in subprime home mortgage lending - Essay Example

there is no evidence defending this position of Predatory Lending; however, it is the intent of this paper to supply an additional theory to the prevalence of subprime lending to lower income families. I postulate that the prevalence of this type of lending is, in part, due to the effects of group memberships. Numerous studies have been conducted over the past decade concerning the prevalence of subprime lending for low income families. The studies have shown that low income families have a higher rate of subprime loans when compared to their middle and upper class counterparts, and that payment history makes little difference.

According to the US Department of Housing and Urban Development (2000); Unequal Burden: Income and Racial Disparities in Subprime Lending in America, “Subprime loans are three times more likely to be found among low-income neighborhoods than in high-income neighborhoods - In low-income neighborhoods, subprime loans accounted for 26 percent of total loans in 1998 – compared with only 11 percent in moderate-income neighborhoods and just 7 percent in upper-income neighborhoods” (p. 2). In addition, Association of Community Organizations Organized for Reform Now (ACORN), released a study (1999) “Financial Apartheid” in Mortgage Interest Rates which stated that high cost mortgage financing was disproportionately more prevalent in lower income borrowers whether it was for home purchase or the refinancing of an existing home.

The previous statements are what this paper is set to examine from the perspective that group membership plays an integral role in the presence of subprime home mortgage lending to lower income families. The following pages provide a thorough description of the subprime home mortgage lending market, the refinancing practices of lenders and a description of what is known as Predatory Lending. After that I will lay out group membership theories and describe the attributes of the target group: lower income